-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nu1An8OmogA/6WUIC2IOspxoJPHUCrfdNZPHlDFrgm5sk/h7OxgXFAmGAmEN6hIh +5AQCYlVGmHaTzEK0QYiUA== /in/edgar/work/20001102/0001010549-00-000600/0001010549-00-000600.txt : 20001106 0001010549-00-000600.hdr.sgml : 20001106 ACCESSION NUMBER: 0001010549-00-000600 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001212 FILED AS OF DATE: 20001102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KARTS INTERNATIONAL INC CENTRAL INDEX KEY: 0001010077 STANDARD INDUSTRIAL CLASSIFICATION: [3944 ] IRS NUMBER: 752639196 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: SEC FILE NUMBER: 000-23041 FILM NUMBER: 751709 BUSINESS ADDRESS: STREET 1: 62204 COMMERCIAL STREET STREET 2: PO BOX 695 CITY: ROSELAND STATE: LA ZIP: 70456 BUSINESS PHONE: 5047471111 MAIL ADDRESS: STREET 1: 62204 COMMERCIAL STREET STREET 2: P O BOX 695 CITY: ROSELAND STATE: LA ZIP: 70456 PRE 14A 1 0001.txt SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant ? Filed by a Party other than the Registrant Check the appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission [ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Karts International Incorporated - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- (5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: - -------------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- (3) Filing Party: - -------------------------------------------------------------------------------- (4) Date Filed: - -------------------------------------------------------------------------------- Letterhead of Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Richard B. Goodner (214) 953-6167 rgoodner@jw.com November 2, 2000 U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Preliminary Proxy Solicitation Materials of Karts International Incorporated (the "Company") Dear Madam or Sir: On behalf of the Company, we are filing herewith preliminary proxy solicitation materials in connection with the Company's Annual Meeting of Stockholders scheduled for December 12, 2000. It is anticipated that proxy solicitation materials will be mailed to stockholders on or about November 13, 2000. At the meeting stockholders will be requested to approve (i) the election of five members to the Board of Directors; (ii) an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock from 35,000,000 to 90,000,000; and (iii) the Company's 2000 Stock Compensation Plan. Please do not hesitate to contact the undersigned at (214) 953-6167 regarding any questions or comments the Staff may have to this filing. Very truly yours, /s/ Richard B. Goodner ---------------------- Richard B. Goodner RBG:mdp Enclosures cc: Karts International Incorporated Attn: Mr. Edward Cook Preliminary Proxy Statement KARTS INTERNATIONAL INCORPORATED P.O. Box 695 Roseland, Louisiana 70456 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held on December 12, 2000 NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting") of Karts International Incorporated (the "Company") will be held at 62204 Commercial Street, Roseland, Louisiana 70456, on Tuesday, December 12, 2000, at 2:00 p.m., local time, for the following purposes: (1) To elect five members of the Board of Directors for the term of one year or until the next Annual Meeting of Stockholders. (2) To approve an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of common stock, par value $.001 per share, from 35,000,000 shares to 90,000,000 shares. (3) To approve the Karts International Incorporated 2000 Stock Compensation Plan. (4) To transact such other business as may properly come before the Meeting or any adjournments thereof. The close of business on October 31, 2000 has been fixed as the record date for determining stockholders entitled to notice of and to vote at the Meeting or any adjournments thereof. For a period of at least 10 days prior to the Meeting, a complete list of stockholders entitled to vote at the Meeting will be open to the examination of any stockholder during ordinary business hours at the offices of the Company located at 62204 Commercial Street, Roseland, Louisiana 70456. Information concerning the matters to be acted upon at the Meeting is set forth in the accompanying Proxy Statement. STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. By Order of the Board of Directors /s/ Geoffrey Craig benRichard ------------------------------ Geoffrey Craig benRichard Secretary Roseland, Louisiana November 13, 2000 KARTS INTERNATIONAL INCORPORATED P.O. Box 695 Roseland, Louisiana 70456 PROXY STATEMENT For ANNUAL MEETING OF STOCKHOLDERS To Be Held on December 12, 2000 This Proxy Statement is being first mailed on or about November 13, 2000 to stockholders of Karts International Incorporated (the "Company") by the Board of Directors (the "Board") to solicit proxies (the "Proxies") for use at the Annual Meeting of Stockholders (the "Meeting") to be held at 62204 Commercial Street, Roseland, Louisiana 70456, at 2:00 p.m., local time, on Tuesday, December 12, 2000, or at such other time and place to which the Meeting may be adjourned. All shares represented by valid Proxies, unless the stockholder otherwise specifies, will be voted (1) FOR the election of the persons named herein under "Proposal 1 - Election of Directors" as nominees for election as directors of the Company for the term described therein; (2) FOR the proposal to approve an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of common stock, par value $.001 per share (the "Common Stock"), of the Company from 35,000,000 shares to 90,000,000 shares; (3) FOR the proposal to approve the Karts International Incorporated 2000 Stock Compensation Plan; and (4) at the discretion of the Proxy holders with regard to any other matter that may properly come before the Meeting or any adjournments thereof. Where a stockholder has appropriately specified how a Proxy is to be voted, it will be voted accordingly. The Proxy may be revoked at any time by providing written notice of such revocation to the Company at 62204 Commercial Street, P.O. Box 695, Roseland, Louisiana 70456, Attention: Charles Brister. If notice of revocation is not received by the date of the Meeting, a stockholder may nevertheless revoke a Proxy if he attends the Meeting and desires to vote in person. RECORD DATE AND VOTING SECURITIES Only holders of record as of the close of business on October 31, 2000 (the "Record Date") of shares of the Company's common stock, par value $0.001 per share ("Common Stock"), Series A Preferred Stock and Series B Preferred Stock will be entitled to vote on matters presented at the Meeting. Each share of Common Stock outstanding on the Record Date is entitled to one vote on each matter to come before the Meeting. Each share of Series A Preferred Stock is convertible at any time at the option of the holder into two shares of Common Stock and each share of Series B Preferred Stock is convertible at any time at the option of the holder into two hundred shares of Common Stock. Each share of Series A Preferred Stock is entitled to vote on each matter on which the Common Stock may vote and is entitled to two (2) votes based on the number of shares of Common Stock into which the Series A Preferred Stock is convertible. Each share of Series B Preferred Stock is entitled to vote on each matter on which the Common Stock may vote and is entitled to 200 votes based on the number of shares of Common Stock into which the Series B Preferred Stock is convertible. The Common Stock, Series A Preferred Stock and Series B Preferred Stock vote as a single class on all matters expected to come before the Meeting. On the Record Date there were outstanding 7,498,392 shares of Common Stock, 4,000,000 shares of Series A Preferred Stock (which shares of Series A Preferred Stock were convertible into 8,000,000 shares of Common Stock) and 73,333 shares of Series B Preferred Stock (which shares of Series B Preferred Stock were convertible into 14,666,600 shares of Common Stock). In the aggregate, these shares constitute all of the outstanding shares entitled to vote at the Meeting. The holders of such securities have the right to cast a total of 30,164,992 votes at the Meeting. QUORUM AND VOTING The presence at the Meeting, in person or by proxy, of the holders of a majority of the shares issued and outstanding and entitled to vote will be necessary and sufficient to constitute a quorum to transact business. Each share of Common Stock, Series A Preferred Stock and Series B Preferred Stock represented at the Meeting in person or by proxy will be counted toward a quorum. In deciding all questions and other matters, a holder of Common Stock on the Record Date shall be entitled to cast one vote for each share of Common Stock registered in his or her name, a holder of Series A Preferred Stock on the Record Date shall be entitled to cast two votes for each share of Series A Preferred Stock registered in his or her name and a holder of Series B Preferred Stock on the Record Date shall be entitled to cast two hundred votes for each share of Series B Preferred Stock registered in his or her name. In order to be elected a director, a nominee must receive the affirmative vote of the holders of a majority of the shares of Common Stock, Series A and Series B Preferred Stock present in person or by proxy at the Meeting. Abstentions and broker non-votes will not be counted in the election of directors, the proposal to amend the Articles of Incorporation or the proposal to approve the 2000 Stock Compensation Plan. PROPOSAL 1 - ELECTION OF DIRECTORS The Board presently consists of five directors, all of whom have been nominated and have agreed to stand for re-election. Each director shall serve until the next Annual Meeting of Stockholders and until his successor is elected and qualified. It is expected that the nominees named below will be able to accept such nominations. If any of the below nominees for any reason is unable or is unwilling to serve at the time of the Meeting, the Proxy holders will have discretionary authority to vote the Proxy for a substitute nominee or nominees. The following sets forth information as to the nominees for election at the Meeting, including their ages, present principal occupations, other business experience during the last five years, memberships on committees of the Board and directorships in other publicly-held companies. Name Age Position ---- --- -------- Charles Brister(1) 49 President, Chief Executive Officer and Director Blair Lawrence benGerald barAbba, 40 Chairman of the Board and Director House of Smith Geoffrey Craig benRichard barAbba, 47 Vice President of Legal Affaires, House of Thayer(2) Secretary and Director Gary C. Evans(1) 44 Director Timotheus James benHarold barAbba, 37 Executive Vice President - Corporate House of Pettinger(2) Development and Director - ------------------------- (1) Members of the Company's Compensation Committee. (2) Members of the Company's Audit Committee. Charles Brister is President and Chief Executive Officer of the Company and has served in this capacity since January 1999. He has been a director of the Company since March 1996. He previously served as President and Chief Executive Officer of Brister's Thunder Karts, Inc. ("Brister's"), a wholly-owned subsidiary of the Company, from 1986 to April 1996. From 1996 until his election as President and Chief Executive Officer of the Company in January 1999, Mr. Brister managed his portfolio of personal investments. Mr. Brister also serves as a director of First Guaranty Bank, Hammond, Louisiana. Blair Lawrence benGerald has been a director of the Company since June 2000 and Chairman of the Board since July 2000. He has been engaged as an independent financial consultant and intermediary to public companies and investors for more than the past five years. He is currently a researcher and public speaker on biblical, financial and family relationship issues. Geoffrey Craig benRichard has been a director of the Company since June 2000 and currently serves as Vice President of Legal Affaires and Secretary of the Company. For more than the past five years, he has lectured as a pastor and retired lawyer in the field of comparative government, self-determination, constitutional law and ecclesiastical law, specializing in corporations sole training. He is an Almoner and Pastor of Christian Almshouse in the Olde Culdee Church, both corporations sole. -2- Gary C. Evans has been a director of the Company since July 1996. Mr. Evans has served as President, Chief Executive Officer and a director of Magnum Hunter Resources, Inc. (AMEX - MHR) ("Magnum"), an American Stock Exchange oil and gas exploration and development company, since December 1995. Mr. Evans previously served as Chairman, President and Chief Executive Officer of Hunter Resources, Inc. ("Hunter") from September 1992 until its merger with Magnum. From December 1990 to September 1992, he served as President and Chief Operating Officer of Hunter. From 1985 to 1990, he was the founder and President of Sunbelt Energy, Inc., prior to its merger with Hunter. From 1981 to 1985, Mr. Evans was associated with the Mercantile Bank of Canada where he held various positions including Vice President and Manager of the Energy Division of the southwestern United States. From 1977 to 1981, he served in various capacities with National Bank of Commerce (currently BankTexas, N.A.) including Credit Manager and Credit Officer. Timotheus James benHarold has served as a director since June 2000 and is currently Executive Vice President - Corporate Development of the Company. He brings extensive experience from the business and marketing consulting fields. He has been a business and marketing consultant in Dallas, Texas since 1989. Mr. benHarold also is a public speaker on biblical life management. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH NOMINEE FOR THE BOARD. Meetings; Committees of the Board of Directors; Recent Developments The business of the Company is managed under the direction of the Board. The Board meets on a regularly scheduled basis to review significant developments affecting the Company and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. The Board met five times during the calendar 1999 and acted by unanimous consent in lieu of meeting on one occasion during such period. The Board of Directors of the Company has established a Compensation Committee and an Audit Committee. The Compensation Committee makes recommendations to the Board of Directors regarding the compensation of executive officers and administers the Company's employee benefit plans. The Compensation Committee met on two occasions during calendar 1999. The Audit Committee is comprised of a majority of independent directors and its functions are to recommend to the Board of Directors the engagement of the Company's independent public accountants, review with such accountants the plans for and the results and scope of their auditing engagement and certain other matters relating to their services as provided to the Company. The Audit Committee met on one occasion during calendar 1999. Compensation of Directors Each outside director of the Company was entitled to receive annual compensation of $6,000 for attendance of meetings of the Board and for serving on any committees of the Board during 1999. During 2000, Mr. Gary Evans, a current director and nominee for re-election, will receive $10,000 annually for attendance of Board meetings and serving as an outside director on any committees of the Board. No other outside directors will be entitled to receive any compensation for serving on the Company's Board of Directors. The Company will reimburse directors for out-of-pocket expenses incurred for attending meetings. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the ownership of the Company's shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock as of October 31, 2000 by each of its directors, executive officers and persons known by the Company to beneficially own 5% or more of the outstanding shares of the Common Stock, Series A Preferred Stock and Series B Preferred Stock, and all executive officers and directors as a group. -3-
Shares Beneficially Percentage of Shares Name(1) Owned Beneficially Owned -------------------------------------------------------- ------------------- -------------------- Charles Brister(2)...................................... 2,539,091 26.8 Blair Lawrence benGerald barAbba(3)..................... -0- -0- Geoffrey Craig benRichard barAbba(4).................... -0- -0- Timotheus James benHarold barAbba(5).................... -0- -0- Gary C. Evans(6)........................................ 154,744 2.0 Edward Brian Zenk, Jr.(7)............................... 3,630 * Edward Cook(8).......................................... -0- -0- John Brian Willms(9).................................... -0- -0- Halter Financial Group, Inc.(10)........................ 478,260 6.3 The Schlinger Foundation(11)............................ 25,899,532 80.5 Officers and directors as a group (8 persons)(12)....... 2,697,465 28.1
