-----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, VFFLgb/jFccJ8g/Eq2xg+BiLNMy5Z10pE/HzwUfF2uBLJVEuzLcgzkXWgIKFfmIO sjEnPLdWrGYN8Oiks5FPDg== 0001010549-01-000140.txt : 20010409 0001010549-01-000140.hdr.sgml : 20010409 ACCESSION NUMBER: 0001010549-01-000140 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 28 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KARTS INTERNATIONAL INC CENTRAL INDEX KEY: 0001010077 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 752639196 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-23041 FILM NUMBER: 1589721 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 10KSB 1 0001.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------- FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 000-23041 KARTS INTERNATIONAL INCORPORATED (Name of Small Business Issuer as Specified in Its Charter) Nevada 75-2639196 (State of Incorporation) (I.R.S. Employer Identification No.) 62204 Commercial Street P.O. Box 695 Roseland, Louisiana 70456 70456 (Address of Principal Executive Offices) (Zip Code) (504) 747-1111 (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12 (b) of the Exchange Act: None Securities registered under Section 12 (g) of the Exchange Act: Common Stock, $0.001 par value (Title of Class) Redeemable Common Stock Purchase Warrants (Title of Class) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The issuer's net revenues for the fiscal year ended December 31, 2000, were $8,854,343. The issuer had 7,498,392 shares of common stock and 401,682 public warrants outstanding as of February 28, 2001. The aggregate market value of the voting and non-voting common stock held by non-affiliates of the issuer, computed by reference to the average bid and asked prices of such common stock as of March 2, 2001, was $1,199,743. ================================================================================ 2000 ANNUAL REPORT (SEC FORM 10-KSB) INDEX Securities and Exchange Commission Item Number and Description PART I ITEM 1. BUSINESS.............................................................1 ITEM 2. PROPERTIES..........................................................11 ITEM 3. LEGAL PROCEEDINGS...................................................11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................................................14 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........15 ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS...................................19 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................19 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..........20 ITEM 10. EXECUTIVE COMPENSATION..............................................21 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................................26 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................27 PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................30 SIGNATURES, FINANCIAL STATEMENTS AND EXHIBIT INDEX Financial Statements.........................................................F-1 Signatures....................................................................35 Exhibit Index -i- PART I Management believes that this Annual Report on Form 10-KSB for the year ended December 31, 2000 contains forward-looking statements, including statements regarding, among other items, the Company's future plans and growth strategies and anticipated trends in the industry in which the Company operates. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, many of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of the factors described herein, including, among others, regulatory or economic influences. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report on Form 10-KSB will in fact transpire or prove to be accurate. ITEM 1. BUSINESS General Karts International Incorporated, a Nevada corporation (the "Company"), through its wholly-owned subsidiaries, Brister's Thunder Karts, Inc., a Louisiana corporation ("Brister's"), USA Industries, Inc., an Alabama corporation ("USA"), Straight Line Manufacturing, Inc. ("Straight Line"), a Michigan corporation, and KINT, L.L.C., a limited liability Louisiana corporation ("KINT"), designs, manufactures and distributes recreational fun karts ("Fun Karts"), also referred to as "go karts," and Mini Bikes. Fun Karts are four-wheeled, gas-powered vehicles typically equipped with engines of 5 to 13 horsepower and purchased by consumers principally for off-road recreational use. Mini Bikes are two-wheeled, gas-powered vehicles typically with engines of 3.5 to 6 horsepower and purchased by consumers principally for off-road recreational use. The Company shipped approximately 10,200 Fun Karts and 600 Mini Bikes to dealers, distributors and merchandisers in 2000, which the Company believes represents approximately 8% of the total domestic Fun Kart market. Consolidated revenues of the Company for the fiscal year ended December 31, 2000 were approximately $8.9 million as compared with combined revenues of approximately $12.0 million for the fiscal year ended December 31, 1999. The Company operates manufacturing facilities in Roseland, Louisiana and maintains its executive offices in Roseland, Louisiana. The kart industry is comprised of three principal segments, Fun Karts, racing and concession karts. Fun Karts, the largest segment, are karts sold to consumers for general recreational use. Racing karts are specially designed for use on established tracks in a controlled racing environment. Concession karts are designed for use by amusement and entertainment centers, which provide karts and facilities for customers' use on a rental basis. Management estimates that in 2000 approximately 158,000 karts were sold in the United States. Historically, the Company, through its subsidiaries, has concentrated its efforts in the Fun Karts market. The Company offers a product line of approximately 40 Fun Kart models, differentiated by frame size, drive train, seating capacity, tire size and tread. The Company's models offer a wide range of standard and optional features which enhance the safety, operation, riding comfort and performance of its Fun Karts. Such features include the exclusive, patented automatic throttle override; full brush cage; safety flag; three kinds of drive trains, including live axle, single wheel pull and torque converter; clutch lubrication system; high speed bearings; adjustable throttle and seats; steel rims; band and disc brakes; and Tecumseh Products Company and Honda engines. The end-users of the Company's Fun Karts are primarily 7- to 17-year-old males, living with their parents in suburban and rural markets. Typical Fun Kart purchasers are parents who purchase Fun Karts for their children. The Company relies on a broad and diversified national independent dealer network, retail merchandisers and manufacturing representatives to sell its products. In 2000, the Company sold approximately 60% of its products through its approximately 700 dealers, primarily lawn and garden stores, motorcycle outlets, hardware stores and specialty karts dealers, located in 40 states. Although there are no formal dealer agreements, the Company, for the benefit of certain of its higher volume dealers, will agree not to sell to other retailers in a limited geographic area surrounding the high volume dealer. For eligible dealers, the Company offers extended payment terms. -1- In January 2000, the Company entered into a licensing agreement with Polaris Industries, Inc., the world's largest maker of snowmobiles, to develop, manufacture and sell a line of Polaris karts through the Polaris dealer network, and to be the only licensed supplier of Fun Karts bearing the Polaris logo. This relationship resulted in sales of approximately 900 units bearing the Polaris logo in 2000. This agreement is expected to add sales as future models are released and marketed through the Polaris Industries nationwide dealer network. The Company's operating strategy is: to increase its sales and market share by producing safe, high-quality and reliable Fun Karts at competitive prices; to improve manufacturing efficiency; and to continue diversification of domestic distribution channels. The Company's growth strategy is: to increase its brand and product recognition by innovative marketing to its target users; to broaden its product lines through improved product design and development; and to expand its geographic presence and market share by continued emphasis on expansion of its domestic dealer and retail merchandiser networks. Unless otherwise indicated herein, the financial, business activities, management and other pertinent information herein relates on a consolidated basis to the Company and its wholly owned subsidiaries, Brister's, USA, Straight Line and KINT. The Brister's and USA acquisitions in 1996 and the Straight Line acquisition in 1998 were accounted for using the purchase method of accounting for business combinations. The Company has allocated the total purchase price to assets acquired based on their relative fair value. Any excess of the purchase price over the fair value of the assets acquired was recorded as goodwill. At December 31, 1998, due to the Company's operating history, management recognized an impairment to the future recoverability of goodwill and charged all unamortized goodwill at that date to operations. The financial and other information regarding the Company set forth herein reflects, for the periods presented, the consolidated results of operations of the Company, Brister's, USA, Straight Line and KINT for the respective periods owned. The address of the Company's principal executive office is 62204 Commercial Street, P.O. Box 695, Roseland, Louisiana 70456, and its telephone number is (504) 747-1111. The Company maintains its manufacturing facility at Highway 51 South, Roseland, Louisiana 70456. Recent Developments During 2000, the Company closed its USA manufacturing facility in Prattville, Alabama and consolidated the manufacturing operations to Roseland, Louisiana. Currently the Company has the vacant USA manufacturing facility in Prattville, Alabama for sale. The Company has entered into a nine-year agreement with the Town of Roseland to lease a 40,000 square foot facility approximately 1/2 mile from the Company's executive offices. This facility was constructed for the Town of Roseland with the assistance of an economic development grant from the State of Louisiana. The new facility was substantially complete as of year-end 2000, and the Company plans to expand its manufacturing capability to the new plant in the first half of 2001. When the new facility becomes fully operational, the Company expects that its production capacity will double. In 2000, the Company entered into a Manufacturing and Distribution Agreement with International Supply Company (ISC) for the design and development of a specific motorized recreational vehicle product licensed by ISC from TME Limited of Lower Hutt New Zealand. The agreement provides for the Company to be the exclusive manufacturer and distributor of the subject designed product and any derivative lines. It is anticipated that sales of products designed and licensed under the agreement will begin in 2001. As of March 15, 2001 a prototype of new Kart design has been completed and engineering tests to prove the design are underway. -2- Operating Strategy Produce Safe, High Quality and Reliable Fun Karts at Competitive Prices. The Company believes that it is one of the leaders in the development of safety-related features for Fun Karts, which, along with price, is a key consideration for the Fun Kart purchaser, the parent of the seven- to 17-year-old male. The Company believes it was the first manufacturer in the Fun Karts industry to provide full safety cages and adjustable seats, which are now standard features on most Fun Karts. The Company is the exclusive Fun Kart manufacturer installing its patented automatic throttle override system on Fun Karts. Producing high quality, reliable products increases customer satisfaction, and the Company believes this is one of the key elements of its success in the highly competitive karts industry. The Company believes its strategy of selling its Fun Karts through independent dealers and selected mass merchandisers helps to ensure that the Company's products are competitive with those of other manufacturers in terms of safety, consumer acceptability, product design, quality and price. Continue to Improve Manufacturing Efficiency. Management believes that greater productivity will reduce operating costs. By standardizing the base frame and components on each of the major lines of Fun Karts, the Company expects to reduce volume purchase prices and decrease assembly costs. The Company has begun a modernization effort of its manufacturing facilities that is projected to improve the quality of the Company's products and promote price competitiveness of its Fun Karts. The Company has also begun the purchase of new equipment and in order to maintain strict cost controls as a means to enhance the production of high quality Fun Karts. Diversification of Domestic Distribution Channels. The historical marketing strategy of the Company has been to build a broad and diverse independent dealer base by offering safe, high quality and reliable Fun Karts that are competitively priced and timely delivered. Going forward, the Company plans to continue with the established agreements with several Manufacturer's Representative Organizations (MROs) that were selected based on the territories served (continental US and Canada), customer base and product lines being represented. The relationship established with these organizations provided approximately seventy-five additional salesmen promoting the Company's products, and also provided access to a number of mass merchants and retail chain outlets. The Company's future marketing efforts are designed to maintain and expand its independent dealer network throughout the continental United States and Canada through direct communications with dealers, engaging additional MROs and attendance at industry trade shows such as the International Lawn and Garden Show. The Company also plans to assist dealers with their selling and marketing efforts with Company-sponsored seminars, advertising, including product videos and brochures, leaflets, posters, signs and other miscellaneous promotional items for use by dealers. In addition to the MROs, the Company has also developed plans to further enhance the existing Company Sales and Marketing team. The Company sales force will sell and market the mid and high end product lines. Growth Strategy Increasing Product Recognition By Innovative Marketing to Target Users. A 1998 survey estimated that Fun Kart industry's sales were made to only approximately 0.7% of the estimated 20 million 7- to 17-year-old males in the United States, the Company's target users. The Company believes that if it is to further penetrate its target market, the Company must advertise in media easily accessible by this group and attractively and prominently display its Fun Karts in locations and at events frequented by young males and their parents. The Company advertises its products in national youth-oriented magazines and periodicals, on the Internet and to a lesser extent, on billboards, radio and television. The Company is currently in the process of selecting a marketing firm to establish a nation-wide, well-recognized, brand name. The Company maintains a home page on the Internet (thunderkarts.com, sportskart.com and usafunkarts.com) and has sponsored local events such as a Babe Ruth Baseball Tournament, Arbor Day festival and parades, and regional festivals. -3- Improve Product Design and Development. The Company believes that it is a leader in the development of safety features for its Fun Karts, due primarily to its emphasis on continuous research and development of safety related items. The Company, primarily through the efforts of Charles Brister, the Chairman of the Board, has developed a number of technological advances, including the automatic throttle override and automatic clutch lubrication systems, which have significantly improved its products. The Company in 1998 employed additional engineering personnel primarily to continue the development of innovative safety and technological features for the Company's Fun Karts and to develop new products, including the Company's new off-road 3-2 h.p. Fun Bike. During 1999, the Company began developing two new karts, an off road mini-bike and several new design features that will be part of the new Polaris go-kart line scheduled for introduction during the first quarter of 2000. The Company will continue to develop and distribute optional Fun Kart parts and accessories to dealers for sales to Fun Kart purchasers. The Company may also develop a line of helmets, jackets, boots and other related items for its dealers and mass merchandisers to complement sales of Fun Karts. Expansion of Geographic Presence. The Company intends to expand its geographic presence and increase its market share within and outside of its core and contiguous markets by continued emphasis on the development and expansion of its dealer and mass merchandiser networks, establishing relationships with independent sales representatives to serve regions of the United States which are currently under penetrated by the Company and employ a marketing firm to expose new markets to the Fun Kart Industry. During 1999, the Company established a distributor in western Canada and believes that the Canadian market offers significant sales growth opportunity for the Company's products. Product Lines The Company produces a full line of Fun Karts, currently consisting of approximately 40 models, which are variations on several different frames available in a variety of colors, which are sold at prices ranging from approximately $500 to $4,000. The models are differentiated by drive train (single wheel pull, live axle or torque converter), engine size (5 h.p. to 13 h.p.), seating (single or double), tires (turf, ATV, kleat), tires (4" to 8"), frame size and suspension (shock absorbers). The Company markets its Fun Karts under the brand names of Thunder Karts, USA Fun Karts and Polaris. The Company believes its Fun Karts enjoy a premier image in its core markets and that its Fun Karts have a reputation for quality, performance, style, comfort, ride and handling. The Company's models offer a wide range of standard and optional features, which enhance the operation, safety, riding comfort and performance of its Fun Karts. Such features include band brakes or disc brakes, automatic throttle override system, rack and pinion steering, shock absorbers, electric start, 5 to 13 horsepower engines, clutch lube system, powder paint, high speed bearings, safety flag and full brush cages. The Company is currently exploring the possibility of entering into the four wheel ATV market. With the distribution channels that the Company currently enjoys and the popularity of such vehicles, it is believed this product line will compliment the Company's current products. The Company believes that it is a leader in the development of safety features for its Fun Karts, due primarily to its emphasis on continuous research and development of safety related items. The Company has developed a number of technological advances, including the automatic throttle override and automatic clutch lubrication systems, which have significantly improved its products. The Company's automatic throttle override system was named the 1995 Product of the Year for the recreational kart industry by Kart Marketing International, a trade magazine for the kart industry. This safety feature prohibits throttling and braking at the same time, regardless of the position of the gas pedal. If the brake pedal is depressed slightly, the engine will revert to the idle position immediately, and will not let throttling engage until the pedal is released. Significant benefits of this system are enhancement of safety for inexperienced drivers; stopping of simultaneous braking and throttling; easier braking; and extended brake life. -4- Charles Brister, the Company's Chairman, has designed a safety fuel tank and filler cap which is a new product to prevent a small internal combustion engine from operating unless the fuel cap is firmly in place on the tank. This apparatus will minimize the opportunity for a flash fire to start and injure the operator of equipment which uses a small engine with an integrated fuel tank such as a lawn mower, go kart or string trimmer. The safety fuel tank and filler cap has been designed in several different configurations to accommodate the variety of integrated fuel tanks now being produced. It has been developed both as a product to be incorporated into the design and manufacture of new fuel tanks and as a retrofit for engines already in use. Utilizing either a magnetic, photoelectric or mechanical switch that is interfaced between the fuel tank and filler cap, the device disables the engine's ignition system when the filler cap is moved from its fully closed position. Disabling the ignition system on a small internal combustion engine immediately stops a running engine and then prevents it from restarting until the fuel cap is replaced and the integrated switch sensors close the circuit. The Company has entered into an agreement with Mr. Brister securing the rights to license this product for royalties. It is anticipated that the Company will issue sub-licenses to fuel tank, fuel cap or small engine manufacturers to facilitate application of this technology to non go-kart related industries. Manufacturing Operations The Company operates its manufacturing facility in Roseland, Louisiana. Fun Kart production levels at the Company's plant vary depending on the season and upon short-term product demand. Historically, between January and May, the Company has utilized a ten-hour workday four days a week at its plant. In June, the workweek expands to five days and peaks in November at six days. Management believes that with the addition of the new Roseland plant to its current facilities, the Company will be able to meet the projected increased customer demand for the Company's products for the foreseeable future while limiting extended working hours. Additional labor at reasonable costs is readily available in the vicinity of the Company's manufacturing facility. The Fun Karts manufacturing process is primarily one of welding and assembly at various workstations. The Company buys directly from mills both pre-cut and uncut tubular steel used in the manufacturing of the frames. Since the price differential between pre-cut and uncut tubular steel is relatively small, it is more cost-effective, particularly for pieces that do not change, to purchase pre-cut tubular steel. The steel is cut and bent during the manufacturing process to the frame specifications for the Company's various Fun Kart models. Most of the other Fun Karts component parts, including engines, wheels, tires, seats, steering wheels, steering tie rods and miscellaneous parts, are purchased from various domestic vendors. The Company depends on Tecumseh and Honda for its engines, and the loss of these vendors may cause the Company to experience a temporary delay in the production of the Company's Fun Karts. The Company believes other engine vendors and suppliers of other component parts necessary for the production of Fun Karts are readily available. Due to the seasonality of the Fun Kart industry, the Company is pursuing the opportunities that exist in the "Job Shopping" arena. Preliminary "Job Shop" projections are encouraging. The existing equipment can be utilized year round as other "like" jobs are brought into the manufacturing facility. The Company believes this is a very good strategic move that will allow for a more steady revenue stream, reduce layoffs, and promote stability within the community. Quality Control, Warranties and Service The Company adheres to strict quality standards and continuously refines its production procedures to increase productivity and reduce warranty claims. Each Fun Kart is inspected during assembly for compliance with certain quality control standards. The Company provides the purchaser of its Fun Karts with a 90-day limited warranty against certain manufacturing defects in the Fun Kart's construction. There are also direct warranties that are provided by the manufacturer of the engine and certain component parts. The Company's Fun Karts are typically serviced by the dealers. The Company has not historically incurred any significant warranty claims and has never had a recall of any of its products. -5- Patents and Proprietary Technology The Company does not own any patents, trademarks or service marks. However, Charles Brister, Chairman of the Company, owns certain patents and trademarks which are licensed to the Company and which allows the Company to use certain brand names and utilize the automatic throttle override system ("ATOS") on its Fun Karts. The Company in 2000 entered into two license agreements with Charles Brister, the Chairman of the Board and former President and Chief Executive Officer of the Company. The license agreements cover an accelerator pedal override and clutch lube system for Fun Karts and a safety fuel tank and filler cap apparatus for gasoline-operated engines. See "Certain Relationships and Related Transactions." Sales and Marketing Sales. The Company relies on a broad and diversified national independent dealer network, retail merchandisers and manufacturing representatives to sell its products. In 2000, the Company sold approximately 60% of its products through its approximately 700 dealers, primarily lawn and garden stores, motorcycle outlets, hardware stores and specialty karts dealers, located in 40 states. Although there are no formal dealer agreements, the Company, for the benefit of certain of its higher volume dealers, will agree not to sell to other retailers in a limited geographic area surrounding the high volume dealer. For eligible dealers, the Company offers extended payment terms. The Company believes that its independent dealer network enables the Company to achieve broader distribution of its products than if the Company operated its own retail outlets. Selling through independent dealers also allows the Company to avoid the substantial investment in management and overhead associated with the operation of company-owned retail stores. In addition, the Company's strategy of selling its products through independent dealers helps to ensure that the Company's Fun Karts are competitive with those of other manufacturers in terms of consumer acceptability, product design, quality and price. Accordingly, a component of the Company's business strategy is to continually strengthen its dealer relations. The Company believes its relations with its independent dealers are good. While there are no formal dealer agreements, the Company, for