- ------------------------- *Less than 1%. (1) Unless otherwise indicated, each person named in the table has sole voting and investment power with respect to the shares beneficially owned. Also, unless otherwise indicated, the address of each beneficial owner identified below is: c/o Karts International Incorporated, 62204 Commercial Street, P.O. Box 695, Roseland, Louisiana 70456. (2) Includes options to purchase 100,000 shares of Common Stock at an exercise price of $0.375 per share, exercisable until October 19, 2004, options to purchase 100,000 shares of Common Stock at an exercise price of $0.375 per share until June 1, 2005 and 1,580,000 shares of Common Stock issuable upon conversion of 395,000 shares of the Company's 9% Cumulative Convertible Preferred Stock ("9% Preferred Stock") owned by Mr. Brister. Also includes 185,084 shares which the Board of Directors has authorized to be issued to Mr. Brister in lieu of his cash compensation for 1999. As of the Record Date, such shares had not been issued. Such shares will be issued and delivered to Mr. Brister before December 31,2000. Mr. Brister is the President, Chief Executive Officer and a director of the Company. See "Executive Compensation - Summary Compensation Table" and "Certain Relationships and Related Transactions." (3) Mr. Blair Lawrence benGerald is a director of the Company and serves as Chairman of the Board. (4) Mr. Geoffrey Craig benRichard is Vice President of Legal Affaires, Secretary and a director of the Company. (5) Mr. Timotheus James benHarold is Executive Vice President - Corporate Development and a director of the Company. (6) Includes 20,001 shares of Common Stock underlying warrants and 100,000 shares of Common Stock issuable upon conversion of 25,000 shares of 9% Preferred Stock owned by Mr. Evans. Mr. Evans is a director of the Company. (7) Mr. Zenk is Senior Vice President/Sales and Marketing of the Company. (8) Mr. Cook is a Vice President and Chief Financial Officer of the Company. (9) Mr. Willms is the Chief Information Officer of the Company. (10) Includes 100,000 shares of Common Stock issuable upon conversion of 25,000 shares of 9% Preferred Stock owned by Halter Financial Group, Inc ("HFG"). Timothy P. Halter is the principal stockholder, director and president of HFG and is therefore deemed to have beneficial ownership of the shares of Common Stock held by HFG. HFG and Mr. Halter's address is 7701 Las Colinas Ridge, Suite 250, Irving, Texas 75036. (11) Includes 8,000,000 shares of Common Stock issuable upon conversion of 4,000,000 shares of Series A Preferred Stock, 14,666,600 shares of Common Stock issuable upon conversion of 73,333 shares of Series B Preferred Stock and 2,000,000 shares of Common Stock issuable upon conversion of 500,000 of 9% Preferred Stock, 592,581 shares of Common Stock owned by the Schlinger Foundation and 58,420 shares of common stock owned by Evert Schlinger who is Trustee of the Schlinger Foundation. Additionally, the Schlinger Foundation may be deemed to share voting power over 581,931 shares of Common Stock with Mr. Brister and Richard N. Jones, a former officer of the Company, pursuant to a Voting Agreement dated May 17, 2000. The Foundation owns all of the issued and outstanding shares of the Company's Series A and Series B Preferred Stock. The Schlinger Foundation's address is c/o Evert Schlinger, Trustee, 1944 Edison Street, Santa Ynez, California 93460. See "Certain Relationships and Related Transactions." (12) See preceding notes for an explanation of options, warrants and 9% Preferred Stock included in this total. Also includes 185,084 shares of Common Stock to be issued to Mr. Brister before December 31, 2000. -4-
EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth, for the years indicated, all cash compensation paid, distributed or accrued for services, including salary and bonus amounts, by the Company to its Chief Executive Officer. No other executive officer of the Company received remuneration in excess of $100,000 during the referenced periods. Certain compensation related tables required to be reported have been omitted since no applicable compensation was awarded to, earned by or paid to any of the Company's executive officers in any fiscal year to be covered by such tables. Summary Compensation Table Annual Compensation Long-Term Compensation ------------------------- Awards ------------------------- Securities Other Annual Restricted Underlying Name/Title Year Salary/Bonus Compensation Stock Awards Options/SARs - ------------------------------------------ ---- ------------ ------------ ------------ ------------ Charles Brister(1)........................ 1999 $150,000(2) $ -0- -0- 450,000 Robert M. Aubrey, former Chief Executive Officer and President(3).................. 1998 $140,625 $22,825(4) -0- 200,000 V. Lynn Graybill, former Chairman of the Board, Chief Executive Officer and and President(5).......................... 1997 $131,250 $ -0- -0- -0-
- ------------------------- (1) In January 1999, Mr. Brister was elected President and Chief Executive Officer of the Company (2) Mr. Brister agreed to accept shares of the Company's Common Stock in lieu of his annual cash compensation of $150,000 for his service during 1999. The Board of Directors of the Company has authorized the issuance of 185,084 shares of Common Stock to Mr. Brister in lieu of his cash compensation for 1999. As of the Record Date, such shares had not been issued. Such shares will be issued and delivered to Mr. Brister before December 31, 2000. (3) Effective January 13, 1999, Robert M. Aubrey resigned as Chief Executive Officer, President and as a director of the Company. See "--Employment Agreements and Related Matters." (4) Principally housing and transportation allowance. (5) Effective January 15, 1998, V. Lynn Graybill resigned as Chairman of the Board, Chief Executive Officer and President of the Company. Employment Agreements and Related Matters On October 19, 1999, the Company's Board of Directors ratified an Employment Agreement dated August 1, 1999 with Charles Brister (the "Old Employment Agreement") to serve as the Company's President and Chief Executive Officer for a period of three years beginning February 1, 1999, with an automatic one-year extension unless either the Company or Mr. Brister provides a thirty (30) day written notice not to continue the Old Employment Agreement. The Old Employment Agreement provided Mr. Brister with an annual salary of $150,000 per year, payable in either Common Stock of the Company or cash. Further, Mr. Brister was granted 450,000 options to purchase shares of the Company's Common Stock at the closing bid price of the Company's Common Stock on the date of ratification and the options vest as follows: 100,000 upon the ratification of the Old Employment Agreement by the Board of Directors (October 19, 1999), 150,000 on the second anniversary date of the Old Employment Agreement, and 200,000 on the third anniversary date of the Old Employment Agreement. Additionally, Mr. Brister was eligible to receive an annual bonus which shall be in the form of (a) options to purchase up to 50,000 shares of the Company's Common Stock, which shall vest immediately upon grant and expire five years from the grant date, and (b) cash, not to exceed 15% of Mr. Brister's base salary. See "Executive Compensation - Summary Compensation Table." -5- On June 1, 2000, the Company and Charles Brister entered into an Employment Agreement and as amended on October 23, 2000 (the "June Employment Agreement") which superceded the Old Employment Agreement. Under the June Employment Agreement, Mr. Brister will serve the Company as President and Chief Executive Officer for a period of three years beginning June 1, 2000 with an automatic one-year extension unless either the Company or Mr. Brister provides a 30-day written notice not to continue the June Employment Agreement. The June Employment Agreement provides Mr. Brister with an annual salary of $200,000 per year payable in cash in accordance with the Company's established payroll procedures which may be increased at any time at the sole discretion of the Board of Directors of the Company. Additionally, Mr. Brister was granted 350,000 options to purchase shares of the Company's Common Stock at the closing bid price of the Company's Common Stock as of August 21, 2000. The options vest and are exercisable as follows: (a) options to purchase 100,000 shares vested on August 21, 2000 at an exercise price of $0.375 per share; (b) options to purchase 100,000 shares shall vest and be exercisable upon the second anniversary date of the June Employment Agreement; and (c) options to purchase 150,000 shares shall vest and be exercisable upon the third anniversary date of the June Employment Agreement. The options expire June 1, 2005. Additionally, Mr. Brister may be eligible to receive an annual bonus which shall be in the form of (a) options to purchase up to 50,000 shares of the Company's Common Stock, which options shall vest immediately upon issuance and shall expire five (5) years from the date of grant, and (b) cash in an amount established by an annual performance-based management bonus program which will be approved by the Board of Directors. Subject to certain exceptions, if the June Employment Agreement is terminated by the Company or Mr. Brister as a result of a change in control (as defined in the June Employment Agreement), Mr. Brister shall be entitled to a cash payment of $200,000 and the immediate vesting of all options granted but not yet vested at the effective date of such change in control, as full and final satisfaction of all obligations due and owing to Mr. Brister by the Company under the terms of the June Employment Agreement. Effective January 30, 1998, the Company entered into three-year Employment Agreement (the "Aubrey Agreement") with Robert M. Aubrey, whereby Mr. Aubrey agreed to serve as President and Chief Executive Officer of the Company. The Aubrey Agreement provided Mr. Aubrey with an annual base salary of $150,000 and options to purchase 200,000 shares of Common Stock at an exercise price of $3.25 per share. Effective January 13, 1999, Robert M. Aubrey resigned as Chief Executive Officer, President and as a director of the Company. On January 20, 1999, the Company and Mr. Aubrey entered into a Settlement Agreement and Full and Final Release of All Claims (the "Aubrey Agreement") for the purpose of satisfying and discharging all obligations of the Company to Mr. Aubrey under the Aubrey Agreement. The Aubrey Agreement provided that the Company shall forgive up to $19,000 of non-reimbursable expenses incurred by Mr. Aubrey and pay to Mr. Aubrey one week of earned vacation. In consideration for the foregoing, Mr. Aubrey must adhere to the non-competition and non-solicitation covenants set forth in the Aubrey Agreement until January 13, 2001. As part of his separation from the Company, the Company issued to Mr. Aubrey options to purchase 15,000 shares of Common Stock at an option exercise price of $1.06 per share, which options were granted to replace the options to purchase 200,000 shares of Common Stock that were canceled at separation. The options are vested and expire on January 20, 2004. To provide for continuity of management, the Company may enter into employment agreements with other members of its executive management staff. -6-
Stock Options The following table reflects options granted to the Company's President and Chief Executive Officer during 1999: Option/Grants in Last Fiscal Year Number of Securities Percent of Total Options Underlying Options Granted to Employees in Exercise Price Name/Title Granted Fiscal 1999 ($/sh) Expiration Date - ---------------------------------------- -------------------- ------------------------ -------------- ---------------- Charles Brister, President and Chief 450,000(1) 55.6 $0.375 See footnote(1) Executive Officer..................... - ------------------------- (1) The options were granted to Mr. Brister pursuant to the Old Employment Agreement which was superceded on June 1, 2000 by the June Employment Agreement. Of the options to purchase 450,000 shares of Common Stock which were to expire periodically from October 19, 2004 through October 19, 2006, options to purchase 100,000 shares are vested, with the remaining 350,000 options being terminated and replaced with options to purchase 350,000 shares of Common Stock pursuant to the June Employment Agreement. See "Executive Compensation - Employment Agreements and Related Matters." Aggregate Fiscal Year-End Option Values Number of Securities Underlying Unexercised Options at Market Value of Unexercised Fiscal Year-End Options at Fiscal Year-End ------------------------------------- ------------------------------ Name/Title Exercisable Unexercisable Exercisable Unexercisable - --------------------------------------- -------------- -------------- -------------- -------------- Charles Brister, President and Chief 100,000 350,000 $37,500 $131,250 Executive Officer....................
- ------------------------- (1) The exercise price per share of all options issued by the Company was based on the closing bid price of the Company's Common Stock as quoted on either the NASD Electronic Bulletin Board or The Nasdaq SmallCap Market ("Nasdaq"), as applicable, on the date of grant of such options. 1998 Stock Compensation Plan On May 27, 1998, the stockholders of the Company approved the 1998 Stock Compensation Plan of Karts International Incorporated (the "1998 Plan") and reserved 1,000,000 shares of Common Stock for issuance under the plan. The 1998 Plan terminates on April 1, 2008 unless previously terminated by the Board. The 1998 Plan is administered by the Compensation Committee (the "Committee") or the entire Board. Eligible participants in the 1998 Plan include full time employees, directors and advisors of the Company and its subsidiaries. Options granted under the 1998 Plan are intended to qualify as "incentive stock options" pursuant to the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options which do not constitute incentive stock options ("nonqualified options") as determined by the Committee. Under the 1998 Plan the Company may also grant "Restricted Stock" awards. "Restricted Stock" represents shares of Common Stock issued to eligible participants under the 1998 Plan subject to the satisfaction by the recipient of certain conditions and enumerated in the specific Restricted Stock grant. Conditions which may be imposed include, but are not limited to, specified periods of employment, attainment of personal performance standards or the overall performance of the Company. The granting of Restricted Stock represents an additional incentive for eligible participants under the 1998 Plan to promote the development of the Company, and may be used by the Company as another means of attracting and retaining qualified individuals to serve as employees of the Company or its subsidiaries. Incentive stock options may be granted only to employees of the Company or a subsidiary who, in the judgment of the Committee, are responsible for the management or success of the Company or a subsidiary and who, at the time of the granting of the incentive stock option, are either an employee of the Company or a subsidiary. No incentive stock option may be granted under the 1998 Plan to any individual who would, immediately before the grant of such incentive stock option, directly or indirectly, own more than ten percent (10%) of the total combined voting power of all classes of stock of the Company unless (i) such incentive stock option is granted at an option price not less than one hundred ten percent (110%) of the fair market value of the shares on the date the incentive stock option is granted and (ii) such incentive stock option expires on a date not later than five years from the date the incentive stock option is granted. -7- The purchase price of the shares of the Common Stock offered under the 1998 Plan must be one hundred percent (100%) of the fair market value of the Common Stock at the time the option is granted or such higher purchase price as may be determined by the Committee at the time of grant; provided, however, if an incentive stock option is granted to an individual who would, immediately before the grant, directly or indirectly own more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the purchase price of the shares of the Common Stock covered by such incentive stock option may not be less than one hundred ten percent (110%) of the fair market value of such shares on the day the incentive stock option is granted. If the Common Stock is listed upon an established stock exchange or exchanges, the fair market value of the Common Stock shall be the highest closing price of the Common Stock on the day the option is granted or, if no sale of the Common Stock is made on an established stock exchange on such day, on the next preceding day on which there was a sale of such stock. If there is no market price for the Common Stock, then the Board and the Committee may, after taking all relevant facts into consideration, determine the fair market value of the Common Stock. Under the 1998 Plan, an individual may be granted one or more options, provided that the aggregate fair market value (determined at the time the option is granted) of the shares covered by incentive options which may be exercisable for the first time during any calendar year shall not exceed $100,000. Options are exercisable in whole or in part as provided under the terms of the grant, but in no event shall an option be exercisable after the expiration of ten years from the date of grant. Except in case of disability or death, no option shall be exercisable after an optionee ceases to be an employee of the Company, provided that the Committee has the right to extend the right to exercise for a period not longer than three months following the date of termination of an optionee's employment. If an optionee's employment is terminated by reason of disability, the Committee may extend the exercise period for a period not in excess of one year following the date of termination of the optionee's employment. If an optionee dies while in the employ of the Company and shall not have fully exercised his options, the options may be exercised in whole or in part at any time within one year after the optionee's death by the executors or administrators of the optionee's estate or by any person or persons who acquired the option directly from the optionee by bequest or inheritance. There presently are outstanding options granted under the 1998 Plan to purchase 712,000 shares of Common Stock at prices ranging from $0.3125 to $3.50 per share, which options expire periodically from August 21, 2001 to December 31, 2005. On August 21, 2000, the Board of Directors approved lowering to $0.375 per share the exercise price on all outstanding employee options that were exercisable at a price greater than $0.375 per share. The Board believed this action was in the best interest of the Company since substantially all of the outstanding employee options were granted at per share exercisable prices significantly greater than the current market price of the Company's Common Stock, which has ranged from $.25 to $.50 per share. In addition to options granted under the Company's 1998 Compensation Plan, the Company has outstanding options that were granted to employees during 1996 and 1997 to purchase 46,953 shares of Common Stock. Such options were granted at per share exercisable prices of $4.88 to $5.63 and expire periodically at various times until January 31, 2003. The exercise price of these options was reduced to $0.375 per share by the Board of Directors on August 21, 2000. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company and Charles Brister, the Chief Executive Officer and President of the Company, have entered into a Real Estate Option Right of First Refusal Agreement for the Company's Roseland manufacturing facility. Under the terms of this agreement, the Company may, at its sole option, purchase the real property and improvements for $550,000. The option expires on December 31, 2000. The Company and Mr. Brister had previously entered into a lease agreement for the Roseland manufacturing facility, including the corporate offices, which has expired. The monthly lease payment for the Roseland facility is currently $6,025 on a month-to-month basis. The Company and Mr. Brister are currently negotiating the terms for a new lease for the Roseland facility which the Company expects will provide for a modest increase in the monthly lease payment. During 1999, Charles Brister provided temporary loans to the Company to provide interim working capital. These loans were documented by promissory notes bearing interest at rates between 8% and 12% and payable at various dates. Notes totaling approximately $395,000 were converted into 395,000 shares of the Company's 9% Convertible Preferred Stock in June 1999. At September 30, 2000, promissory notes totaling approximately $150,000 were still outstanding. -8- On August 1, 2000, the Company and Charles Brister entered into a license agreement (the "License Agreement") for "Accelerator Pedal Override Apparatus for Self-Propelled Motorized Cart with Aligned Brake and Accelerated Push-Rod Type Operator Pedals" ("Pedal Override") and for "Clutch Assembly for Chain Driven Cart" (the "Clutch Lube") which are subject to certain patent rights owned by Mr. Brister. The term of the License Agreement is for a period of three (3) years. In August 2000, the Company paid Mr. Brister $40,000 for arrearage royalty fees covering the Pedal Override and Clutch Lube under a prior license agreement between the Company and Mr. Brister. Pursuant to the current License Agreement, the Company has agreed to pay Mr. Brister royalties as follows: (i) the greater of $20,000 or the sum of a royalty of $1.00 for each Company product sold by the Company or any of its affiliates or subsidiaries containing or utilizing the Pedal Override during the period beginning August 1, 2000 and ending July 31, 2001, and a royalty of $0.50 for each Company product sold by the Company or any of its affiliates or subsidiaries containing or utilizing the Clutch Lube during the period beginning August 1, 2000 and ending July 31, 2001, (ii) the greater of $20,000 or the sum of a royalty of $1.00 for each Company product sold by the Company or any of its affiliates or subsidiaries containing or utilizing the Pedal Override during the period beginning August 1, 2001 and ending July 31, 2002, and a royalty of $0.50 for each Company product sold by the Company or any of its affiliates or subsidiaries containing or utilizing the Clutch Lube during the period beginning August 1, 2001 and ending July 31, 2002, and (iii) the greater of $20,000 or the sum of a royalty of $1.00 for each Company product sold by the Company or any of its affiliates or subsidiaries containing or utilizing the Pedal Override during the period beginning August 1, 2002 and ending July 31, 2003, and a royalty of $0.50 for each Company product sold by the Company or any of its affiliates or subsidiaries containing or utilizing the Clutch Lube during the period beginning August 1, 2002 and ending July 31, 2003. The Company shall pay the accrued royalties on January 1 and July 31 of each year during the term of the License Agreement. Either party may terminate the License Agreement upon thirty (30) days written notice to the other party if the other party commits a material breach of any term of the License Agreement and fails to cure such breach within the 30-day period. Upon termination of the License Agreement for any reason, the Company shall return to Mr. Brister the technology and tangible manifestations or copies thereof relating to the Pedal Override and Clutch Lube and all licenses granted under the License Agreement will be transferred and assigned by the Company to Mr. Brister or to his designee. On October 10, 2000, the Company entered into a license agreement with Charles Brister (the "Technology Agreement") for the right to use a safety fuel tank and filler cap apparatus on its products (the "Technology") which is owned by Mr. Brister under certain patents and patent applications. In consideration of the grant of the license to the Technology, the Company agreed to pay Mr. Brister an annual license fee of $250,000. The first annual license fee payment is payable in two equal payments of $125,000 each, with the first $125,000 payment being paid to Mr. Brister in August 2000 and the second $125,000 payment due on December 31, 2000. The Technology Agreement is for a period of three (3) years and shall be automatically renewed annually thereafter unless either of the parties provides at least sixty (60) days notice of non-renewal prior to the termination date of the Technology Agreement. The Technology Agreement is subject to termination for non-payment of the license fee and royalties and for certain other reasons. In addition to the annual license fee of $250,000, the Company shall pay Mr. Brister a royalty of $1.00 for each Company product which utilizes the Technology. However, in no event shall royalties for a calendar year for use of the Technology on the Company's products be less than $500,000 for the first full year of the Technology Agreement ending on December 31, 2001; less than $500,000 for the license year ending December 31, 2002 and less than $1,000,000 for the license year ending December 31, 2003 and thereafter. In the event that royalties for a license year do not equal the required minimum, Charles Brister may, at his option, convert the exclusive license granted to the Company to a non-exclusive license without the right of the Company to sub-license, by thirty (30) days notice in writing to the Company, unless such default is cured by the Company within the 30-day notice period. Subject to the terms of the Technology Agreement, the Company shall have the right to grant sub-licenses to others for fees or at royalty rates to be determined by the Company. As sub-license income, the Company has agreed to pay to Mr. Brister 50% of all license fees, royalties, advance royalties, minimum royalties or other payments accrued or received in respect to the granting or maintaining of sub-licenses, provided, however, in no instance shall the amount paid to Mr. Brister be less than $1.00 for each product which utilizes the Technology. Additionally, the Company has agreed during the term of the Technology Agreement to maintain product liability insurance naming Mr. Brister as an additional insured to provide protection against claims and causes of action arising out of any defects or failure to perform of the Technology. The amount of coverage shall be a minimum of $2,000,000 combined single limit, with a deductible amount not to exceed $100,000 for each single occurrence for bodily injury and/or property damage. -9- On June 3, 1999, the Company consummated a $1.5 million convertible loan transaction with The Schlinger Foundation (the "Foundation"). The Foundation also purchased 500,000 shares of 9% Preferred Stock at a price of $1.00 per share in the Company's private offering consummated on June 30, 1999. For his assistance to the Company in arranging this financing with the Foundation and others, the Company paid Blair L. benGerald, a director of the Company, $205,000. Mr. Blair L. benGerald was not an officer or director of the Company when he received this payment. On May 17, 2000, the Company and The Foundation entered into an Amended and Restated Loan Agreement which provided for the additional loan of $1,000,000 to the Company at an interest rate equal to 3% plus the prime rate as quoted in The Wall Street Journal. Interest is payable on the $2.5 million Amended and Restated Term Note ("Term Note") monthly as it accrues commencing on June 30, 2000 and continuing on the last day of each successive month thereafter during the term of the Term Note with the principal of the Term Note being payable in one installment of unpaid principal and accrued unpaid interest on May 17, 2005. The Term Note is secured with guaranty agreements by each of the Company's wholly-owned subsidiaries, Straight Line Manufacturing, Inc., USA Industries, Inc., KINT, L.L.C. and Brister's Thunder Karts, Inc. Additionally, the Company and each of its subsidiaries have pledged substantially all of their assets as additional collateral for the Term Note. Additionally, on May 17, 2000, the Company sold 4,000,000 shares of its Series A Preferred Stock to the Foundation for $3,000,000 cash or $0.75 per share. The holders of the Series A Preferred Stock have the right to elect a majority of the members of the Company's Board of Directors. Pursuant to this right, three of the Company's five directors, and current nominees for re-election as directors, Blair L. benGerald, Geoffrey C. benRichard and Timotheus J. benHarold, have been nominated by the Foundation and Board of Directors to serve as directors of the Company. On October 9, 2000, the Company sold 73,333 shares of its Series B Preferred Stock to the Foundation for $5,500,000 or $75.00 per share. Each share of Series B Preferred Stock is convertible at the option of the holder into 200 shares of Common Stock of the Company. Each outstanding share of Series B Preferred Stock has the right to 200 votes at any meeting of the stockholders of the Company. The Foundation currently owns 500,000 shares of the Company's 9% Preferred Stock, 4,000,000 shares of Series A Preferred Stock, 73,333 shares of Series B Preferred Stock and 592,581 shares of the Company's Common Stock. As a result of the purchase of the Series A Preferred Stock by the Foundation, as previously reported, there was a change of control of the Company. Pursuant to the terms of the sale of the Series A Preferred Stock, Blair L. benGerald, Geoffrey C. benRichard and Timotheus J. benHarold were elected as directors of the Company. The Foundation has the right to a total 23,259,181 votes at any meeting of the stockholders of the Company, which constitutes approximately 77% of the total votes entitled to vote with respect to any matters on which the holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock shall have the right to vote. The Company and the Foundation have entered into a Registration Rights Agreement dated May 17, 2000, and as amended on October 9, 2000 which granted certain registration rights to the Foundation for the shares of Common Stock of the Company to be issued to the Foundation upon conversion of the Series A and Series B Preferred Stock. The Foundation, Charles Brister, President and Chief Executive Officer of the Company and Richard N. Jones, a former officer of the Company, entered into a Voting Agreement dated May 17, 2000 which grants to the Foundation the right to vote an aggregate of 581,931 shares of Common Stock owned by Messrs. Brister and Jones until the earlier of May 1, 2015 or such date that the Foundation does not own any capital stock of the Company. In connection with the sale of the Series A Preferred Stock to the Foundation and the restructuring of the Term Note, Blair L. benGerald, a current director and nominee for election as director of the Company, and an Almoner with the Office of the Presiding Priest of Faith Works Mission, and His Successors, a Corporation Sole registered as a church at Nevada, acted as an intermediary. An honorarium characterized as a tithe and alms bestowal in the amount of $340,000 was delivered in May 2000 to Mr. Blair L. benGerald by the Company for his services and in his capacity as a Presiding Priest of the Faith Works Mission. Additionally, in connection with the Company's sale of the Series B Preferred Stock to the Foundation, Mr. Blair L. benGerald also acted as an intermediary and received in October 2000 $500,000 from the Company for his services and in his capacity as Office of the Presiding Almoner of First Fruits Mission, and His Successors, a Corporation Sole. -10- The Company believes that all the foregoing related-party transactions were on terms no less favorable to the Company than could reasonably be obtained from unaffiliated third parties. All future transactions with affiliates will be approved by a majority of disinterested directors of the Company and on terms no less favorable to the Company than those that are generally available from unaffiliated third parties. PROPOSAL 2 -- INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK Description of the Proposal On October 19, 2000, the Board approved, subject to the consideration and approval of the stockholders of the Company, a proposed amendment to the Company's Articles of Incorporation to increase the authorized capital stock of the Company by increasing the number of shares of Common Stock available for issuance from 35,000,000 shares to 90,000,000 shares. The number of shares of Preferred Stock available for issuance shall remain at 10,000,000 shares. Rationale for the Proposal The principal reason for recommending approval of this proposal is to accommodate the potential conversion of the 9% Preferred Stock, Series A Preferred Stock and Series B Preferred Stock into shares of Common Stock and to provide additional shares of Common Stock for the Company's proposed 2000 Stock Compensation Plan. Presently, the outstanding total number of authorized but unissued shares is inadequate to satisfy the possible conversion of all of the outstanding Preferred Stock and to provide additional shares of Common Stock for the proposed 2000 Stock Compensation Plan. Upon conversion of all outstanding shares of Preferred Stock, the Company will be required to issue 32,666,600 shares of Common Stock. Additionally, the Company has reserved for issuance 1,000,000 shares of Common Stock under the 1998 Plan and will initially reserve 750,000 shares under the 2000 Stock Compensation Plan if it is approved by the Company's stockholders. The proposal to increase the Company's authorized Common Stock is thus intended to ensure that the Company has sufficient Common Stock to meet the foregoing obligations and to provide additional authorized shares that could be issued in connection with the exercise of stock options, possible future stock splits, stock dividends and mergers and acquisitions and to raise additional capital, which could include public offerings or private placements of Common Stock or securities convertible into Common Stock. While the Board believes it to be important that the Company have the flexibility that would be provided by having available additional authorized Common Stock, the Company does not now have any commitments, arrangements or understandings which would require the issuance of such additional shares of Common Stock other than the shares reserved for issuance pursuant to outstanding options and warrants and conversion of the outstanding shares of Preferred Stock. The availability of additional authorized shares of Common Stock would simply permit the Board to respond in a timely manner to future opportunities and business needs of the Company as they may arise and would avoid the possible necessity and expense of a special meeting of stockholders to increase the authorized Common Stock. If this proposal is not approved by the stockholders, the Company will be in default of the terms and conditions of the Preferred Stock and it will not have enough shares of Common Stock to issue upon the conversion of all of the Preferred Stock. -11- Effects of the Adoption of the Proposal If the authorized shares of Common Stock are increased as proposed, the authorized shares of Common Stock would be available for issuance from time to time upon such terms and for such purposes as the Board may deem advisable without further action by the stockholders of the Company except as may be required by law or the rules of any stock exchange on which the Common Stock may be listed. Such an issuance may decrease or increase the book value per share of Common Stock presently issued and outstanding, depending upon whether the consideration paid for such newly issued shares is less or more than the book value per share prior to such issuance. The issuance of additional shares could dilute the voting power and equity of the holders of outstanding Common Stock and may have the effect of discouraging attempts by a person or group to take control of the Company. Recommendation of the Board of Directors Adoption of the proposal to increase the number of authorized shares of Common Stock requires the affirmative vote of the holders of the majority of the shares of the Common Stock, Series A Preferred Stock and Series B Preferred Stock outstanding on the Record Date. If approved by the stockholders, such increase in the number of authorized shares will become effective on the filing with the Secretary of State of Nevada of the Certificate of Amendment of Articles of Incorporation in the form of Exhibit "A" attached hereto. The parties to the Voting Agreement have agreed to vote their respective shares of Common Stock for this proposal. THE BOARD RECOMMENDS A VOTE FOR THE INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK TO 90,000,000 SHARES. PROPOSAL 3 -- APPROVAL OF THE KARTS INTERNATIONAL INCORPORATED 2000 STOCK COMPENSATION PLAN The Board proposes that the stockholders of the Company approve the Karts International Incorporated 2000 Stock Compensation Plan (the "2000 Plan"). The 2000 Plan was adopted by the Board on October 19, 2000. The 2000 Plan terminates on October 19, 2010 unless previously terminated by the Board. The 2000 Plan is being implemented to encourage ownership of Common Stock by certain officers, directors, employees and advisors of the Company or its subsidiaries. The 2000 Plan also provides additional incentive for eligible persons to promote the success of the business of the Company or its subsidiaries, and to encourage them to remain in the employ of the Company or its subsidiaries by providing such persons an opportunity to benefit from any appreciation of the Common Stock through the issuance of stock options, related stock appreciation rights and reload options in accordance with the terms of the 2000 Plan. Eligible participants in the 2000 Plan include full time employees, directors and advisors of the Company and its subsidiaries. Options granted under the 2000 Plan are intended to qualify as "incentive stock options" pursuant to the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options which do not constitute incentive stock options ("nonqualified options") as determined by the Company's Compensation Committee (the "Committee") or the Board of Directors. The Board is of the opinion that it would be in the best interest of the Company to reserve for issuance under the 2000 Plan not less than 750,000 shares of Common Stock to provide adequate shares of Common Stock for issuance to qualified individuals under the 2000 Plan, and to encourage such individuals to remain in the service of the Company in order to promote its business and growth strategy. The maximum aggregate number of shares of Company Common Stock which may be issued under the 2000 Plan shall initially be 750,000 shares which amount may, at the discretion of the Board of Directors, be increased from time to time to a number of shares of Company Common Stock equal to 10% of the total outstanding shares of Company Common Stock, provided that the aggregate number of shares of Company Common Stock which may be issued under the 2000 Plan shall not exceed 9,000,000. The Company may also utilize the granting of options under the 2000 Plan to attract qualified individuals to become employees and non-employee directors of the Company, as well as to ensure the retention of management of any acquired business operations. Under the 2000 Plan the Company may also grant restricted stock awards. Restricted stock represents shares of Common Stock issued to eligible participants under the 2000 Plan subject to the satisfaction by the recipient of certain conditions and enumerated in the specific restricted stock grant. Conditions which may be imposed include, but are not limited to, specified periods of employment, attainment of personal performance standards or the overall performance of the Company. The granting of restricted stock represents an additional incentive for eligible participants under the 2000 Plan to promote the development of the Company, and may be used by the Company as another means of attracting and retaining qualified individuals to serve as employees and directors of the Company or its subsidiaries. -12- Summary of 2000 Plan The following is a summary of certain of the provisions of the 2000 Plan. The full text of the 2000 Plan is set forth as Exhibit B to this Proxy Statement. Administration The 2000 Plan will be administered by the Committee or the entire Board. Under the terms of the 2000 Plan, the Committee shall consist of not less than two members of the Board who are appointed by the Board. The Board has the power from time to time to add or substitute members of the Committee and to fill vacancies, however caused. The Committee or the Board, as applicable, has the authority to interpret the 2000 Plan, to determine the persons to whom, and the basis upon which, options will be granted, the exercise price, duration, and other terms of the options to be granted, subject to the authority of the entire Board and specific provisions contained in the 2000 Plan. Eligibility Nonqualified Options. Nonqualified options may be granted only to officers, directors (including non-employee directors of the Company or a subsidiary), employees and advisors of the Company or a subsidiary who, in the judgment of the Committee, are responsible for the management or success of the Company or a subsidiary and who, at the time of the granting of the nonqualified options, are either officers, directors, employees or advisors of the Company or a subsidiary. Incentive Options. Incentive stock options may be granted only to employees of the Company or a subsidiary who, in the judgment of the Committee or the Board, are responsible for the management or success of the Company or a subsidiary and who, at the time of the granting of the incentive stock option, are either an employee of the Company or a subsidiary. No incentive stock option may be granted under the 2000 Plan to any individual who would, immediately before the grant of such incentive stock option, directly or indirectly, own more than ten percent (10%) of the total combined voting power of all classes of stock of the Company unless (i) such incentive stock option is granted at an option price not less than one hundred ten percent (110%) of the fair market value of the shares on the date the incentive stock option is granted and (ii) such incentive stock option expires on a date not later than five years from the date the incentive stock option is granted. Option Price The purchase price of the shares of the Common Stock offered under the 2000 Plan must be one hundred percent (100%) of the fair market value of the Common Stock at the time the option is granted or such higher purchase price as may be determined by the Committee or the Board at the time of grant; provided, however, if an incentive stock option is granted to an individual who would, immediately before the grant, directly or indirectly own more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the purchase price of the shares of the Common Stock covered by such incentive stock option may not be less than one hundred ten percent (110%) of the fair market value of such shares on the day the incentive stock option is granted. As the price of the Common Stock is currently quoted on the NASD Electronic Bulletin Board, the fair market value of the Common Stock underlying options granted under the 2000 Plan shall be the last closing sales price of the Common Stock on the day the options are granted. If there is no market price for the Common Stock, then the Board and the Committee may, after taking all relevant facts into consideration, determine the fair market value of the Common Stock. -13- Exercise of Options Options are exercisable in whole or in part as provided under the terms of the grant, but in no event shall an option be exercisable after the expiration of ten years from the date of grant. Except in case of disability or death, no option shall be exercisable after an optionee ceases to be an employee of the Company, provided that the Committee shall have the right to extend the right to exercise for a specified period, generally three months, following the date of termination of an optionee's employment. If an optionee's employment is terminated by reason of disability, the Committee or the Board may extend the exercise period for a specified period, generally one year, following the date of termination of the optionee's employment. If an optionee dies while in the employ of the Company and shall not have fully exercised his options, the options may be exercised in whole or in part at any time within one year after the optionee's death by the executors or administrators of the optionee's estate or by any person or persons who acquired the option directly from the optionee by bequest or inheritance. No option is exercisable either in whole or in part after the expiration of ten years from the date of grant. In the event of the dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, the Committee or the Board is authorized to accelerate the exercisibility of all outstanding options under the 2000 Plan. Under the 2000 Plan, an individual may be granted one or more options, provided that the aggregate fair market value (determined at the time the option is granted) of the shares covered by incentive options which may be exercisable for the first time during any calendar year shall not exceed $100,000. Acceleration and Exercise upon Change of Control Any option granted under the 2000 Plan which provides for either (a) an incremental vesting period whereby such option may only be exercised in installments as each such incremental vesting period is satisfied or (b) a delayed vesting period whereby such option may only be exercised after the lapse of a specified period of time, such vesting period shall be accelerated upon the occurrence of a "Change in Control" of the Company (as that term is defined in the 2000 Plan) so that such option shall become exercisable immediately in part or in its entirety by the optionee, as such optionee shall elect subject to the condition that no option shall be exercisable after the expiration of ten years from the date it is granted. Alternate Stock Appreciation Rights ("SARs") Concurrently with or subsequent to the award of any option under the 2000 Plan, the Committee may award to the optionee with respect to each share of Common Stock covered by an option (the "Related Option") a related alternate stock appreciation right ("SAR") permitting the optionee to be paid the appreciation on the Related Option in lieu of exercising the Related Option. A SAR granted with respect to an incentive stock option must be granted together with the Related Option. A SAR granted with respect to a nonqualified option may be granted together with or subsequent to the grant of such Related Option. Each SAR shall be on such terms and conditions not inconsistent with the 2000 Plan and shall be evidenced by written agreement executed by the Company and the optionee receiving the Related Option. A SAR may be exercised only if and to the extent that its Related Option is eligible to be exercised on the date of exercise of the SAR. To the extent that a holder of a SAR has a current right to exercise, the SAR may be exercised by written notice to the Company. The amount of payment to which an optionee shall be entitled upon the exercise of each SAR shall be equal to one hundred percent (100%) of the amount, if any, by which the fair market value of a share of Common Stock on the exercise date exceeds the fair market of a share of Common Stock on the date the Related Option to such SAR was granted or became effective, as the case may be; provided, however, the Company may, in its sole discretion, withhold from cash payment any amount necessary to satisfy the Company's obligations for withholding taxes with respect to such payment. The amount payable by the Company to an optionee upon exercise of an SAR may be paid in shares of Common Stock, cash or a combination thereof. The number of shares of Common Stock to be paid to an optionee upon such optionee's exercise of a SAR shall be determined by dividing the amount of payment by the fair market value of a share of Common Stock on the exercise date of such SAR. All such shares shall be issued with any and all applicable restrictive legends. -14- Except as otherwise provided in case of disability or death, no SAR shall be exercisable after an optionee ceases to be an employee, director or adviser of the Company or a subsidiary. The Committee or the Board shall have in its sole discretion the right to extend the exercise period following the date such optionee ceases to be an employee, director or adviser of the Company or a subsidiary thereof. The Committee or the Board may not extend the period during which an optionee may exercise a SAR for a period greater than the period during which an optionee may exercise the Related Option. If an optionee's position as an employee, director or adviser of the Company is terminated due to the disability or death of such optionee, the Committee shall have the right in its sole discretion, to extend the exercise period applicable to the SAR for a period not to exceed the period in which the optionee may exercise the Related Option. Upon the exercise or termination of any Related Option, the SAR with respect to such Related Option shall terminate to the extent of the number of shares of Common Stock as to which the Related Option was exercised or terminated. Reload Options Concurrently with the award of nonqualified or incentive stock options, the Committee may authorize reload options ("Reload Options") to purchase for cash or shares that number of shares of Common Stock equal to the sum of the number of shares of Common Stock used to exercise the underlying option plus, to the extent authorized by the Committee, the number of shares of Common Stock used to satisfy any tax withholding requirement incident to the exercise of the option award. The grant of a Reload Option will become effective on the exercise of the underlying nonqualified, incentive or Reload Option through the use of shares of Common Stock held by the optionee for at least 12 months. Reload Options are not intended to qualify as an incentive stock option under Section 422 of the Code. The issuance of Reload Options is evidenced by their reference in the option agreement attendant to the option grant. Upon the exercise of a nonqualified or incentive stock option, the Reload Option will be evidenced by an amendment to the underlying option agreement. The option price per share of Common Stock deliverable upon the exercise of a Reload Option is the fair market value of a share of Common Stock on the date the grant of the Reload Option becomes effective. Each Reload Option is fully exercisable six months from the effective date of grant. The term of each Reload Option is equal to the remaining option term of the underlying nonqualified or incentive stock option. No additional Reload Options shall be granted to optionees when nonqualified, incentive and/or Reload Options are exercised following termination of the optionee's employment. Payment for Option Shares Options may be exercised by the delivery of written notice to the Company at its principal office setting forth the number of shares with respect to which the option is to be exercised, together with cash or certified check payable to the order of the Company for an amount equal to the option price of such shares. No shares of Common Stock subject to options granted under the 2000 Plan may be issued upon exercise of such options until full payment has been made of any amount due. A certificate or certificates representing the number of shares purchased will be delivered by the Company as soon as practicable after payment is received. Termination of the 2000 Plan The 2000 Plan will terminate on October 19, 2010, unless sooner terminated by the Board. Any option outstanding under the 2000 Plan at the time of termination shall remain in effect until the option shall have been exercised or shall have expired. Amendment of the 2000 Plan The Board may at any time modify or amend the 2000 Plan without obtaining the approval of the stockholders of the Company in such respects as it shall deem advisable to comply with Section 422 of the Code or in any other respect which shall not change the maximum number of shares for which options may be granted under the 2000 Plan, the method for determining the exercise price for those options which are granted, other than to change the manner of determining the fair market value, the periods during which options may be granted or exercised, provisions relating to the determination of employees to whom options shall be granted, or provisions relating to adjustments to be made upon changes in capitalization. -15- Transferability of Options Except as may be agreed upon by the Committee, options granted under the 2000 Plan shall be exercisable only by the optionee during his lifetime and shall not be assignable or transferable other than and by will or the laws of descent and distribution. Restricted Stock Awards The Committee may grant restricted stock to eligible participants under the 2000 Plan. The Committee shall determine the number of shares of restricted stock to be granted as well as when the shares may be sold or transferred by the recipient. The Committee shall also have the right to impose such other restrictions on any shares of restricted stock granted as it may deem advisable, with all certificates representing restricted stock bearing a legend noting that the shares are subject to restrictions imposed under the 2000 Plan. The restricted stock will be freely transferable, subject to applicable federal and state securities laws, upon the expiration of the period of restriction imposed by the Committee. During the restricted period, holders of restricted stock may exercise full voting rights, and are entitled to receive all dividends and other distributions paid with respect to the granted shares held by the grantee. If a dividend or distribution is paid in shares of Common Stock, the shares representing such dividend will be subject to the same restrictions on transferability as the shares of restricted stock. The Committee shall have the right to