the benefit of its dealers, will agree not to sell to other dealers in a limited geographic area surrounding the location of a high volume dealer. Credit terms are typically 2% net 10 days, net 30 days. For dealers who meet certain credit requirements, the Company offers a dealer floor plan financing program. The Company, at its option, will allow approved dealers up to 120 days of interest-free financing under the floor plan agreement In 2000, the Company entered into a licensing agreement with Polaris Industries, Inc., the world's largest maker of snowmobiles, to develop, manufacture and sell a line of Polaris karts through the Polaris dealer network, and to be the only licensed supplier of Fun Karts bearing the Polaris logo. This relationship resulted in sales of approximately 900 units bearing the Polaris logo in 2000. This agreement is expected to add sales as future models are released and marketed through the Polaris Industries nationwide dealer network. In January 1998, the Company formed a Louisiana limited liability corporation, KINT, L.L.C., as a wholly owned subsidiary. The Company used this entity to sell and market the Polaris kart line in 2000. -6- The Company has two main modes of delivery to its dealers. The Company delivers directly to Louisiana, Alabama and Mississippi dealers, using Company-owned trucks with trailers that can carry up to 27 Fun Karts. All Louisiana, Alabama and Mississippi delivery routes are designed to be completed during a single day. Other dealers and merchandisers receive their Fun Karts by common carrier. The Company strives to achieve a turnaround from order date to shipment of one to two days in the off-season, and three to seven days in peak season. Fun Karts are delivered completely assembled, except for the installation of the accompanying safety cages. Marketing. The historical marketing strategy of the Company has been to build a broad and diverse independent dealer base, primarily in the Southeast and Southwest regions of the United States, the Company's core markets, by offering safe, high-quality and reliable Fun Karts that are competitively priced and timely delivered. The Company's future marketing efforts are designed to maintain and expand its independent dealer network in the South and West regions of the United States and in foreign markets through direct communications with dealers and assisting them with their selling and marketing efforts with Company-sponsored seminars, discounts or rebate products and advertising, including product videos and brochures, leaflets, posters, signs and other miscellaneous promotion and items for use by dealers. The Company will also seek to increase sales to retail merchandisers with direct communication, engaging additional independent sales representatives and attendance by Company representatives at Fun Kart and industry related trade shows. The Company believes that attendance at trade shows will allow it to promote its products to a diversified group of dealers and merchandisers currently targeted by the Company. The Company's advertising and promotional materials emphasize the safety-related features built into the Company's Fun Karts. The Company has adopted this advertising strategy in order to promote the concept that it is fun and safe for children to own and operate Fun Karts. The Company intends to increase potential customers' awareness of its products by advertising in youth-oriented magazines; motorcycle, lawn and garden, hardware and outdoor power equipment trade magazines; displaying and promoting the Company's products at NASCAR races and related events; and traditional print, billboard and, to a lesser extent, television and radio media. The Company believes that if it is to further penetrate its target market, the Company must advertise in media easily accessible by this group and attractively and prominently display its Fun Karts in locations and at events frequented by young males and their parents. The Company plans to employ the help of a marketing firm to expedite the penetration of nation wide markets. Seasonality Most Fun Karts are sold during the last quarter of the calendar year and are typically purchased as Christmas gifts by parents for their children. Sales of Fun Karts are generally the lowest during the first quarter of each year. Since the Company typically does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based upon the historic purchasing patterns of its dealers and mass merchandisers and upon its discussions with its dealers and representatives of mass merchandisers as to their future requirements. Cancellations, reductions or delays by a major customer could have a material adverse impact on the Company's business, financial condition and results of operations. Traditionally, many dealers have sold Fun Karts only during the Christmas holiday season. Management believes that with the continued expansion of it business with the mass merchandisers and the adding of the Polaris dealer network, it will continue to experience some mitigation of the historically seasonal nature of the Company's Fun Karts sales. The Company also believes the seasonality of the Fun Kart industry can be offset with a "Job Shop" effort. These other jobs would potentially provide a steady stream of revenue, reduce the need for layoffs, and improve the stability of the community. Customers In 2000, approximately 40% of the Company's sales were to its independent dealers and the Company projects that it will sell approximately 60% of its Fun Karts to independent dealers, including the Polaris dealers, in 2001. Brad Ragan Tire, a Goodyear Tire store, accounted for more than 10% of the Company's 2000 sales. This customer purchased approximately 15% of the units sold which resulted in approximately 12% of the Company's 2000 net revenue. In January 2001, this customer informed Karts International that it had made the decision to exit the Fun Kart market. Management believes that replacement customers will be found in 2001 to replace the lost revenue stream from this customer, and that the loss of this customer will not materially effect the Company's revenues in 2001. The Company does not believe that any one merchandiser, dealer, or group of affiliated dealers will account for 10% or more of the Company's 2001 revenues. -7- Backlog The Company typically fills and ships customer orders within 10 days of receipt of the order and, therefore, maintains no significant backlog. Governmental Regulations Consumer protection laws exist in many states in which the Company markets its products. Violation of such laws or regulations could have a materially adverse effect on the Company. The Company believes that it is in compliance in all material respects with all currently applicable federal and state laws and regulations. Federal, state and local environmental regulations are not expected to have a material effect on the Company's operations. Management believes certain states, including California, have proposed legislation involving emission or other safety standards for the type of gas-powered type engines installed on the Company's Fun Karts. The Company is currently unable to predict whether such legislation will be enacted in the future and, if so, the ultimate impact on the Company and its operations. Employees As of March 15, 2001, the Company employed approximately 50 employees on a full-time basis. Lower than expected sales in the fourth quarter of 2000 resulted in substantial reductions in hourly employment. Labor costs for the Company at its manufacturing facility is comparable to labor costs in its respective markets. The Company's employees are not represented by a union or subject to a collective bargaining agreement. The Company has never experienced a strike or work stoppage and considers its relations with its employees to be excellent. Competition The Fun Karts industry is highly competitive, with new market entrants every year, and there is no assurance that the Company will be able to compete profitably in this industry in the future. The Company expects that it will continue to face intense competition as its business strategies are pursued. Such competition may result in reduced sales, reduced margins, or both. The Company is and will be competing with larger, better-capitalized companies that may be better positioned to respond to shifts in consumer demand and other market related changes. If other companies introduce new and modified products before the Company achieves significant market expansion, the Company may experience growth below projected levels, which could have a material adverse effect on the Company's operating results. However, the Company believes that it will be able to compete effectively with its competitors by diversifying its product line and expanding its market share through implementation of its business strategies. Business Risk Factors Uncertainty of Ability of the Company to Continue as a Going Concern. The Company's financial statements (contained elsewhere herein) were prepared assuming that the Company will continue as a going concern. The Company's independent auditor, in its report regarding the Company's financial statements, expressed the fact that the Company has suffered recurring losses from operations and experienced seasonality of product demand which is focused in the last four months of the calendar year which impacts cash flow during the first eight months of the year. These factors raise substantial concerns as to the Company's ability to continue as a going concern. See "Management's Discussion and Analysis or Plan of Operation" and Note B to the Consolidated Financial Statements. -8- Operating Losses; Recent Senior Management Turnover. For the years ended December 31, 2000, 1999 and 1998, the Company experienced net losses from operations of approximately $5,510,000, $2,108,000 and $3,985,000, respectively, and has utilized cash in operating activities of approximately $6,524,000, $3,484,000 and $3,213,000, respectively. Additionally, the Company has experienced senior management turnover and change in control in 2000. The Company's continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities on a timely basis, and to employ and retain experienced management personnel. No Assurance of Funding for Additional Capital Requirements. The Company may require additional financing to satisfy working capital and cash flow requirements for its business operations. There can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. Any such failure to secure additional financing or otherwise maintain adequate liquidity could have a material adverse effect upon the financial condition and results of operations of the Company. Substantial Indebtedness; Debt Service Capability. The Company has a substantial amount of long-term and short-term debt under its credit facilities and accounts payable. The credit facilities are secured with the Company's accounts receivable, inventory and equipment and are subject to standard affirmative and negative covenants, including maintaining certain levels of working capital and minimum tangible net worth. There can be no assurance that the operations of the Company will generate sufficient cash flows to service such debt. The Company's leverage poses substantial risk in that it could limit the Company's ability to respond to industry changes or economic downturns, as well as its ability to satisfy its funding needs for operations or to raise debt or equity capital. Dependence on Key Personnel. The Company's success will depend to a large degree on its ability to retain the services of its existing management and to attract qualified personnel in the future. On January 19, 1999, Charles Brister resumed the office of President and Chief Executive Officer of the Company. On February 5, 2001, Mr. Brister resigned as President and Chief Executive Officer and was elected Chairman of the Board. Mr. Brister will remain active in the day-to-day operations of the Company. The loss of the services of Mr. Brister or any key management personnel or the inability to recruit and retain qualified personnel in the future could have a material adverse effect on the Company's business and results of operations. Dependence on Product Development and Modification and Market Acceptance. The Company's continued growth is dependent upon increased consumer awareness and acceptance of the Company's existing and new products. No assurances can be given that the Company will be able to successfully develop new products, modify existing products or that any new or modified products will meet with consumer acceptance in the marketplace or that the Company's current products will receive continued or increased consumer acceptance. No assurance can be given that the Company's existing products will continue to be sold at acceptable margin levels or that the Company will be able to develop, manufacture and distribute new products at acceptable margin levels. -9- Dependence on License Agreement with Executive Officer. Mr. Charles Brister, Chairman and a principal stockholder of the Company, owns certain patents, technology and trademarks which are licensed to the Company, which allows the Company to use certain brand names and utilize the automatic throttle override system and safety fuel tank and filler cap apparatus on its Fun Karts. The termination of the license agreement with Mr. Brister could have an adverse effect upon the Company's ability to produce its current line of Fun Karts. Furthermore, there can