provide for the automatic termination of the restrictions imposed upon the restricted stock if the grantee terminates his employment because of retirement. Furthermore, if a grantee terminates his employment because of death or total and permanent disability during the restricted period, the Committee may provide for the automatic termination of the restrictions imposed upon that number of shares of restricted stock equal to the total number of shares of restricted stock granted multiplied by the number of full months which had elapsed since the date of grant divided by the maximum number of full months of the period of restriction. However, the Committee may, in its sole discretion, waive any restrictions remaining on restricted stock upon the grantee's death or total and permanent disability. In the event that grantees terminate their employment for any reason other than retirement, death or total and permanent disability, then any shares of restricted stock still subject to the restrictions at the date of such termination will automatically be forfeited and returned to the Company. No shares of restricted stock granted under the 2000 Plan may be sold, transferred, pledged or assigned, otherwise than by will or by the laws of descent and distribution until the termination of the period of restriction imposed by the Committee. The affirmative vote of the holders of a majority of the shares of Common Stock, Series A and Series B Preferred Stock present in person or by proxy at the Meeting is necessary to approve the 2000 Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE COMPANY'S PROPOSAL TO APPROVE THE KARTS INTERNATIONAL INCORPORATED 2000 STOCK COMPENSATION PLAN STOCKHOLDER PROPOSALS If a stockholder wishes to have a proposal considered for inclusion in the Company's proxy materials for the next annual meeting of stockholders, the proposal must comply with the proxy rules promulgated by the United States Securities and Exchange Commission, be stated in writing and be submitted on or before July 13, 2001. Any proposals should be mailed to the Company at P.O. Box 695, Roseland, Louisiana 70456, Attention: Charles Brister. -16- OTHER MATTERS The Board is not aware of any other matters to be brought before the Meeting. If any other matters, however, are properly brought before the Meeting, the persons named in the enclosed Proxy will have discretionary authority to vote all Proxies with respect to such matters in accordance with their best judgment. MISCELLANEOUS All costs incurred in the solicitation of Proxies will be borne by the Company. In addition to solicitation by mail, the officers and employees of the Company may solicit Proxies by telephone, electronic mail or personally, without additional compensation. The Company may also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of shares of Common Stock held of record by such persons, and the Company may reimburse such brokerage houses and other custodians, nominees and fiduciaries for their out-of-pocket expenses incurred in connection therewith. The Company has not engaged a proxy solicitor. Upon the written request of any holder of the Company's Common Stock entitled to vote at the Annual Meeting of Stockholders, the Company will furnish, without charge, a copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, including financial statements thereto, as filed with the Securities and Exchange Commission. Requests should be directed to Karts International Incorporated, P.O. Box 695, Roseland, Louisiana 70456, (504) 747-2700; Attention: Charles Brister. By Order of the Board of Directors /s/ Charles Brister ------------------------------------- Charles Brister President and Chief Executive Officer -17- EX-3 2 0002.txt AMENDMENT TO ARTICLES OF INCORPORATION EXHIBIT "A" CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION KARTS INTERNATIONAL INCORPORATED ("the Corporation"), a corporation organized and existing under and by virtue of the Nevada General Corporation Law, DOES HEREBY CERTIFY: FIRST: The name of the Corporation is Karts International Incorporated. SECOND: The Board of Directors of the Corporation adopted a resolution to amend the Articles of Incorporation as amended. Article FOURTH of the Articles of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows: "FOURTH. The Corporation shall have authority to issue two classes of shares to be designated, respectively, "Common Stock" and "Preferred Stock." The aggregate number of shares of capital stock that the Corporation will have authority to issue is One Hundred Million (100,000,000) shares, Ninety Million (90,000,000) of which will be shares of Common Stock, having a par value of $.001 per share, and Ten Million (10,000,000) of which will be shares of Preferred Stock, having a par value of $.001 per share. Preferred Stock may be issued in one or more series as may be determined from time to time by the Board of Directors. All shares of any one series of Preferred Stock will be identical except as to the date of issue and the dates from which dividends on shares of the series issued on different dates will cumulate, if cumulative. Authority is hereby expressly granted to the Board of Directors to authorize the issuance of one or more series of Preferred Stock, and to specify by resolution or resolutions providing for the issue of each such series, the voting powers, designations, preferences, and relative, participating, optional, redemption, conversion, exchange or other special rights, qualifications, limitations or restrictions of such series, and the number of shares in each series, to the full extent now or hereafter permitted by law." THIRD: This certificate of Amendment of Articles of Incorporation shall be effective as of __________________, 2000. FOURTH: The Corporation's outstanding shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock are the only classes of voting securities of the Corporation. The number of shares of the Corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation consists of 4,000,0000 shares of Series A Preferred Stock which have voting rights equivalent to 8,000,000 votes, 73,333 shares of Series B Preferred Stock which have voting rights equivalent to 14,666,600 votes and 7,498,392 shares of Common Stock which are entitled to one vote for each share of Common Stock. The holders of the Series A Preferred Stock, Series B Preferred Stock and shares of Common Stock had the right to cast a total of 30,164,992 votes at the Annual Meeting of Stockholders held on December 12, 2000. A total of __________ votes were cast for the amendment, __________ votes were against the amendment and __________ votes abstained. The change and amendment were consented to and approved by a majority vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon. KARTS INTERNATIONAL INCORPORATED ------------------------------------ Charles Brister, President ------------------------------------ Geoffrey Craig benRichard, Secretary EXHIBIT "A" - Page1 State of ________________. County of _______________. On _______________________, personally appeared before me, a Notary Public, Charles Brister and Geoffrey Craig benRichard, who acknowledged that they executed the above instrument in their capacity as President and Secretary, respectively, of Karts International Incorporated. ------------------------- Notary Public EXHIBIT "A" - Page 2 EXHIBIT "B" 2000 STOCK COMPENSATION PLAN of KARTS INTERNATIONAL INCORPORATED 1. Purpose of the Plan. This 2000 Stock Compensation Plan is intended to encourage ownership of the common stock of KARTS INTERNATIONAL INCORPORATED, a Nevada corporation, by certain officers, directors, employees and advisors of the Company, including, without limitation, any division of the Company, or any Subsidiary or Subsidiaries of the Company, in order to provide additional incentive for such persons to promote the success and the business of the Company or its Subsidiaries and to encourage them to remain in the employ of the Company or its divisions or its Subsidiaries by providing such persons an opportunity to benefit from any appreciation of the common stock of the Company through the issuance of stock options and related stock appreciation rights to such persons in accordance with the terms of the Plan. It is further intended that options granted pursuant to this Plan shall constitute either incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or options which do not constitute Incentive Options, as determined by the Committee at the time of issuance of such options. 2. Definitions. As used herein, each of the following terms shall have the meaning given to it below: (a) "Advisor" means any non-entity human being or corporation sole in any form of a contractual relationship with the Company as a non-statutory steward, corporation sole, or otherwise, which term is defined in contrast and contradistinction to the term "Person", "Affiliate", "Director", "Parent" and "Subsidiary", defined herein. (b) "Affiliate" means, with respect to any Person, any Parent or Subsidiary of such Person, whether such Parent or Subsidiary is now or hereafter existing. (c) "Applicable Laws" means all applicable federal, state, local or foreign laws, regulations and legal requirements, including without limitation the legal requirements relating to the administration of stock option plans and equity incentive plans (and the issuance of shares of capital stock thereunder) under United States state corporate laws, United States federal and state securities laws, and the Code. (d) "Award" means an award of Incentive Options, Nonqualified Options, Reload Options or Stock Appreciation Rights, under the Plan, whether singly, in combination or in tandem. (e) "Award Agreement" means the agreement (including an Option Agreement) between the Company and the Holder setting forth the terms and conditions of an Award under the Plan. (f) "Board" means the Board of Directors of the Company. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means (a) the Compensation Committee of the Board of Directors (or in the event that there is not a Compensation Committee, then the Board of Directors) with respect to Awards granted to all employees and consultants of the Company (other than Non-Employee Directors of the Company) and (b) the entire Board of Directors (regardless of whether there is a Compensation Committee) with respect to Awards granted to Non-Employee Directors of the Company. (i) "Common Stock" means the common stock, par value $0.001 per share, of the Company. (j) "Company" means Karts International Incorporated, a Nevada corporation. (k) "Director" means a member of the Board of Directors of the Company. (l) "Disability" shall have the meaning given it or any similar term in the employment agreement of the Holder with the Company or an Affiliate; provided, however, that if that Holder has no such employment agreement or if the employment agreement applicable to the Holder does not specify the meaning of such term, "Disability" shall mean the inability of the Holder to fulfill such Holder's obligations to the Company or an Affiliate by reason of any physical or mental impairment which can be expected to result in death or which has endured or can be expected to endure for a continuous period of not less than 12 months as determined by a physician acceptable to the Committee in its sole discretion. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Holder" means a Person who has received an Award under the Plan. (o) "Incentive Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (p) "Non-Employee Director" means a "Non-Employee Director" within the meaning of Rule 16b-3. (q) "Nonqualified Option" means an Option that is not intended to qualify as an Incentive Option. (r) "Option" means any option to purchase shares of Common Stock which is granted pursuant to the Plan and includes Incentive Options, Nonqualified Options and Reload Options. (s) "Option Agreement" means the written option agreement in the form approved by the Committee for use under the Plan between the Company and Holder evidencing the grant of an Option. (t) "Optionee" means the Person who receives an Option under the Plan. (u) "Parent" means a "parent corporation," whether now or hereafter existing, which is a corporation (other than the employer corporation) in an unbroken chain of corporations ending with the employee corporation if, at the time of the granting of the option, each of the corporations other than the employer corporation owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (v) "Person" means any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, or any other entity. (w) "Plan" means this 2000 Stock Compensation Plan of the Company. (x) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor rule thereto. (y) " Reload Option" means any option granted under Section 12 as a result of the payment of the exercise price of an Option and/or the withholding tax related thereto in the form of Common Stock owned by the Holder or the withholding of Common Stock by the Company. (z) "SAR" means the award of stock appreciation rights granted under Section 1 hereof. (aa) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, which is a corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Stock Subject to the Plan. Subject to adjustment as provided in Section 15 hereof, there will be reserved for the use upon the exercise of Options to be granted from time to time under the Plan not less than 750,000 shares of the common stock, $.001 par value per share (the "Common Stock"), of the Company, which shares in whole or in part shall be authorized, but unissued, shares of the Common Stock or issued shares of Common Stock which shall have been reacquired by the Company as determined from time to time by the Board of Directors of the Company (the "Board of Directors"). The maximum aggregate number of shares of Common Stock which may be optioned, sold, granted, or otherwise issued under the Plan shall initially be 750,000 which amount may, at the discretion of the Board, be increased from time to time to a number such that the number of shares of Common Stock available for issuance pursuant to Options to be granted pursuant to this Plan equals 10% of the total number of shares of Common Stock of the Company and shares of any other class of Common Stock of the Company outstanding from time to time; provided, however, subject to adjustment under Section 15 of the Plan, the number of shares of Common Stock which may be optioned, sold, granted or otherwise issued under the Plan shall never be less than 750,000. Notwithstanding the foregoing, subject to adjustment under Section 15 of the Plan, no more than 9,000,000 shares of Common Stock will be available for the granting of Incentive Stock Options under the Plan. Subject to adjustment pursuant to the provisions of Section 15, the maximum aggregate number of shares of Common Stock with respect to which Options may be granted during the term of the Plan shall not exceed 9,000,000 shares. The maximum aggregate number of shares of Common Stock with respect to which Options during the term may be granted to any Optionee during the term of the Plan shall not exceed ten percent (10%) of the shares eligible for issuance under the Plan. To determine the number of shares of Common Stock available at any time for the granting of Options under the Plan, there shall be deducted from the total number of reserved shares of Common Stock, the number of shares of Common Stock in respect of which Options have been granted pursuant to the Plan which remain outstanding or which have been exercised. If and to the extent that any Option to purchase reserved shares shall not be exercised by an Optionee for any reason or if such Option to purchase shall terminate as provided herein, such shares which have not been so purchased hereunder shall again become available for the purposes of the Plan unless the Plan shall have been terminated, but such unpurchased shares shall not be deemed to increase the aggregate number of shares specified above to be reserved for purposes of the Plan (subject to adjustment as provided in Section 15 hereof). The grant of SARs shall not affect the number of shares available for grant of Awards under the Plan. 4. Administration of the Plan. (a) General. The Plan shall be administered by the Board of Directors or a Committee appointed by the Board. During any period of time in which the Company is subject to the reporting requirements of the Exchange Act, the Committee shall be comprised solely of not less than two members, each of whom shall be (i) a Non-Employee Director, and (ii) unless otherwise determined by the Board, an "outside director" within the meaning of Treasury Regulation Section 1.162-27(e)(3)), except that if at any time there shall be less than two (2) Directors who are qualified to serve on the Committee, then the Plan shall be administered by the full Board. All references in this Plan to the Committee shall be deemed to refer instead to the full Board at any time there is not a Committee consisting of at least two (2) members of the Board qualified to act hereunder. The Board may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. If the Board does not designate a Chairman of the Committee, the Committee shall select one of its members as its Chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. A majority of its members shall constitute a quorum. Any action of the Committee shall be taken by a majority vote of its members at a meeting at which a quorum is present. Notwithstanding the preceding, any action of the Committee may be taken without a meeting by a written consent signed by all of the members, and any action so taken shall be deemed fully as effective as if it had been taken by a vote of the members present in person at the meeting duly called and held. The Committee may appoint a Secretary, shall keep minutes of its meetings, and shall make such rules and regulations for