be no assurance that if the license agreement were not renewed that the Company could find suitable substitutions for the licensed items and technology or that its Fun Karts, produced without the licensed items and technology, would receive the same market acceptance. Also, there is no assurance that the technology currently licensed to the Company, or that the Company might license in the future, will not quickly become obsolete due to the development of other, more advanced technology by competitors of the Company. See "Certain Relationships and Related Transactions." Dependence upon Company's Ability to Manage Growth and Expansion. The Company's ability to manage its growth, if any, will require it to continue to improve and expand its management, operational and financial systems and controls. Any measurable growth in the Company's business will result in additional demands on its management, administrative, operational, financial and technical resources. There can be no assurance that the Company will be able to successfully address these additional demands. There also can be no assurance that the Company's operating and financial control systems will be adequate to support its future operations and anticipated growth. Failure to manage the Company's growth properly could have a materially adverse effect upon the Company's business, financial condition and results of operations. Seasonality and Fluctuations in Quarterly Operating Results. The Company has historically experienced stronger demand for its products in the third and fourth quarters of each calendar year. Operating results may fluctuate due to factors such as the timing of the introduction of new products, price reductions by the Company and its competitors, demand for the Company's products, new product mix, delay, cancellation or rescheduling of orders, performance of third party manufacturers, available inventory levels, seasonal cost increases and general economic conditions. A significant portion of the Company's operating expenses are relatively fixed. Since the Company typically does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based upon the historic purchasing patterns of its dealers and mass merchandisers and upon its discussions with its dealers and representatives of retail merchandisers as to their future requirements. Cancellations, reductions or delays in orders by a large customer or group of customers could have a materially adverse impact on the Company's business, financial condition and results of operations. Potential Product Liability and Insurance Limits. The nature of the products manufactured and marketed by the Company is such that the products may fail due to material inadequacies or equipment failures. Such a failure may subject the Company to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of its products. As the Company expands its product lines and distributes more products into the marketplace, the Company's exposure to such potential liability will also increase. The Company currently maintains $6 million occurrence basis product liability insurance with a $50,000 deductible and $5 million maximum per occurrence coverage. The Company has four pending product liability claims, none of which are expected to exceed the existing policy limits. The Company has never had a claim that resulted in an award or settlement in excess of insurance coverage. The Company believes that if it is successful in the sale and distribution of a large number and variety of Fun Karts and related products, product liability claims will be inevitable, particularly given the current litigious nature of American consumers. There is no assurance that such insurance coverage will be sufficient to fully protect the business and assets of the Company from all claims, nor can any assurances be given that the Company will be able to maintain the existing coverage or obtain additional coverage at commercially reasonable rates. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a materially adverse effect upon its business, operations, profitability and assets. Delisting of Securities from Nasdaq SmallCap Market. On September 8, 1999, Nasdaq advised the Company that its shares of Common Stock and Warrants were delisted from Nasdaq SmallCap Market for failing to maintain the maintenance standards required for continued listing of the securities. As the Company's Common Stock and Warrants were dropped off the SmallCap Market, they began trading on the NASD Electronic Bulletin Board (Over-the-Counter Bulletin Board - OTCBB). -10-
After the delisting, the sale of the Company's Common Stock and Warrants became subject to certain regulations adopted by the Commission, which imposes sales practice requirements on broker-dealers. For example, broker-dealers selling such securities must, prior to effecting the transaction, provide their customers with a document, which discloses the risks of investing in the Company's Common Stock and Warrants. Furthermore, if the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer must also make a determination of whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in the security. While the Commission's rules may limit the number of potential purchasers of the securities, trading activity of the Company's Common Stock has increased since the delisting. ITEM 2. PROPERTIES Facilities The following table sets forth information concerning the Company's facilities: Date Leased or Expiration of Approximate Location Acquired Description Lease Term Square Footage - ------------------- -------------- -------------------------- ------------- -------------- Roseland, Louisiana 1998 Corporate Offices (1) 2000 4,800 Roseland, Louisiana 1996 Manufacturing facility(1) 2000 48,000 Roseland, Louisiana 2000 Manufacturing facility (2) 2009 40,000 Prattville, Alabama 1996 Manufacturing facility (3) 25,000
- -------------------- (1) The Company and Charles Brister, Chairman of the Company, have entered into a Real Estate lease agreement, which has expired, for the facility, which includes the corporate offices. The monthly rental payment 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. The Company believes the terms of the new lease will be comparable to existing market rates in the region. See "Certain Relationships and Related Transactions." (2) The Company has entered into a prepaid lease agreement with the Town of Roseland, Louisiana for a new manufacturing facility located approximately 1/2 mile from the Company's executive offices. The $200,000 prepaid lease term began October 1, 2000 and runs through September 30, 2009. The prepaid lease will be amortized at a monthly rate of $1,852. The Town of Roseland constructed the facility with an economic development grant from the State of Louisiana. (3) The Prattville facility is situated on a two-acre tract of land owned by the Company. This property is subject to a mortgage held by a financial institution with a principal balance of approximately $184,000 at December 31, 2000 with interest at the financial institution's commercial base rate. The Company is obligated to make monthly payments of principal and interest of $2,626 until 2010. In 2000, the Company relocated the USA Industries manufacturing operations from Prattville to its Roseland facility. The Company is currently seeking a buyer or lessee for its Prattville facilities. ITEM 3. LEGAL PROCEEDINGS The nature of the products manufactured and marketed by the Company is such that the products may fail due to material inadequacies or equipment failures. Such a failure may subject the Company to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of its products. As the Company expands its product lines and distributes more products into the marketplace, the Company's exposure to such potential liability will also increase. The Company currently maintains $6 million occurrence basis product liability insurance with a $50,000 deductible and $5 million maximum per occurrence coverage. The Company has four pending product liability claims, none of which are expected to exceed the existing policy limits. The Company has never had a claim that resulted in an award or settlement in excess of insurance coverage. The Company believes that if it is successful in the sale and distribution of a large number and variety of Fun Karts and related products, product liability claims will be inevitable, particularly given the current litigious nature of American consumers. There is no assurance that such insurance coverage will be sufficient to fully protect the business and assets of the Company from all claims, nor can any assurances be given that the Company will be able to maintain the existing coverage or obtain additional coverage at commercially reasonable rates. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a material adverse effect upon its business, operations, profitability and assets. -11- In addition to product liability claims, the Company, from time to time, is involved in lawsuits in the ordinary course of business. Such lawsuits have not resulted in any material losses to date, and the Company does not believe that the outcome of any existing lawsuits would have a material adverse effect on its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company had no matters requiring of vote of securities holders during the first quarter of 2001. On December 12, 2000, the Company held its annual shareholders meeting (the "Meeting"). 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 were 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 voted as a single class on all matters, which came 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 are 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 are 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 had the right to cast a total of 30,164,992 votes at the Meeting. The following matters were submitted to a vote of the shareholders through solicitation of proxies or otherwise: Election of Directors On the matter of the election of directors, the following nominees received the following votes (including the votes cast by the holders of the Company's Series A and Series B Preferred Stock) for election: Nominee For Against Abstain --------------------------- ------------ ------------ ------------ Charles Brister 24,663,777 54,655 42,957 Blair L. benGerald (1) 24,663,777 54,655 42,957 Geoffrey Craig benRichard 24,663,777 54,655 42,957 Timotheus J. benHarold 24,663,777 54,655 42,957 Other Nominees -0- -0- -0- - -------------------- (1) On February 5, 2001, Mr. benGerald resigned as Chairman of the Board and as a director. Mr. Brister was elected Chairman to replace Mr. benGerald. See "Item 9 - Directors, Executive Officers, Promoters and Central Persons; Compliance with Section 16(a) of the Exchange Act." -12- Approval of the Amendment to the Company's Articles of Incorporation to Increase the Number of Authorized Shares of Common Stock On the matter of amending the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock from 35,000,000 shares to 90,000,000 shares: VOTES ------------------------------------------------------------------- FOR AGAINST ABSTAIN 24,626,408 74,063 60,918 Approval of the Company's 2000 Stock Compensation Plan On the matter of approving the Company's 2000 Stock Compensation Plan: VOTES ------------------------------------------------------------------- FOR AGAINST ABSTAIN 24,335,396 76,516 349,477 -13- PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Until September 8, 1999, the Company's Common Stock and Warrants were traded on the Nasdaq SmallCap Market system under the symbol "KINT" and "KINTW", respectively. On September 8, 1999, the Company's Common Stock and Warrants began trading on the NASD Electronic Bulletin Board (Over-the-Counter Bulletin Board - OTCBB). The following table sets forth the range of high and low closing bid prices for the Common Stock and the Warrants for the periods indicated as reported by the National Quotation Bureau, Incorporated. These prices represent inter-dealer prices, without adjustment for retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions. Warrants Common Stock Bid Price Bid Price ---------------------- ----------------------- Calendar Year 2000 Low High Low High ------------------- ------------ --------- ----------- ---------- First Quarter $0.44 $1.00 $0.03 $0.10 Second Quarter $0.44 $0.76 $0.03 $0.05 Third Quarter $0.31 $0.58 $0.04 $0.06 Fourth Quarter $0.13 $0.41 $0.03 $0.04 Warrants Common Stock Bid Price Bid Price ---------------------- ----------------------- Calendar Year 1999 Low High Low High ------------------- ------------ --------- ----------- ---------- First Quarter $0.44 $1.00 $0.03 $0.31 Second Quarter $0.31 $0.56 $0.03 $0.19 Third Quarter $0.31 $0.81 $0.03 $0.16 Fourth Quarter $0.21 $0.38 $0.00 $1.06 Warrants Common Stock Bid Price Bid Price ---------------------- ----------------------- Calendar Year 1998 Low High Low High ------------------- ------------ --------- ----------- ---------- First Quarter $2.75 $3.75 $0.56 $1.19 Second Quarter $1.94 $3.63 $0.50 $0.88 Third Quarter $1.38 $3.38 $0.25 $0.69 Fourth Quarter $0.28 $1.88 $0.06 $0.25 On February 28, 2001, the closing bid and ask prices for the Common Stock were $0.16 and $0.16, respectively, per share and the closing bid and ask prices for the Warrants were $0.02 and $0.02 per Warrant. As of December 31, 2000, 7,498,392 shares of Common Stock were issued and outstanding and 401,682 Warrants were outstanding. Holders. As of December 31, 2000, the Company estimates that there were approximately 428 record and beneficial holders of the Company's Common Stock, including those whose share are held in broker accounts, and approximately 17 record and beneficial holders of the Warrants. Dividends. The Company has not paid or declared any dividends with respect to its Common Stock nor does it anticipate paying any cash dividends or other distributions on its Common Stock in the foreseeable future. Any future dividends will be declared at the discretion of the Board of Directors of the Company and will depend, among other things, on the Company's earnings, if any, its financial requirements for future operations and growth and such other facts as the Company may then deem appropriate. The Company may issue shares of preferred stock in the future, which may contain restrictions on the payment of dividends. -14- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Caution Regarding Forward-Looking Information This annual report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of the Company or management as well as assumptions made by and information currently available to the Company or management. When used in this document, the words "anticipate," "believe," "estimate," "expect" and "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company regarding future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties noted. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. In each instance, forward-looking information should be considered in light of the accompanying meaningful cautionary statements herein. Recent Developments 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. As of December 31, 2000, notes to Mr. Brister totaling approximately $150,000 were still outstanding. In the 1st quarter of 2001, Mr. Brister provided another temporary working capital loan to the Company for $50,000. At March 15, 2001, promissory notes to Mr. Brister totaling approximately $200,000 were outstanding. Additionally, during the 1st quarter of 2001, The Morgan Creek Company, focused on community development and goodwill, provided temporary funds to the Company of $687,000. Morgan Creek is a private eleemosynary corporation serving as a trustee in a number of faith based endeavors throughout the world. The Morgan Creek notes payable do not bear interest. 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 from June 2000 to February 5, 2001, $205,000. 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, Blair L. benGerald, Geoffrey C. benRichard and Timotheus J. benHarold, were nominated by the Foundation and Board of Directors for election as directors of the Company in June 2000. At the Company's annual meeting on December 12, 2000, the three nominees were re-elected as directors of the Company. On February 5, 2001, Blair L. benGerald resigned as a director and Chairman of the Board of the Company. -15- 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. On November 28, 2000 the Company sold another 14,667 shares of its Series B Preferred Stock to the Foundation for $1,100,000 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 proceeds from the financing received from the Foundation were used to pay long-term and trade debt, working capital and to purchase capital equipment and inventory. On December 27, 2000, The Schlinger Foundation transferred to the Office of the Presiding Almoner of Living Waters, and His Successors, a Corporation Sole organized as a Church under 26 USC Section 507C1A and Nevada revised statutes chapter 84 the following shares of Karts International's Preferred Stock: 4,000,000 shares of the Company's Series A Preferred Stock, and 88,000 shares of the Company's Series B Preferred Stock. These preferred shares represent a combined voting power of the 25,600,000 shares of Common Stock into which they are convertible (8,000,000 for the Series A Preferred Stock and 17,600,000 for the Series B Preferred Stock,). This represents voting control of the Company. The Office of the Presiding Almoner of Living Waters controls the Corporation Sole's decisions pursuant to Statute, but is not controlled by an individual, save being an office. See "Security Ownership of Certain Beneficial Owners and Management." In August 1999, the Company moved the manufacturing of the Straight Line product line to its Prattville, Alabama facility and closed its Michigan facility. The closing of the Michigan facility was part of an overall plan to increase capacity utilization while reducing overhead expenses through the consolidation of its operations. In the first quarter of 2000, the Company relocated the USA Industries manufacturing operations as well as the discontinued Straight Line product line from its Prattville, Alabama facility to its Roseland, Louisiana manufacturing facilities. The closing of the Prattville facility is part of an overall plan to reduce manufacturing and overhead expenses through consolidation of its operations. The Company is currently seeking a buyer or lessee for its Prattville facility. The financial information discussed herein is derived from the historical consolidated financial statements of the Company for the respective years ended December 31, 2000 and 1999. The following discussion reflects historical consolidated financial data for the periods as indicated below. Results of Operations Year Ended December 31, 2000 as compared to Year Ended December 31, 1999. The Company reported revenues of approximately $8.9 million for the year ended December 31, 2000, compared to $12.0 million for year ended December 31, 1999, a 26% decrease. These results reflect an approximate 29% decrease in sales volume of the Company's products. The Company's 2000 sales continued to show a high degree of seasonality, and efforts to mitigate the historical pattern by expanding its sales to merchandisers whose demand is less seasonal were ineffective. The Company intends to continue identifying opportunities to establish new customers whose demand for the Company's products would be during the first half of the year. Management believes that the sales decrease was largely due to the expansion of Murray, Inc. and Yerf Dog, Inc. into the mass retail Fun Kart market. This expansion resulted in a corresponding "flooding" of many mass merchandisers with budget priced go-karts, which drew away many first-time customers who bought competing products at mass merchandisers. Management believes that many of these competing products are of inferior quality to the Company's product, and that these quality concerns will cause a return to the Company's product. Year 2000 sales were also negatively affected by the wide availability of so called "mini 4-wheelers". These new market entrants competed for revenue dollars that historically have been spent on go-karts. Year 2000 saw sales of over 60,000 mini 4-wheelers. This product was relatively unknown two years ago. The Company is investigating entry into the 4-wheel ATV market, and expects to field a Karts International mini 4-wheeler product during the 2nd quarter of 2001. -16- The Company incurred cost of sales of $10.9 million and $11.3 million in 2000 and 1999, respectively. This resulted in gross profit/(loss) of approximately ($2.1) million for the year ended December 31, 2000 and $0.7 million for the year ended December 31, 1999. Gross profit for the year ended December 31, 2000 was negatively affected by decreased sales volumes. The consolidation of the Company's manufacturing activities allowed the Company to improve utilization of its labor force and manufacturing capacity, however the decrease in direct labor charges was more than offset by decreased sales volume and increases in other direct costs. The Company increased its selling prices in 2000, especially on those units that it identified as being underpriced during their introductory period during 1999. Selling, general and administrative expenses totaled approximately $3.4 million for the year ended December 31, 2000 compared to approximately $2.8 million for the year ended December 31, 1999. Other income (expense) totaled approximately $(1.3 million) for the year ended December 31, 2000 compared to $(0.2 million) for the year ended December 31, 1999. The increase in expense is largely attributable to a charge to operations of approximately $0.6 million to record the expiration of the option to acquire Daytona SuperKarts, and the write-off of the note receivable from Daytona SuperKarts as uncollectible, as well as increased interest expense of approximately $0.3 million, and the write-off of some obsolete inventory. Interest expense increased to approximately $703,000 for the year ended December 31, 2000 from approximately $396,000 for the year ended December 31, 2000. This was largely due to the $1,000,000 in new debt. Net loss for the year ended December 31, 2000 was approximately $6,823,000 compared to a net loss of approximately $2,366,000 incurred for the year ended December 31, 1999. Basic loss per share was $0.98 and $0.42 for the years ended December 31, 2000 and 1999, respectively. Year Ended December 31, 1999 as compared to Year Ended December 31, 1998. The Company reported revenues of approximately $12.0 million for the year ended December 31, 1999, compared to $8.2 million for year ended December 31, 1998, a 46% increase. These results reflect significant improvement in both the volume and average selling price of the Company's products. The Company's sales continue to show a high degree of seasonality, however efforts to mitigate the historical pattern by expanding its sales to mass merchandisers whose demand is less seasonal have been effective. The Company intends to continue identifying opportunities to establish new customers whose demand for the Company's products would be during the first half of the year. The Company incurred cost of sales of $11.3 million and $8.8 million in 1999 and 1998, respectively. This resulted in gross profit/(loss) of approximately $0.7 million for the year ended December 31, 1999 and ($0.6 million) for the year ended December 31, 1998. Gross profit for the year ended December 31, 1999 was favorably effected by increased volume and improved selling margins. Both unit sales increases and consolidation of the Company's manufacturing activities allowed the Company to improve utilization of its labor force and manufacturing capacity thereby reducing the per unit burden. The Company increased its selling prices in 1999, especially on those units that it identified as being underpriced during their introductory period during 1998. Other direct costs were controlled and remained approximately the same as costs incurred during 1998 while unit volume increased by approximately 25%. Selling, general and administrative expenses totaled approximately $2.8 million for the year ended December 31, 1999 compared to approximately $3.4 million for the year ended December 31, 1998. The Company was successful in reducing these expenses by approximately 18% through the cost reduction efforts which began during the second quarter of 1999. The Company reduced its management and support staff and implemented new cost controls to bring its expenses back into line with its current volume. The Company will continue to monitor its staffing and allow future increases only to the extent necessary to support increased sales and manufacturing activity. -17- Other income (expense) totaled approximately $(0.2 million) for the year ended December 31, 1999 compared to $(6.1 million) for the year ended December 31, 1998. The decrease in expense is largely attributable to the one-time charge to operations of approximately $5.8 million to recognize the impairment of future recoverability of goodwill recorded in 1998. Additionally in 1998, the Company charged to operations approximately $289,000 for reorganization expenses. Interest expense increased to approximately $396,000 for the year ended December 31, 1999 from approximately $92,000 for the year ended December 31, 1998. This was due to a higher level of borrowing on the Company's working capital lines of credit and the $1,500,000 in new debt. Net loss for the year ended December 31, 1999 was reduced to approximately $2,366,000 from a net loss of approximately $10,073,000 incurred for the year ended December 31, 1998. Basic loss per share was $0.42 and $2.05 for the years ended December 31, 1999 and 1998, respectively. Additional Operations Information. The Company currently has four product liability lawsuits outstanding, none of which are expected to exceed existing product liability insurance policy limits. The Company has never had a claim that resulted in an award or settlement in excess of insurance coverage. There is no assurance that the Company's insurance coverage of $6,000,000 per occurrence and $5,000,000 aggregate will be sufficient to fully protect the business and assets of the Company from all claims, nor can any assurances be given that the Company will be able to maintain the existing coverage or obtain additional coverage at commercially reasonable rates. Management believes that it has process controls on its product operations, product labeling, operator's manuals, and design features which will assist in a successful defense of any present or future product liability claim. To the extent product liability losses are beyond the limits or scope of the Company's insurance coverage, the Company could experience a material adverse effect upon its business, operations, profitability and assets. See "Item 3 - Legal Proceedings." Seasonality The Company experiences significant seasonality in its sales pattern with approximately 50% of its revenue being recorded in the fourth quarter of the year. Sales of Fun Karts are generally the lowest during the first quarter of each calendar year. Since the Company typically does not obtain long-term purchase orders or commitments from its customers, it must anticipate the future volume of orders based upon the historic purchasing patterns of its dealers and retail merchandisers and its current on-going discussions with its dealers and representatives of retail merchandisers as to their future requirements. Cancellations, reductions or delays by a large volume dealer or mass merchandiser could have a materially adverse impact on the Company's business, financial condition and results of operations. Traditionally, many of the Company's dealers have sold Fun Karts only during the Christmas holiday season. Many retail merchandisers are constrained by limited floor space, which tends to force the dealers into seasonal purchasing of karts. The Company intends to increase marketing to alternative merchandisers whose sales could mitigate the highly seasonal buying pattern of its traditional dealer base. The Company also intends to offset the seasonal aspects of its current business operations through utilizing its manufacturing capacity in alternative, less seasonal, operations such as job shop manufacturing. Liquidity and Capital Resources At December 31, 2000, the Company had working capital of approximately $2.9 million as compared to negative working capital of approximately $(0.2) million at December 31, 1999. The increase in working capital is largely due to a large increase in the inventory balance at year-end 2000, and the shift of current (short-term) liabilities to long-term debt. The Company experienced negative cash flow from operations of approximately $6,524,000 and $3,484,000 for calendar 2000 and 1999, respectively. -18- During the year ended December 31, 2000, the Company expended cash of approximately $729,000 on capital improvements; consisting of expansion of its manufacturing facilities, leasehold improvements and capital. The 2000 cash consumption by operating and investing activities was funded from the net proceeds from the sale of 4,000,000 shares of Series A Preferred Stock, 88,000 shares of Series B Preferred Stock, 1,639,995 shares of Common Stock, and from the issuance of an additional $1,000,000 of secured debentures. The Company's continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis. See "Item 1 - Business; Business Risk Factors - Uncertainty of Ability of the Company to Continue as a Going Concern." Management believes that efforts to raise additional capital through the sale of equity securities and/or new debt financing will provide additional cash flows. However, there can be no assurance that the Company will be able to obtain additional funding or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. Management believes that through strategic alignment with key suppliers, introducing a new marketing paradigm and plan, and introduction of a new product line it will see significant sales volume and revenue increases which will allow it to fund ongoing operations from internal cash flow. Additionally, the Company has entered a job shop venture whereby it will use excess or idle capacity for custom manufacturing and painting jobs. There has been a strong initial response to the job shop venture, and job shop sales are projected to increase. Management believes that its new business plans will increase sales and enable the Company to become profitable. Fun Karts are recreational products however so there can be no certainty of success in plans to increase sales, and Fun Kart sales could be negatively affected by an overall downturn in national economic conditions. The Company's management does not believe that inflation has had a significant effect on the Company's operations during the last several years. The Company's management believes that USA and Brister's have historically been able to pass on increased costs of production to the price charged for their products; however, no assurance can be given that the Company will continue to be able to pass on such increased costs in the future. The Company may need additional financing to achieve full implementation of its long-term growth strategy and for working capital. There can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS See Index to Consolidated Financial Statements beginning on Page F-2 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are not and have not been any disagreements between the Company and its accountants on any matter of accounting principles or practices or financial statement disclosure. -19- PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Directors and Executive Officers The following table sets forth certain information concerning the directors and executive officers of the Company at March 26, 2001: Name Age Position - ------------------------------- --- ----------------------------------------- Charles Brister(1)(2)(3) 49 Chairman of the Board and Director Timotheus J. benHarold(1)(2)(4) 38 President, Chief Executive Officer and Director Edward H. Cook 35 Vice President and Chief Financial Officer Geoffrey Craig benRichard(2) 47 Vice President of Legal Affaires, Secretary and Director John Brian Willms 32 Chief Information Officer - -------------------- (1) Members of the Company's Compensation Committee. (2) Members of the Company's Audit Committee. (3) On February 5, 2001, Mr. Brister resigned as President and Chief Executive Officer of the Company. Mr. Brister was elected on February 5, 2001 as Chairman of the Board and will remain active in the day-to-day operations of the Company. Mr. Brister replaced Blair L. benGerald who had resigned as Chairman of the Board and Director on February 5, 2001. (4) Mr. benHarold was elected as President and Chief Executive Officer on February 5, 2001 to replace Mr. Charles Brister. Mr. benHarold had previously served as Executive Vice President - Corporate Development for the Company. The Company may employ such additional management personnel as the Board of Directors of the Company deems necessary. The Company has not identified nor reached an agreement or understanding with any other individuals to serve in such management positions, but does not anticipate any difficulty in employing qualified individuals. Directors of the Company are elected by the stockholders at each annual meeting and serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed or their earlier resignation or removal from office. Information regarding the directors and management of the Company is set forth below. Charles Brister is Chairman of the Board and a director of the Company. He has served as Chairman of the Board since February 5, 2001. He served as President and Chief Executive Officer from January 1999 to February 5, 2001 when he resigned. 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 will continue to be active in the day-to-day operations of the Company. Mr. Brister also serves as a director of First Guaranty Bank, Hammond, Louisiana. Timotheus James benHarold has served as a director since June 2000 and has served as President and Chief Executive Officer of the Company since February 5, 2001 when he was elected to such position to replace Charles Brister. Mr. benHarold was employed as Executive Vice President - Corporate Development of the Company from June 2000 to February 5, 2001 when he became President and Chief Executive Officer. 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. Mr. benHarold will be responsible for the overall management and administration of the operations of the Company. -20- Edward H. Cook has served the Company as Vice President and Chief Financial Officer since September 2000. Mr. Cook was employed with Texas Instruments from June 1988 until December 1994. From 1995 to August 2000 he was employed with GTE Corporation which changed its name to Verizon Corporation as a result of a merger with Bell Atlantic. His recent experience includes tenure as a Financial Consultant to Verizon Corporation in Irving, Texas. He also brings extensive corporate experience in management and financial analysis from his service with GTE Corporation and Texas Instruments Incorporated. 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. John Brian Willms has served the Company as Chief Information Officer since November 2000. From 1991 to 1997, Mr. Willms was employed with J.C. Penney & Co. and from 1997 to February 1999 he was employed with Electronic Data Systems. From March 1999 to December 1999, he was employed with Software Spectrum. From January 2000 until his employment with the Company, Mr. Willms was employed with Data Return. Mr. Willms brings to the Company a depth of experience in information systems management. His recent tenure includes systems management experience with Data Return Corporation, and Consulting and Infrastructure Management with Software Spectrum and Electronic Data Systems. There are no family relationships among any of the Company's officers and directors. Section 16(a) Beneficial Ownership Report Compliance The Company is not aware of any transactions in its outstanding securities by or on behalf of any director, executive officer or 10% holder of the Common Stock, which would require the filing of any report pursuant to Section 16(a) that was not filed by the Company. ITEM 10. 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. -21-
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).......................... 2000 $200,000 $ -0- -0- 450,000(3) 1999 $150,000(2) $ -0- -0- 450,000(3) Robert M. Aubrey, former Chief Executive Officer and President(4).......... 1998 $140,625 $22,825(5) -0- 200,000 - ----------------------------------------------------------------------------------------------------------
- -------------------- (1) In January 1999, Mr. Brister was elected President and Chief Executive Officer of the Company. On February 5, 2001, Mr. Brister resigned as President and Chief Executive Officer of the Company. He was elected on February 5, 2001 as Chairman of the Board. Timotheus James benHarold was elected by the Board as President and Chief Executive Officer to replace Mr. Brister. (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. Such shares will be issued and delivered to Mr. Brister in 2001. (3) See "Executive Compensation - Employment Agreements and Related Matters" and "- Stock Options" (4) 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." (5) Principally housing and transportation allowance. 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 by the Board 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." 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, -22-
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. Mr. Brister resigned as President and Chief Executive Officer on February 5, 2001 and was elected to serve as Chairman of the Board. This resignation voluntarily terminated the employment agreement and Mr. Brister's options to purchase 250,000 shares of common stock which had not vested as of February 5, 2001. 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 "Settlement Agreement") for the purpose of satisfying and discharging all obligations of the Company to Mr. Aubrey under the Aubrey Agreement. The Settlement 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 $1.06 per share, which options were granted to replace the options to purchase 200,000 shares of Common Stock that were canceled at separation. The options are vested and expire on January 20, 2004. To provide for continuity of management, the Company may enter into employment agreements with other members of its executive management staff. Stock Options The following table reflects options granted to the Company's President and Chief Executive Officer during 2000: Option/Grants in Last Fiscal Year Number of Percent of Securities Total Options Potential realizable value Underlying Granted to at assumed annual rates of Options Employees in Exercise Expiration stock price appreciation Name/Title Granted Fiscal 2000 Price ($/sh) Date for option term - -------------------------------- ---------- ------------- ------------ ---------- -------------------------- Charles Brister, President 450,000(1) 100 $0.375 See 5% 10% and Chief Executive Officer..... footnote ------------ ------------- (1) $58,500 $144,000
- -------------------- (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. Of the options to purchase 350,000 shares, 100,000 vested on August 21, 2000. The remaining options to purchase 100,000 shares which vest on June 1, 2002 and the options to purchase 150,000 shares which vest on June 1, 2003 were terminated as a result of Mr. Brister's resignation as President and Chief Executive Officer on February 5, 2001. The options to purchase 200,000 which are vested expire June 1, 2005. See "Executive Compensation - Employment Agreements and Related Matters." -23-
Aggregate Fiscal Year-End Option Values Number of Securities Underlying Market Value of Unexercised Unexercised Options at Fiscal Year-End Options at Fiscal Year-End(1) -------------------------------------- --------------------------------- Name/Title Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------ ------------------- ------------------ --------------- ----------------- Charles Brister, President and Chief 200,000 250,000(2) -0- -0- Executive Officer.......................