the conduct of its business as it shall deem advisable. (b) Plan Interpretation and Administration. The Committee shall have the sole authority and power, subject to the express provisions and limitations of the Plan, to construe the Plan and the Awards granted hereunder, and to adopt, prescribe, amend, and rescind rules and regulations relating to the Plan, and to make all determinations necessary or advisable for administering the Plan, including, but not limited to, (i) the designated Person or Persons who shall be granted Awards under the Plan, (ii) the term of each Option, (iii) the number of shares covered by such Option, (iv) whether such Option shall constitute an Incentive Option or a Nonqualified Option or a Reload Option, (v) the exercise price for the purchase of the shares of Common Stock covered by such Option, (vi) the period during which the Option may be exercised, (vii) whether the right to purchase the number of shares covered by the Option shall be fully vested on issuance of the Option so that such shares may be purchased in full at one time or whether the right to purchase such shares shall become vested over a period of time so that such shares may only be purchased in installments, (viii) the time or times at which Options shall be granted, (ix) amend the terms of any Option previously granted in such a manner that the amended Option contains such terms and conditions as the Committee could have determined and set forth in the Option at the time it was originally granted, (x) determine and grant alternate stock appreciation rights, including, without limitation, the recipients and the related terms and conditions thereof consistent with the applicable provisions of the Plan, (xi) prescribe the form of Award Agreements embodying Awards granted under the Plan, (xii) grant waivers of Plan terms, conditions, restrictions and limitations to the extent permitted under the Plan, (xiii) accelerate the exercise, vesting or payment of an Award when such action or actions would be in the best interests of the Company, and (xiv) determine the fair market value of a share of Common Stock as of the date of grant of an Option. The Committee's determinations under the Plan, including the above enumerated determinations, need not be uniform and may be made by it selectively among the persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. The interpretation by the Committee of any provision of the Plan or of any Option Agreement entered into pursuant to the Plan with respect to any Incentive Option shall be in accordance with Section 422 of the Code and the regulations issued thereunder, and as such section or regulations may be amended from time to time, in order that the rights granted hereunder and pursuant to such Option Agreements shall constitute "incentive stock options" within the meaning of such section. The interpretation and construction by the Committee of any provision of the Plan or of any Award granted hereunder shall be final and conclusive, unless otherwise determined by the Board. The decisions of the Board and its actions with respect to the Plan shall be final, conclusive and binding on all Persons having or claiming to have any right or interest in or under the Plan, including Optionees and their respective estates, beneficiaries and legal representatives. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted pursuant to the Plan. Upon issuing an Award under the Plan, the Committee shall report to the Board the name of the person granted such Award, and if such Award is an Option, whether such Option is an Incentive Option or a Nonqualified Option, the number of shares of Common Stock covered by the Option, and the terms and conditions of such Option. (c) Changes in Applicable Law. If the laws relating to Incentive Options or Nonqualified Options are changed, altered or amended during the term of the Plan, the Board shall have full authority and power to alter or amend the Plan with respect to Incentive Options or Nonqualified Options, respectively, to conform to such changes in Applicable Law without the necessity of obtaining further shareholder approval thereof, unless the changes require such approval. 5. Types of Awards Under the Plan. Subject to the applicable provisions of the Plan, awards under the Plan may be in the form of Incentive Options, Nonqualified Options, alternate stock appreciation rights (as described in Section 11 hereof), Reload Options (as described in Section 12 hereof), or a combination thereof. Awards under a particular Section of the Plan need not be uniform, and Awards under two or more Sections of the Plan may be combined into a single Award Agreement. 6. Persons to Whom Options Shall be Granted. (a) Nonqualified Options. Nonqualified Options shall be granted only to officers, directors (including Non-Employee Directors) of the Company or a Subsidiary, employees and advisors of the Company or a Subsidiary who, in the judgment of the Committee, are responsible for or contribute to the management or success of the Company or a Subsidiary and who, at the time of the granting of the Nonqualified Options, are either officers, directors, employees or advisors of the Company or a Subsidiary. (b) Incentive Options. Incentive Options shall be granted only to employees of the Company or a Subsidiary who, in the judgment of the Committee, are responsible for or contribute to the management or success of the Company or a Subsidiary and who, at the time of the granting of the Incentive Option are either an employee of the Company or a Subsidiary. Except as set forth in Section 9(g) hereof, no individual shall be granted an Incentive Option who, immediately before such Incentive Option was granted, would own more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Company (a "10% Shareholder"). 7. Factors to Be Considered in Granting Awards. In making any determination as to persons to whom Awards shall be granted and the number of shares to be covered by Options, the Committee shall take into account the duties and responsibilities of the respective officers, directors, employees, or advisors, their current and potential contributions to the success of the Company or a Subsidiary, and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. 8. Time of Granting Awards. Neither any provision contained in the Plan nor any resolution adopted or to be adopted by the Board or the Shareholders of the Company or a Subsidiary nor any action taken by the Committee shall constitute the granting of any Award. The granting of an Award shall be effected only when a written Award Agreement acceptable in form and substance to the Committee, subject to the terms and conditions hereof, including if the Award consists of an Option, those set forth in Section 9 hereof, shall have been duly executed and delivered by or on behalf of the Company and the person to whom such Option shall be granted. No person shall have any rights under the Plan until such time, if any, as a written Award Agreement shall have been duly executed and delivered as set forth in this Section 8. 9. Terms and Conditions of Options. All Options granted pursuant to this Plan must be granted within ten (10) years from the date the Plan is adopted by the Board. Each Option Agreement governing an Option granted hereunder shall be subject to at least the following terms and conditions, and shall contain such other terms and conditions, not inconsistent therewith, that the Committee shall deem appropriate: (a) Number of Shares. Each Option shall state the number of shares of Common Stock which it represents. (b) Type of Option. Each Option shall state whether it is intended to be an Incentive Option or a Nonqualified Option. (c) Option Period. (1) General. Each Option shall state the date upon which it is granted. Each Option shall be exercisable in whole or in part during such period as is provided under the terms of the Option, subject to any vesting period set forth in the Option, but in no event shall an Option be exercisable either in whole or in part after the expiration of ten (10) years from the date of grant thereof; provided, however, if an Incentive Option is granted to a 10% Shareholder, such Incentive Option shall not be exercisable more than five (5) years from the date of grant thereof. (2) Termination of Employment. Except as otherwise provided in case of Disability, death or Change of Control (as hereinafter defined), no Option shall be exercisable after an Optionee who is an employee of the Company or a Subsidiary ceases to be employed by the Company or a Subsidiary; provided, however, that the Committee shall have the right in its sole discretion, but not the obligation, to extend the exercise period of any Incentive Option for not more than three (3) months following the date of termination of such Optionee's employment and to extend the term of any Nonqualified Option for a period determined by the Committee provided such period may not exceed the original exercise period set forth in the Option Agreement; provided further, however, that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted, and provided further, that no Incentive Option granted to a 10% Shareholder shall be exercisable after the expiration of five (5) years from the date it is granted. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate and the shares of Common Stock covered by such Option shall revert to the Plan. (3) Cessation of Service as Director or Advisor. Except as otherwise provided in case of Disability, death or Change of Control, no Option shall be exercisable after an Optionee who was a director or advisor of the Company or a Subsidiary ceases to be a director or advisor of the Company or a Subsidiary; provided, however, that the Committee shall have the right in its sole discretion, but not the obligation, to extend the exercise period of any such Option for a period determined by the Committee provided such period may not exceed the original exercise period set forth in the Option Agreement; provided further, however, that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate and the shares of Common Stock covered by such Option shall revert to the Plan. (4) Disability. If an Optionee's employment is terminated by reason of the permanent and total Disability of such Optionee or if an Optionee who is a director or advisor of the Company or a Subsidiary ceases to serve as a director or advisor by reason of the permanent and total Disability of such Optionee, the Committee shall have the right in its sole discretion, but not the obligation, to extend the exercise period of any Option then held by such Optionee for not more than one (1) year following the date of termination of the Optionee's employment or the date such Optionee ceases to be a director or advisor of the Company or a Subsidiary, as the case may be, subject to the condition that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted and subject to the further condition that no Incentive Option granted to a 10% Shareholder shall be exercisable after the expiration of five (5) years from the date it is granted. To the extent that the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee does not exercise the Option to the extent so entitled within the time specified herein, the Option shall terminate and the shares of Common Stock covered by such Option shall revert to the Plan. (5) Death. If an Optionee dies while in the employ of the Company or a Subsidiary, or while serving as a director or advisor of the Company or such Subsidiary, and shall not have fully exercised Options granted pursuant to the Plan, such Options may be exercised in whole or in part at any time within one (1) year after the Optionee's death, by the executors or administrators of the Optionee's estate or by any person or persons who shall have acquired the Options directly from the Optionee by bequest or inheritance (the "Option Beneficiary"), but only to the extent that the Optionee was entitled to exercise such Option at the date of such Optionee's death, subject to the condition that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted and subject to the further condition that no Incentive Option granted to a 10% Shareholder shall be exercisable after the expiration of five (5) years from the date it is granted. To the extent that, at the time of death, the Optionee was not entitled to exercise the Option, or if the Option Beneficiary does not exercise the Option within the time specified herein, the Option shall terminate and the shares of Common Stock covered by such Option shall revert to the Plan. (6) Acceleration and Exercise Upon Change of Control. Notwithstanding the preceding provisions of this Section 9(c), if any Option granted under the Plan provides for either (a) an incremental vesting period whereby such Option may only be exercised in installments as such incremental vesting period is satisfied or (b) a delayed vesting period whereby such Option may only be exercised after the lapse of a specified period of time, such as after the expiration of one (1) year, such vesting period shall be accelerated upon the occurrence of a Change of Control of the Company, or a threatened Change of Control of the Company as determined by the Committee, so that such Option shall thereupon become exercisable immediately in part or its entirety by the holder thereof, as such holder shall elect. For the purposes of this Plan, a "Change of Control" shall be deemed to have occurred if: (i) Any "person", including a "group" as determined in accordance with Section 13(d)(3) of the Exchange Act and the Rules and Regulations promulgated thereunder, is or becomes, through one or a series of related transactions or through one or more intermediaries, the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, other than a person who is such a beneficial owner on the Effective Date of the Plan and any affiliate of such person; (ii) As a result of, or in connection with, any tender offer or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were Directors of the Company before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; (iii) Following the Effective Date of the Plan, the Company is merged or consolidated with another corporation and as a result of such merger or consolidation less than 40% of the outstanding voting securities of the surviving or resulting corporation shall then be owned in the aggregate by the former shareholders of the Company, other than (x) any party to such merger or consolidation, or (y) any affiliates of any such party; (iv) A tender offer or exchange offer is made and consummated for the ownership of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding voting securities; or (v) The Company transfers more than 50% of its assets, or the last of a series of transfers results in the transfer of more than 50% of the assets of the Company, to another corporation that is not a wholly-owned corporation of the Company. For purposes of this subsection 9(c)(6)(v), the determination of what constitutes more than 50% of the assets of the Company shall be determined based on the sum of the values attributed to (i) the Company's real property as determined by an independent appraisal thereof, and (ii) the net book value of all other assets of the Company, each determined as of the date of the Transaction involved. In addition, upon a Change of Control, any Options previously granted under the Plan, to the extent not already exercised, may be exercised in whole or in part, either immediately or at any time during the term of the Option, as such holder shall elect. Anything to the contrary in the foregoing notwithstanding, a Change in Control shall not mean or be deemed to have occurred for any reason whatsoever regarding any circumstances when any change in the actual or beneficial ownership of any type of stock of the Company held by the Schlinger Foundation is transferred by the Schlinger Foundation to another person or persons, trusts, corporations or entities, which are by contract either affiliated with, in voting trust with, or effectively controlled by the Schlinger Foundation. (d) Option Prices. The purchase price or prices of the shares of the Common Stock which shall be offered to any person under the Plan and covered by an Option shall be one hundred percent (100%) of the fair market value of the Common Stock at the time of granting such Option or such greater purchase price as may be determined by the Committee at the time of granting such Option; provided, however, if an Incentive Option is granted to a 10% Shareholder, the purchase price of the shares of the Common Stock covered by such Incentive Option may not be less than one hundred ten percent (110%) of the fair market value of the shares on the date such Incentive Option is granted. During such time as the Common Stock is not listed upon an established stock exchange, the fair market value per share shall be deemed to be the closing sales price of the Common Stock on the NASDAQ National Market ("NASDAQ") on the date the Option is granted, as reported by NASDAQ, if the Common Stock is so quoted, and if not so quoted, the mean between dealer "bid" and "ask" prices of the Common Stock in the New York over-the-counter market on the date the Option is granted, as reported by the National Association of Securities Dealers, Inc. If the Common Stock is listed upon an established stock exchange or exchanges, such fair market value shall be deemed to be the highest closing price of the Common Stock on such stock exchange or exchanges on the date the Option is granted or, if no sale of the Common Stock of the Company shall have been made on an established stock exchange on such day, on the next preceding day on which there was a sale of such stock. If there is no market price for the Common Stock, then the Board and the Committee may, after taking all relevant facts into consideration, determine the fair market value of the Common Stock. (e) Exercise of Options. To the extent that a holder of an Option has a current right to exercise, the Option may be exercised from time to time by written notice to the Company at its principal place of business. Such notice shall state the election to exercise the Option, the number of whole shares in respect of which it is being exercised, shall be signed by the Person or Persons so exercising the Option, and shall contain any investment representation required by Section 9(i) hereof. Such notice shall be accompanied by payment of the full purchase price of such shares and by the Option Agreement evidencing the Option. In addition, if the Option shall be exercised, pursuant to either Section 9(c)(4) or Section 9(c)(5) hereof, by any person or persons other than the Optionee, such notice shall also be accompanied by appropriate proof of the right and authority of such person or persons to exercise the Option. The Company shall deliver a certificate or certificates representing such shares as soon as practicable after the aforesaid notice and payment of such shares shall be received. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the Person or Persons so exercising the Option. In the event the Option shall not be exercised in full, the Secretary of the Company shall endorse or cause to be endorsed on the Option the number of shares which has been exercised thereunder and the number of shares that remain exercisable under the Option and return such Option Agreement to the holder thereof. (f) Nontransferability of Options. An Option granted pursuant to the Plan shall be exercisable only by the Optionee or the Optionee's court appointed guardian as set forth in Section 9(c)(4) hereof during the Optionee's lifetime and shall not be assignable or transferable by the Optionee otherwise than by Will or the laws of descent and distribution. An Option granted pursuant to the Plan shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise other than by Will or the laws of descent and distribution) and shall not be subject to execution, attachment, or similar process. Any attempted transfer, assignment, pledge, hypothecation, or other disposition of an Award or of any rights granted thereunder contrary to the foregoing provisions of this Section 9(f), or the levy of any attachment or similar process upon an Award or such rights, shall be null and void. (g) Limitations on 10% Shareholders. No Incentive Option may be granted under the Plan to any 10% Shareholder unless (i) such Incentive Option is granted at an option price not less than one hundred ten percent (110%) of the fair market value of the shares on the date such Incentive Option is granted and (ii) such Incentive Option expires on a date not later than five (5) years from the date the Incentive Option is granted. (h) Limits on Vesting of Incentive Options. An individual may be granted one or more Incentive Options, provided that the aggregate fair market value (as determined at the time such Incentive Option is granted) of the Common Stock with respect to which Incentive Options are exercisable for the first time by such individual during any calendar year shall not exceed $100,000. To the extent the $100,000 limitation in the preceding sentence is exceeded, such Option shall be treated as an Option which is not an Incentive Option. (i) Compliance with Securities Laws. The Plan and the grant and exercise of the rights to purchase of Common Stock hereunder, and the Company's obligations to sell and deliver shares of Common Stock upon the exercise of rights to purchase shares, shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may, in the opinion of counsel for the Company, be required, and shall also be subject to all applicable rules and regulations of any stock exchange upon which the Common Stock of the Company may then be listed. At the time of exercise of any Option, the Company may require the Optionee to execute any documents or take any action which may be then necessary to comply with the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder, or any other applicable federal or state laws regulating the sale and issuance of securities, and the Company may, if it deems it necessary, include provisions in the Option Agreements to assure such compliance. The Company may, from time to time, change its requirements with respect to enforcing compliance with federal and state securities laws, including the request for and enforcement of letters of investment intent, such requirements to be determined by the Company, acting in the judgment of and through the Committee, as necessary from time to time during the term of the Plan to assure compliance with said laws. Such changes may be made with respect to any particular Option or Common Stock issued upon exercise thereof. Without limiting the generality of the foregoing, if the Common Stock issuable upon exercise of an Option granted under the Plan is not registered under the Securities Act, the Company at the time of exercise will require that the registered owner execute and deliver an investment representation agreement to the Company in form acceptable to the Company and its counsel, and the Company will place a legend on the certificate evidencing such Common Stock restricting the transfer thereof, which legend shall be substantially as follows: "THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR TRANSFER." (j) Additional Provisions. The Option Agreements authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, including, without limitation, restrictions upon the exercise of the Option. Any such Option Agreement with respect to an Incentive Option shall contain such limitations and restrictions upon the exercise of the Incentive Option as shall be necessary in order that the Option will be an "incentive stock option" as defined in Section 422 of the Code. 10. Medium and Time of Payment. The purchase price of the shares of the Common Stock as to which an Option shall be exercised shall be paid in full either (i) in cash at the time of exercise of the Option, (ii) by tendering to the Company previously acquired nonforfeitable, unrestricted shares of Common Stock having an aggregate fair market value (as of the date of receipt of such shares by the Company) equal to the purchase price for the number of shares of Common Stock purchased, or (iii) partly in cash and partly in shares of Common Stock valued at fair market value as of the date of receipt of such shares by the Company. Cash payment for the shares of the Common Stock purchased upon exercise of any Option shall be in the form of either a cashier's check, certified check or money order. Personal checks may be submitted, but will not be considered as payment for the shares of Common Stock purchased and no certificate evidencing such shares will be issued until the personal check clears payment through normal banking channels. If a personal check is not paid upon presentment by the Company, then the attempted exercise of the Option will be deemed null and void. In the event the Optionee tenders shares of Common Stock in full or partial payment for the shares being purchased pursuant to exercise of an Option, the shares of Common Stock so tendered shall be accompanied by fully executed stock power(s) endorsed in favor of the Company with the signature on such stock power(s) being guaranteed. If an Optionee tenders shares, such Optionee shall thereupon assume sole and full responsibility for the tax consequences, if any, to such Optionee arising therefrom, including the possible application of Code Section 424(c), or its successor Code section, which negates nonrecognition of income with respect to such transferred shares, if such transferred shares have not been held for the minimum statutory holding period to qualify for preferential tax treatment. 11. Alternate Stock Appreciation Rights. (a) Award of Alternate Stock Rights. Concurrently with or subsequent to the award of any Option to purchase one or more shares of Common Stock, the Committee may in its sole discretion, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to the Optionee with respect to each share of Common Stock covered by an Option (the "Related Option"), a related alternate SAR, permitting such Optionee to be paid the appreciation on the Related Option in lieu of exercising the Related Option. A SAR granted with respect to an Incentive Option must be granted together with the Related Option. A SAR granted with respect to a Nonqualified Option may be granted together with or subsequent to the grant of such Related Option. (b) Alternate Stock Rights Agreement. Each SAR shall be on such terms and conditions not inconsistent with this Plan as the Committee may determine and shall be evidenced by a written agreement executed by the Company and the Optionee receiving the Related Option. (c) Exercise. An SAR may be exercised only if and to the extent that its Related Option is eligible to be exercised on the date of exercise of the SAR. To the extent that a holder of a SAR has a current right to exercise, the SAR may be exercised from time to time by written notice to the Company at its principal place of business. Such notice shall state the election to exercise the SAR, the number of shares in respect of which it is being exercised, shall be signed by the person so exercising the SAR and shall be accompanied by the agreement evidencing the SAR and the Related Option. In the event the SAR shall not be exercised in full, the Secretary of the Company shall endorse or cause to be endorsed on the SAR and the Related Option the number of shares which have been exercised thereunder and the number of shares that remain exercisable under the SAR and the Related Option, respectively, and return such SAR and Related Option to the holder thereof. (d) Amount of Payment. The amount of payment to which an Optionee shall be entitled to receive upon the exercise of each SAR shall be equal to 100% of the amount, if any, by which the fair market value of a share of Common Stock on the exercise date exceeds the fair market value of a share of Common Stock on the date the Option related to said SAR was granted or became effective, as the case may be; provided, however, the Company may, in its sole discretion, withhold from such cash payment any amount necessary to satisfy the Company's obligation for withholding taxes with respect to such payment. For this purpose, the fair market value of a share of Common Stock shall be determined in the manner set forth in Section 9(d) hereof. (e) Form of Payment. The amount payable by the Company to an Optionee upon exercise of a SAR may be paid in shares of Common Stock, cash or a combination thereof. The number of shares of Common Stock to be paid to an Optionee upon such Optionee's exercise of a SAR shall be determined by dividing the amount of payment determined pursuant to Section 11(d) hereof by the fair market value of a share of Common Stock on the exercise date of such SAR. For purposes of this Plan, the exercise date of a SAR shall be the date the Company receives written notification from the Optionee of the exercise of the SAR in accordance with the provisions of Section 11(c) hereof. As soon as practicable after exercise, the Company shall either deliver to the Optionee the amount of cash due such Optionee or a certificate or certificates for such shares of Common Stock. All such shares shall be issued subject to the applicable rights and restrictions specified herein. (f) Termination of SAR. Except as otherwise provided in case of Disability or death, no SAR shall be exercisable after an Optionee ceases to be an employee, director or advisor of the Company or a Subsidiary; provided, however, that the Committee shall have the right in its sole discretion, but not the obligation, to extend the exercise period for not more than three (3) months following the date such Optionee ceases to be an employee, director or advisor of the Company or a Subsidiary; provided further, that the Committee may not extend the period during which an Optionee may exercise a SAR for a period greater than the period during which an Optionee may exercise the Option related to said SAR. If an Optionee's position as an employee, director or advisor of the Company is terminated due to the Disability or death of such Optionee, the Committee shall have the right, in its sole discretion, but not the obligation, to extend the exercise period applicable to the SAR for a period not to exceed the period in which the Optionee may exercise the Option related to said SAR, as set forth in Sections 9(c)(4) and 9(c)(5) hereof, respectively. (g) Effect of Exercise of SAR. The exercise of any SAR shall cancel and terminate the right to purchase an equal number of shares covered by the Related Option. (h) Effect of Exercise of Related Option. Upon the exercise or termination of any Related Option, the SAR with respect to such Related Option shall terminate to the extent of the number of shares of Common Stock as to which the Related Option was exercised or terminated. (i) Nontransferability of SAR. A SAR granted pursuant to this Plan shall be exercisable only by the Optionee or the Optionee's court appointed guardian as set forth in Section 9(c)(4) hereof during the Optionee's lifetime and, subject to the provisions of Section 11(f) hereof, shall not be assignable or transferable by the Optionee. A SAR granted pursuant to the Plan shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment, or similar process. Any attempted transfer, assignment, pledge, hypothecation, or other disposition of any SAR or of any rights granted thereunder contrary to the foregoing provisions of this Section 11(i), or the levy of any attachment or similar process upon a SAR or such rights, shall be null and void. (j) No Interest in Company Assets. To the extent any Person acquires a right to receive payments from the Company under the Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company, and such Person shall not have any rights in or against any specific assets of the Company. 12. Reload Options. (a) Authorization of Reload Options. Concurrently with the award of any Nonqualified Option and/or the award of any Incentive Option to any participant in the Plan, the Committee may authorize a Reload Option to purchase for cash or shares that number of shares of Common Stock equal to the sum of: (1) The number of shares of Common Stock used to exercise the underlying Nonqualified Option or Incentive Option; and (2) To the extent authorized by the Committee, the number of shares of Common Stock used to satisfy any tax withholding requirement incident to the exercise of the underlying Nonqualified Option or Incentive Option. The grant of a Reload Option will become effective upon the exercise of the underlying Nonqualified Option, Incentive Option or Reload Option through the use of shares of Common Stock held by the Optionee for at least 12 months. Notwithstanding the fact that the underlying option may be an Incentive Option, a Reload Option is not intended to qualify as an "incentive stock option" under Section 422 of the Code. (b) Reload Option Amendment. Each Option Agreement shall state whether the Committee has authorized Reload Options with respect to the underlying Nonqualified Option and/or Incentive Option. Upon the exercise of an underlying Nonqualified Option or Incentive Option, the Reload Option will be evidenced by an amendment to the underlying Option Agreement. (c) Reload Option Price. The option price per share of Common Stock deliverable upon the exercise of a Reload Option shall be the fair market value of a share of Common Stock on the date the grant of the Reload Option becomes effective, determined in the manner set forth in Section 9(d) hereof. (d) Term and Exercise. Each Reload Option shall be fully exercisable six months from the effective date of grant. The term of each Reload Option shall be equal to the remaining term of the underlying Nonqualified Option and/or Incentive Option. (e) Termination of Employment. No additional Reload Options shall be granted to Optionees when Nonqualified Options, Incentive Options and/or Reload Options are exercised pursuant to the terms of this Plan following termination of the Optionee's employment. (f) Applicability of Other Sections. To the extent not inconsistent with the foregoing provisions of this Section, the other Sections of this Plan pertaining to Options, including Sections 6, 7, 8, 9 and 10, are incorporated herein by this reference thereto as though fully set forth herein. 13. Rights as a Shareholder. The holder of an Option or a SAR shall have no rights as a shareholder with respect to the shares covered by the Option or SAR until the due exercise of the Option, Related Option, or SAR and the date of issuance of one or more stock certificates to such holder for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 15 hereof. 14. Optionee's Agreement to Serve. Each employee receiving an Option shall, as one of the terms of the Option Agreement, agree that such employee will remain in the employ of the Company or a Subsidiary for a period of at least one (1) year from the date on which the Option shall be granted to such employee; and that such employee will, during such employment, devote such employee's entire time, energy, and skill to the service of the Company or a Subsidiary as may be required by the management thereof, subject to vacations, sick leaves, and military absences. Such employment, subject to the provisions of any written contract between the Company or a Subsidiary and such employee, shall be at the pleasure of the Board of Directors of the Company or a Subsidiary, and at such compensation as the Company or a Subsidiary shall reasonably determine. Any termination of such employee's employment during the period which the employee has agreed pursuant to the foregoing provisions of this Section 14 to remain in employment that is either for cause or voluntary on the part of the employee shall be deemed a violation by the employee of such employee's agreement. In the event of such violation, any Option or Options held by such employee, to the extent not theretofore exercised, shall forthwith terminate, unless otherwise determined by the Committee. Notwithstanding the preceding, neither the action of the Company in establishing the Plan nor any action taken by the Company, a Subsidiary or the Committee under the provisions hereof shall be construed as granting the Optionee the right to be retained in the employ of the Company or a Subsidiary, or to limit or restrict the right of the Company or a Subsidiary, as applicable, to terminate the employment of any employee of the Company or a Subsidiary, with or without cause. 