- -------------------- (1) The exercise price per share of all options issued by the Company was $0.37 on date of grant. The closing bid price of the Company's Common Stock as quoted on the NASD Electronic Bulletin Board at year end was less than the $0.37 per share exercise price. (2) On February 5, 2001, as a result of Mr. Brister's resignation as President and Chief Executive Officer, these options terminated. 1998 and 2000 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. On December 12, 2000, the stockholders of the Company approved the 2000 Stock Compensation Plan (the "2000 Plan"), which initially reserves 750,000 shares of Common Stock for issuance under the 2000 Plan. The 2000 Plan was effective on October 19, 2000 and terminates on October 19, 2010. The 1998 Plan and 2000 Plan are both administered by the Compensation Committee (the "Committee") or the entire Board. The 1998 and 2000 Plans (collectively the "Plans") have similar terms. Eligible participants in the Plans include full time employees, directors and advisors of the Company and its subsidiaries. Options granted under the Plans 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 Plans the Company may also grant "Restricted Stock" awards. "Restricted Stock" represents shares of Common Stock issued to eligible participants under the Plans 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 Plans 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 Plans 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. -24- The purchase price of the shares of the Common Stock offered under the Plans 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 Plans, 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. Other Stock Options 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 39,484 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. -25-
There were no exercises of any options during the years ended December 31, 2000 and 1999. The weighted average exercise price of all outstanding options at December 31, 2000 and 1999, respectively, was $0.35 and $1.07. Compensation of Directors Directors of the Company receive no compensation for serving on the Board. The Company will reimburse directors for out-of-pocket expenses incurred for attending meetings. Meetings and Committees of the Board of Directors The business of the Company is managed under the direction of the Board of Directors. The Board of Directors met on seven occasions during calendar 2000, 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 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, if any. The Compensation Committee did not meet during calendar year 2000. 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 year 2000. ITEM 11. 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 March 2, 2001 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. Shares Beneficially Percentage of Shares Name(1) Owned Beneficially Owned ---------------------------------------------------------- ------------------- -------------------- Charles Brister(2)...................................... 2,539,091 26.8 Geoffrey Craig benRichard(3)............................ -0- -0- Timotheus James benHarold(4)............................ -0- -0- Edward H. Cook(5)....................................... -0- -0- J. Brian Willms(6)...................................... -0- -0- Halter Financial Group, Inc.(7)......................... 478,260 6.3 The Schlinger Foundation(8)............................. 3,174,512 31.3 Office of Presiding Almoner of Living Waters, and his 25,600,000 77.3 successors, a corporation sole (9) Officers and directors as a group (5 persons)(10)....... 2,539,091 27.4
- ------------------------- (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 which will be issued in 2001. Mr. Brister is the Chairman of the Board and a director of the Company. See "Executive Compensation - Summary Compensation Table" and "Certain Relationships and Related Transactions." -26- (3) Mr. Geoffrey Craig benRichard is Vice President of Legal Affaires, Secretary and a director of the Company. (4) Mr. Timotheus James benHarold is President and Chief Executive Officer and a director of the Company. (5) Mr. Cook is a Vice President and Chief Financial Officer of the Company. (6) Mr. Willms is the Chief Information Officer of the Company. (7) 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. (8) Includes 2,000,000 shares of Common Stock issuable upon conversion of 500,000 shares 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 Schlinger Foundation's address is c/o Evert Schlinger, Trustee, 1944 Edison Street, Santa Ynez, California 93460. See "Certain Relationships and Related Transactions." (9) On December 27, 2000, The Schlinger Foundation transferred to the Office of the Presiding Almoner of Living Waters, and His Successors, a Corporation Sole organized as a Church under 26 USC Section 507C1A and Nevada revised statutes chapter 84 the following shares of Karts International's Preferred Stock: 4,000,000 shares of the Company's Series A Preferred Stock, and 88,000 shares of the Company's Series B Preferred Stock. These preferred shares represent a combined voting power of the 25,600,000 shares of Common Stock into which they are convertible (8,000,000 for the Series A Preferred Stock and 17,600,000 for the Series B Preferred Stock,). This represents voting control of the Company. The Office of the Presiding Almoner of Living Waters controls the Corporation Sole's decisions pursuant to Statute, but is not controlled by an individual, save being an office. (10) 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 during 2001. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company and Charles Brister, the former Chief Executive Officer and President of the Company and currently a director and Chairman of the Board, 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 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 December 31, 2000, promissory notes totaling approximately $150,000 were still outstanding. 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, -27- 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 December 31 payment has been deferred until the Company's cash flow from operations improves. 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. 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 from June 2000 to February 5, 2001, $205,000. Blair L. benGerald was not an officer or director of the Company when he received this payment. -28- 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, Blair L. benGerald, Geoffrey C. benRichard and Timotheus J. benHarold, were nominated by the Foundation and Board of Directors for election as directors of the Company. On December 12, 2000, the three nominees were elected as directors of the Company. On February 5, 2001, Blair L. benGerald resigned as a director and Chairman of the Board 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. On November 28, 2000 the Company sold another 14,667 shares of its Series B Preferred Stock to the Foundation for $1,100,000 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. As a result of the purchase of the Series A and Series B 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 in June 2000. On December 27, 2000, the Foundation transferred 4,000,000 shares of the Company's Series A Preferred Stock and 88,000 shares of the Company's Series .B Preferred Stock to The Office of the Presiding Almoner of Living Waters, and His Successors, a Corporation Sale organized as a Church under 26 USC Section 508CIA and Nevada revised statutes chapter 84. The Series A and Series B Preferred Stock represents combined voting power of 25,600,000 shares of Common Stock into which the Preferred Stock is convertible (8,000,000 shares of Common Stock for the 4,000,000 shares of Series A Preferred Stock and 17,600,000 shares of Common Stock for the 88,000 shares of Series B Preferred Stock). The transfer of the Preferred Stock to The Office of the Presiding Almoner of Living Waters represents a change in control of the Company since the Office of the Presiding Almoner has the right to a total of 25,600,000 votes at any meeting of shareholders 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. See "Item 11 Security Ownership of Certain Beneficial Owners and Management." 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. -29- The Foundation, Charles Brister, former President and Chief Executive Officer of the Company and currently Chairman of the Board, 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 former 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 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, Blair L. benGerald also acted as an intermediary and received in October 2000 $500,000, and in November 2000 $100,000, 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. 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. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit Number Description of Exhibit - -------------- ---------------------------------------------------------------- 2.1* Agreement and Plan of Merger, dated April 16, 1996, by and between Sarah Acquisition Corporation and the Company. 2.2* Stock Purchase Agreement, dated January 16, 1996, by and among Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have been omitted, but will be furnished to the Commission upon request). 2.3* Amendment to Stock Purchase Agreement, dated March 15, 1996, by and among Halter Financial Group, Inc. on behalf of the Company, Brister's Thunder Karts, Inc., and Charles Brister (Schedules have been omitted, but will be furnished to the Commission upon request). 2.4* Stock Purchase Agreement, dated October 4, 1996, by and among the Company, USA Industries, Inc., Jerry Michael Allen, Angela T. Allen, Johnny C. Tucker, and Carol Y. Tucker (Schedules have been omitted, but will be furnished to the Commission upon request). 2.5* Consulting Agreement, dated January 16, 1996, by and between Halter Financial Group, Inc. and Sarah Acquisition Corporation. 3.1* Articles of Incorporation of the Company. 3.2* Bylaws of the Company. 3.3* Certificate to Decrease Authorized Shares of Common Stock, dated March 12, 1997. 3.4+ Amended and Restated Bylaws of the Company effective May 16, 2000. 3.5+ Certificate of Amendment to the Company's Articles of Incorporation as filed on January 19, 2001 with the Nevada Secretary of State. 4.1* Specimen of Common Stock Certificate. -30- 4.2* Form of Warrant Agreement covering the Warrants. 4.3* Form of Redeemable Common Stock Purchase Warrants issued in connection with the sale of the Warrants. 4.4* Form of Redeemable Common Stock Purchase Warrant issued in the Company's private offering of Units, completed November 15, 1996 (the "1996 Warrants"). 4.5* Form of Common Stock Purchase Warrant issued in the Company's offering of Units pursuant to Rule 504, completed July 2, 1996 (the "Class A Warrants"). 4.6* Certificate of Designation Establishing Series of Preferred Stock, filed with the Secretary of State of Nevada on November 15, 1996. 4.7* Specimen of Convertible Preferred Stock Certificate. 4.8*** Form of Stock Warrant issued on March 8, 1999 to KBK Financial, Inc. 4.9**** Certificate of Designation, Preferences and Rights of 9% Cumulative Convertible Preferred Stock filed with the Secretary of State of Nevada on May 3, 1999. 4.10+ Certificate of Designation Establishing Series B Preferred Stock of the Company filed with the Secretary of State of the State of Nevada on October 6, 2000. 4.11+ Certificate of Designation Establishing Series A Preferred Stock of the Company as filed on May 17, 2000 with the Nevada Secretary of State. 9.1+ Voting Agreement dated as of May 17, 2000, executed by and among the Company, the Schlinger Foundation ("Schlinger"), Charles Brister and Richard N. Jones. 10.1* Lease Agreement, dated March 18, 1996, by and between Northpark Properties, L.L.C. and the Company. 10.2* License Agreement, dated March 15, 1996, by and between the Company and Charles Brister. 10.3* Addendum "A" to License Agreement, dated March 15, 1997, by and between the Company and Charles Brister. 10.4* Royalty Agreement, dated March 15, 1997, by and between the Company and Charles Brister. 10.5* $1,000,000 Subordinated Promissory Note, dated March 15, 1996, payable to Charles Brister, executed by Brister's Thunder Karts, Inc., as maker. 10.6* $200,000 Promissory Note, dated April 1, 1996, payable to Charles Brister, executed by the Company, as maker. 10.7* Commercial Security Agreement, by and among Charles Brister, as secured party, Brister's Thunder Karts, Inc., as borrower, and Robert W. Bell and Gary C. Evans, as pledgors. 10.8* $2,000,000 Promissory Note, dated March 15, 1996, payable to The Schlinger Foundation, executed by the Company, as maker, and by Brister's Thunder Karts, Inc., as pledgor. 10.9* Commercial Security Agreement, by and among The Schlinger Foundation, as secured party, the Company, as borrower, and Brister's Thunder Karts, Inc., as pledgor. 10.10* Vendor Agreement, dated June 5, 1996, by and between Wal-Mart Stores, Inc. and Brister's Thunder Karts, Inc. 10.11* Vendor Agreement, dated September 30, 1996, by and between Wal-Mart Stores, Inc. and USA Industries, Inc. 10.12* Floor Plan Agreement, dated September 9, 1996, by and among Deutsche Financial Services Corporation, the Company, and Brister's Thunder Karts, Inc. 10.13* Guaranty of Vendor, dated September 9, 1996, executed by the Company and Brister's Thunder Karts, Inc. in favor of Deutsche Financial Services Corporation. 10.14* Employment Agreement, as amended, dated March 15, 1996, by and between the Company and V. Lynn Graybill. 10.15* Consulting Engagement Letter, dated February 19, 1997, by and between Charles Brister, as consultant, and the Company. 