15. Adjustments on Changes in Capitalization. (a) Changes in Capitalization. Subject to any required action by the Shareholders of the Company, the number of shares of Common Stock covered by the Plan, the number of shares of Common Stock covered by each outstanding Option, the exercise price per share thereof specified in each such Option, and the rights and privileges attendant to any outstanding SARs shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company after the date such Option or such SAR is granted, so that upon exercise of such Option or related SAR, if any, the Optionee shall receive the same number of shares or same SARs, as applicable, the Optionee would have received had the Optionee been the holder of all shares subject to such Optionee's outstanding Options immediately before the effective date of such change in the number of issued shares of the Common Stock. (b) Reorganization, Dissolution or Liquidation. Subject to any required action by the Shareholders of the Company, if the Company shall be the surviving corporation in any merger or consolidation, each outstanding Option and SAR, if any, shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to such Option or related SARs would have been entitled. A dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, shall cause each outstanding Option and each outstanding SAR to terminate as of a date to be fixed by the Committee (which date shall be as of or prior to the effective date of any such dissolution or liquidation or merger or consolidation); provided, that not less than thirty (30) days written notice of the date so fixed as such termination date shall be given to each Optionee, and each Optionee shall, in such event, have the right, during the such period of thirty (30) days preceding such termination date, to exercise such Optionee's Options and SARs, as applicable, in whole or in part in the manner herein set forth. In the event of any recapitalization, reorganization, extraordinary dividend or distribution or restructuring transaction (including any distribution of shares of stock of any Subsidiary or other property to holders of shares of Common Stock) affecting the Common Stock, the number of shares issuable under this Plan shall be subject to such adjustment as the Committee may deem appropriate, and the number of shares issuable pursuant to any Option or rights related to any SARs theretofore granted (whether or not then exercisable) and/or the exercise price per share of such Option and/or the rights related to such SARs, as applicable, shall be subject to such adjustment as the Committee may deem appropriate with a view toward preserving the value any of such Option and any such SARs, respectively. (c) Change in Par Value. In the event of a change in the Common Stock of the Company as presently constituted, which change is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any change shall be deemed to be the Common Stock within the meaning of the Plan. (d) Notice of Adjustments. To the extent that the adjustments set forth in the foregoing paragraphs of this Section 15 relate to the capital stock or securities of the Company, such adjustments, if any, shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Option granted pursuant to this Plan shall not be adjusted in a manner that causes the Incentive Option to fail to continue to qualify as an "incentive stock option" within the meaning of Section 422 of the Code. The Company shall give timely notice of any adjustments made to each holder of an Option and related SAR, if applicable, under this Plan and such adjustments shall be effective and binding on the Optionee. (e) Effect Upon Holders of Options and SARs. Except as hereinbefore expressly provided in this Section 15, the holder of an Option or an SAR shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class by reason of any dissolution, liquidation, merger, reorganization, or consolidation, or spin-off of assets or stock of another corporation, and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option or related SARs. Without limiting the generality of the foregoing, no adjustment shall be made with respect to the number or price of shares subject to any Option or SAR granted hereunder upon the occurrence of any of the following events: (1) The grant or exercise of any other options or SARs which may be granted or exercised under this Plan or any other qualified or nonqualified stock option plan or under any other employee benefit plan of the Company whether or not such options or SARs were outstanding on the date of grant of the Option or SAR or thereafter granted; (2) The sale of any shares of Common Stock in any public offering of securities by the Company, including, without limitation, shares sold upon the exercise of any overallotment option granted to underwriters in connection with such offering; (3) The issuance, sale or exercise of any warrants to purchase shares of Common Stock whether or not such warrants were outstanding on the date of grant of the Option or SAR or thereafter issued; (4) The issuance or sale of rights, promissory notes or other securities convertible into shares of Common Stock in accordance with the terms of such securities (the "Convertible Securities") whether or not such Convertible Securities were outstanding on the date of grant of the Option or SAR or were thereafter issued or sold; (5) The issuance or sale of Common Stock upon conversion or exchange of any Convertible Securities, whether or not any adjustment in the purchase price was made or required to be made upon the issuance or sale of such Convertible Securities and whether or not such Convertible Securities were outstanding on the date of grant of the Option or were thereafter issued or sold; or (6) Upon any amendment to or change in the terms of any rights or warrants to subscribe for or purchase, or options for the purchase of, Common Stock or Convertible Securities or in the terms of any Convertible Securities, including, but not limited to, any extension of any expiration date of any such right, warrant or option, any change in any exercise or purchase price provided for in any such right, warrant or option, any extension of any date through which any Convertible Securities are convertible into or exchangeable for Common Stock or any change in the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock. (f) Right of Company to Make Adjustments. The grant of an Option and related SARs pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets or to suspend, terminate, amend or modify the Plan. 16. Investment Purpose. Each Option under the Plan shall be granted on the condition that the purchase of the shares of Common Stock thereunder shall be for investment purposes, and not with a view to resale or distribution thereof; provided, however, that in the event the shares of stock subject to such Option are registered under the Securities Act or in the event a resale of such shares of stock without such registration would otherwise be permissible, such condition shall be inoperative if in the opinion of counsel for the Company such condition is not required under the Securities Act or any other applicable law or regulation, or rule of any governmental agency. 17. No Obligation to Exercise Option or SAR. The granting of an Option or SAR pursuant to the Plan shall impose no obligation upon the Optionee to exercise such Option or SAR. 18. Modification, Extension, and Renewal of Options and SARs. Subject to the terms and conditions and within the limitations of the Plan, the Committee and the Board may modify, extend or renew outstanding Options and related SARs granted under the Plan, or accept the surrender of outstanding Options and related SARs, if applicable, each to the extent not theretofore exercised. Notwithstanding the foregoing, however, no modification of an Option or SAR shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option or SAR theretofore granted under the Plan. 19. Effective Date of the Plan. The Plan shall become effective on the date of execution hereof, which date is the date the Board approved and adopted the Plan (the "Effective Date"); provided, however, if the Shareholders of the Company shall not have approved the Plan by the requisite vote of the Shareholders within twelve (12) months after the Effective Date, then the Plan shall terminate and all Options and SARs theretofore granted under the Plan shall terminate and be null and void. 20. Termination of the Plan. This Plan shall terminate as of the expiration of ten (10) years from the Effective Date. Options and related SARs, as applicable, may be granted under this Plan at any time and from time to time prior to its termination. Any Option and related SAR, if applicable, outstanding under the Plan at the time of its termination shall remain in effect until the Option and related SAR, if applicable, shall have been exercised or shall have expired. 21. Amendment of the Plan. The Plan may be terminated at any time by the Board. The Board may at any time and from time to time without obtaining the approval of the Shareholders of the Company or a Subsidiary, modify or amend the Plan (including such form of Award Agreement as hereinabove mentioned) in such respects as it shall deem advisable; provided, however, any amendment to the Plan shall be approved by the Shareholders of the Company if the amendment would (i) materially increase the benefits accruing to participants under the Plan, (ii) materially increase the number of securities which may be issued under the Plan, except as provided in Section 15 hereof, or (iii) materially modify the requirements as to eligibility for participation in the Plan. Without limiting the generality of the foregoing, the Board may at any time and from time to time without obtaining the approval of the Shareholders of the Company modify or amend the Plan (including such form of Award Agreements as hereinabove mentioned) to (i) comport with changes in the Code, the Employee Retirement Income Security Act of 1974 ("ERISA"), or the rules and regulations thereunder or other applicable laws, (ii) increase the number of securities issuable to investors under the Plan by less than ten percent (10%) based on the amount of securities issuable under the Plan as last expressly approved by the Shareholders of the Company, (iii) amend the Plan to adjust the terms of Options and SARs, if applicable, previously granted to reflect a restructuring transaction, such as a holding company formation, stock split or stock dividend, extraordinary dividend, spin-off or issuance of repurchase rights. The termination or any modification or amendment of the Plan shall not, without the consent of the Optionee, affect such Optionee's rights under any Option or related SAR, if any, theretofore granted to such Optionee. With the consent of the Optionee to whom such Option and related SAR, if any, was granted, an outstanding Option and related SAR, if applicable, may be modified or amended by the Committee in such manner as it may deem appropriate and consistent with the requirements of the Plan applicable to the grant of a new Option and related SAR, if applicable, on the date of modification or amendment. 22. Tax Withholding. Whenever an Optionee shall recognize compensation income as a result of the exercise of any Option or SAR granted under the Plan, such Optionee shall remit in cash to the Company or a Subsidiary the minimum amount of federal income and employment tax withholding which the Company or Subsidiary is required to remit to the Internal Revenue Service in accordance with the then applicable provisions of the Code. The full amount of such withholding shall be paid by the Optionee simultaneously with the award or exercise of an Option or SAR, as applicable. 23. Other Benefits. No Award granted under the Plan shall be considered compensation for purposes of computing benefits or contributions under any retirement plan of the Company or any Affiliates now or subsequently in effect. 24. Indemnification of Committee. In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against all the reasonable expenses, including, without limitation, attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option or SAR granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his duties; provided that within sixty (60) days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Company the opportunity, at its own expense, to pursue and defend the same. 25. Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Options granted hereunder will be used for general corporate purposes. 26. Notices. All notices required or permitted to be given or made under the Plan or any Award Agreement shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) transmitted by first class registered or certified United States mail, postage prepaid, return receipt requested, (iii) sent by prepaid overnight courier service, or (iv) sent by telecopy or facsimile transmission, answer back requested, to the Person who is to receive it at the address that such person has theretofore specified by written notice delivered in accordance herewith. Such notices shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, (ii) if mailed, upon the earlier of five (5) days after deposit in the mail or the date of delivery as shown by the return receipt therefore, or (iii) if sent by telecopy or facsimile transmission, when the answer back is received. The Company or an Optionee may change, at any time and from time to time, by written notice to the other, the address that it or such Optionee had theretofore, specified for receiving notices. Until such address is changed in accordance herewith, notices hereunder or under an Award Agreement shall be delivered or sent (i) to an Optionee at the Optionee's address set forth in the records of the Company or (ii) to the Company at the principal executive offices of the Company clearly marked "Attention: Stock Plan Administration." 27. Severability. If any provision of the Plan or any Award Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan or such agreement, as the case may be, but such provision shall be fully severable and the Plan or such agreement, as the case may be, shall be construed and enforced as if the illegal or invalid provision had never been included herein or therein. 28. Governing Law. Except to the extent governed by the applicable provisions of the Code or Federal securities laws, this Plan shall be governed by and construed in accordance with the laws of the State of Nevada. IN WITNESS WHEREOF, this Plan is executed by the undersigned officers of KARTS INTERNATIONAL INCORPORATED, each being hereunto duly empowered and authorized, on this 19th day of October, 2000. KARTS INTERNATIONAL INCORPORATED By: /s/ Charles Brister ------------------------------ Charles Brister, President ATTEST: /s/ Geoffrey Craig benRichard barAbba - -------------------------------------- Geoffrey Craig benRichard barAbba, Secretary KARTS INTERNATIONAL INCORPORATED ANNUAL MEETING OF STOCKHOLDERS DECEMBER 12, 2000 The undersigned hereby appoints Charles Brister and Geoffrey Craig benRichard or either of them, with power of substitution, as proxies to vote all stock of Karts International Incorporated (the "Company") owned by the undersigned at the Annual Meeting of Stockholders to be held at 62204 Commercial Street, Roseland, Louisiana 70456, at 2:00 p.m., Central Standard Time on December 12, 2000, and any adjournment thereof, on the following matters as indicated below and such other business as may property come before the meeting. 1. [ ] FOR the election as director of all nominees listed below (except as marked to the contrary below) [ ] WITHHOLD AUTHORITY to vote for all nominees listed below: Charles Brister, Cary C. Evans, Blair Lawrence benGerald, Geoffrey Craig benRichard and Timotheus James benHarold. INSTRUCTION: To withhold authority to vote for individual nominees, write their names in the space provided below. - ----------------------------------------------------- 2. Proposal to approve an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. Proposal to approve the Karts International Incorporated 2000 Stock Compensation Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN 4. To transact such other business as may properly come before the meeting or any adjournments thereof. THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE This Proxy is solicited on behalf of the Company's Board of Directors. This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this Proxy will be voted FOR all nominees as directors, FOR the proposal to approve an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock, and FOR the proposal to approve the Karts International Incorporated 2000 Stock Compensation Plan. Please sign exactly as your name appears on this Proxy Card. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DATED:__________________________________, 2000 ______________________________________________ Signature of Stockholder ______________________________________________ Signature if held jointly PLEASE mark, sign and return the Proxy Card promptly using the enclosed envelope. -----END PRIVACY-ENHANCED MESSAGE-----