10.16* Letter Agreement, dated January 21, 1997, by and between Bobby Labonte, as national spokesman for the Company, and the Company. 10.17* Consulting Agreement, dated March 16, 1997, by and between the Company and Halter Financial Group, Inc. 10.18* Form of Private Placement Subscription Participation Option Notice, dated March 6, 1997, relating to the Company's November 1996 private offering. -31- 10.19* $300,000 Universal Note, dated August 13, 1996, payable to Deposit Guaranty National Bank, executed by Brister's Thunder Karts, Inc., as borrower. 10.20* Security Agreement, dated August 13, 1996, by and between Brister's Thunder Karts, Inc., as debtor, and Deposit Guaranty National Bank, as secured party, relating to the $300,000 Universal Note referenced as Exhibit 10.19. 10.21* Collateral Pledge Agreement, dated August 13, 1996, by Brister's Thunder Karts, Inc., as pledgor, relating to the $300,000 Universal Note referenced as Exhibit 10.19. 10.22* Guaranty, dated August 13, 1996, executed by the Company, as guarantor, for the benefit of Deposit Guaranty National Bank, as lender, and Brister's Thunder Karts, Inc., as borrower, relating to the $300,000 Universal Note referenced as Exhibit 10.19. 10.23* $500,000 Loan Agreement, dated October 1, 1996, by and between USA Industries, Inc., as debtor, and Deposit Guaranty National Bank of Louisiana, as secured party, relating to the $500,000 Universal Note referenced as Exhibit 10.24. 10.24* $500,000 Universal Note, dated October 1, 1996, by and between USA Industries, Inc., as borrower, and Deposit Guaranty National Bank, as lender. 10.25* Security Agreement, dated October 1, 1996, by and between USA Industries, Inc., as debtor, and Deposit Guaranty National Bank of Louisiana, as secured party, relating to the $500,000 Universal Note referenced as Exhibit 10.24. 10.26* Financing Statement, by and between USA Industries, Inc., as debtor, and Deposit Guaranty National Bank of Louisiana, as secured party, relating to the Universal Note referenced as Exhibit 10.24. 10.27* Guaranty, dated October 1, 1996, executed by Karts International Incorporated, as guarantor, for the benefit of Deposit Guaranty National Bank, as lender, and USA Industries, Inc., as borrower, relating to the $500,000 Universal Note referenced as Exhibit 10.24. 10.28* Placement Agency Agreement, dated November 8, 1996, by and between the Company and Argent Securities, Inc. 10.29* Option Agreement, dated March 15, 1996, by and between Charles Brister, as seller, and Brister's Thunder Karts, Inc., as Purchaser. 10.30* Lease of Commercial Property, dated September 27, 1995, by and between Charles Brister, as lessor, and Brister's Thunder Karts, Inc., as lessee, as amended by that certain Amended Lease of Commercial Property, dated November 30, 1995, as amended by that certain First Amendment to Lease of Commercial Property, dated March 15, 1996. 10.31* Non-Competition Agreement, dated March 15, 1996, by and between Charles Brister and the Company. 10.32* Non-Competition Agreement (Louisiana), dated March 15, 1996, by and between Charles Brister and the Company. 10.33* Form of Non-Qualified Stock Option Agreement between the Company and the participants in the July 1996 Stock Option Plan. 10.34* Form of Non-Qualified Stock Option Agreement between the Company and the participants in the January 1997 Stock Option Plan. 10.35* Escrow Agreement, dated March 31, 1996, between Halter Financial Group, Inc., Securities Transfer Corporation and the Company. 10.36* Letter Agreement between Brister's Thunder Karts, Inc. and Deposit Guaranty National Bank extending the maturity date of the $300,000 Universal Note referenced in Exhibit 10.19. 10.37* Letter Agreement between The Schlinger Foundation and the Company, dated August 28, 1997, regarding the conversion of $1 million of the principal amount of the Schlinger Note into 250,000 shares of Common Stock. 10.38** Employment Agreement, dated January 30, 1998, by and between the Company and Robert M. Aubrey. 10.39*** Loan Agreement dated September 28, 1998 by and between the Company and KBK Financial, Inc. -32- 10.40*** First Amendment to Loan Agreement dated March 8, 1999 by and between the Company, USA Industries, Inc. ("USA"), KINT, L.L.C. ("KINT"), Brister's Thunder Karts, Inc. ("Brister's") and KBK Financial, Inc. 10.41*** Revolving Credit Promissory Note (Inventory) dated March 8, 1999 executed in favor of KBK Financial, Inc. by the Company. 10.42*** Revolving Credit Promissory Note (Accounts Receivable) dated March 8, 1999 executed in favor of KBK Financial, Inc. by the Company. 10.43**** Loan Agreement dated June 3, 1999 between the Company and Schlinger. 10.44**** Convertible Term Note dated June 3, 1999 in the principal amount of $1.5 million executed by Company and payable to Schlinger. 10.45**** Security Agreement dated June 3, 19999 by and between the Company and Schlinger. 10.46**** Waiver and First Amendment to Loan Agreement dated July 12, 1999 by and between the Registrant and Schlinger. 10.47+ Employment Agreement dated June 1, 2000 between the Company and Charles Brister. 10.48+ Amendment No. 1 dated October 23, 2000 to the Employment Agreement dated June 1, 2000 between the Company and Charles Brister. 10.49+ Amended and Restated Loan Agreement dated May 17, 2000, executed by the Company, as Borrower, and Schlinger, as Lender. 10.50+ Promissory Note dated May 17, 2000 in the principal amount of $2.5 million payable by the Company to Schlinger. 10.51+ Amended and Restated Guaranty dated May 17, 2000, executed by Straight Line Manufacturing, Inc., a subsidiary of the Company ("SLM"), to guarantee payment of the Note referenced in Exhibit 10.50. 10.52+ Amended and Restated Guaranty dated May 17, 2000, executed by USA Industries, Inc., a subsidiary of the Company ("USA") to guarantee payment of the Note referenced in Exhibit 10.50. 10.53+ Amended and Restated Guaranty dated May 17, 2000, executed by KINT, L.L.C., a subsidiary of the Company ("KINT") to guarantee payment of the Note referenced in Exhibit 10.50. 10.54+ Amended and Restated Guaranty dated May 17, 2000, executed by Brister's Thunder Karts, Inc., a subsidiary of the Company ("Brister's") to guarantee payment of the Note referenced in Exhibit 10.50. 10.55+ Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by the Company in favor of Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.50. 10.56+ Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by SLM and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.50. 10.57+ Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by USA and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.50. 10.58+ Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by KINT and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.50. 10.59+ Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by Brister's and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.50. 10.60+ Stock Purchase Agreement between the Company and Schlinger dated May 17, 2000 regarding the sale of 4,000,000 shares of Series A Preferred Stock of the Company to Schlinger for an aggregate purchase price of $3,000,000 (exhibits and schedules omitted). 10.61+ Registration Rights Agreement dated as of May 17, 2000, executed by the Company and Schlinger. 10.62+ Stock Purchase Agreement dated October 9, 2000 between the Company and the Schlinger Foundation in connection with the purchase by Schlinger of 73,333 shares of Series B Preferred Stock of the Company for an aggregate purchase price of $5,500,000 (exhibits and schedules omitted). -33- 10.63+ Stock Purchase Agreement between the Company and the Schlinger Foundation dated November 28, 2000 regarding the purchase by the Foundation of 14,667 shares of Series B Preferred Stock of the Company for an aggregate purchase price of $1,100,000. 10.64+ License Agreement dated August 1, 2000 between the Company and Charles Brister providing for the Company to use the pedal override and clutch lube systems on its products held under certain patent rights by Charles Brister. 10.65+ License Agreement dated October 10, 2000 between Charles Brister and the Company to market safety fuel tank and filler cap apparatus which is held under certain patent rights by Charles Brister. 10.66+ License Agreement between Polaris Industries and the Company dated January 6, 2000. 10.67+ Amendment No. 1 to Registration Rights Agreement dated October 9, 2000 by and among the Company and Schlinger. 21.1*** Subsidiaries of the Company. 27.1+ Financial Data Schedule - --------------- * Previously filed as an exhibit to the Company's Registration Statement on Form SB-2 (SEC File No. 333-24145) and incorporated by reference herein. ** Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997, as filed with the U.S. Securities and Exchange Commission on March 30, 1998. *** Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. **** Previously filed as an exhibit to the Company's Current Report on Form 8-K with the Commission on July 28, 1999 reporting an event which occurred on June 30, 1999. + Filed herewith. (b) Reports on Form 8-K: On December 19, 2000, the Registrant filed a Current Report on Form 8-K reporting the results of the shareholder votes at the annual meeting of shareholders held on December 12, 2000. -34- SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 29, 2001. KARTS INTERNATIONAL INCORPORATED (Registrant) By: /s/ Timotheus James benHarold By: /s/ Edward Cook ------------------------------------- --------------------------------- Timotheus James benHarold, President, Edward Cook, Vice President and Chief Executive Officer and Director Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Charles Brister Chairman of the Board and March 29, 2001 - ------------------------------- Director Charles Brister /s/ Timotheus James benHarold President, Chief Executive March 29, 2001 - ------------------------------- Officer and Director Timotheus James benHarold /s/ Edward Cook Vice President and Chief March 29, 2001 - ------------------------------- Financial Officer Edward Cook /s/ Geoffrey Craig benRichard Vice President of Legal March 29, 2001 - ------------------------------- Affaires, Secretary and Geoffrey Craig benRichard Director -35- KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES Financial Statements and Auditor's Report December 31, 2000 and 1999 S. W. HATFIELD, CPA certified public accountants Use our past to assist your future sm F-1 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONTENTS Page ---- Report of Independent Certified Public Accountants F-3 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2000 and 1999 F-4 Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2000 and 1999 F-6 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2000 and 1999 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999 F-8 Notes to Consolidated Financial Statements F-10 F-2 S. W. HATFIELD, CPA certified public accountants Member: American Institute of Certified Public Accountants SEC Practice Section Information Technology Section Texas Society of Certified Public Accountants REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- Board of Directors and Shareholders Karts International Incorporated We have audited the accompanying consolidated balance sheets of Karts International Incorporated (a Nevada corporation) and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations and comprehensive income, changes in shareholders' equity and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Karts International Incorporated and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has suffered recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. S. W. HATFIELD, CPA Dallas, Texas March 1, 2001 Use our past to assist your future sm (secure mailing address) (physical delivery address) P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor Dallas, Texas 75382-0395 Dallas, Texas 75243-7212 214-342-9635 (voice) (fax) 214-342-9601 800-244-0639 SWHCPA@aol.com F-3
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 ASSETS ------ 2000 1999 ------------ ------------ Current assets Cash on hand and in bank $ 232,593 $ 399,639 Accounts receivable Trade, net of allowance for doubtful accounts of $45,250 and $198,065, respectively 2,392,290 2,485,561 Other 11,433 16,473 Inventory 4,113,038 2,214,678 Prepaid expenses 646,137 350,606 ------------ ------------ Total current assets 7,395,491 5,466,957 ------------ ------------ Property and equipment - at cost 3,237,367 2,458,695 Accumulated depreciation (837,209) (522,023) ------------ ------------ 2,400,158 1,936,672 Land 32,800 32,800 ------------ ------------ Net property and equipment 2,432,958 1,969,472 ------------ ------------ Other assets Deposits and other 21,342 27,349 Note receivable -- 415,685 Option to acquire an unrelated entity -- 138,001 Costs to facilitate loans, net of accumulated amortization of approximately $49,182 and $9,650, respectively 256,346 23,436 Covenant not to compete, net of accumulated amortization of approximately $72,222 and $38,889, respectively 27,778 61,111 Organization costs, net of accumulated amortization of approximately $104,542 and $82,691, respectively 4,713 26,564 ------------ ------------ Total other assets 310,179 692,146 ------------ ------------ TOTAL ASSETS $ 10,138,628 $ 8,128,575 ============ ============
- Continued - The accompanying notes are an integral part of these consolidated financial statements. F-4 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED December 31, 2000 and 1999 LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ 2000 1999 ------------ ------------ Current liabilities Notes payable to banks and others $ -- $ 2,724,005 Notes payable to affiliates 150,000 229,395 Current maturities of long-term debt 56,025 57,482 Accounts payable - trade 2,940,788 2,068,404 Other accrued liabilities 1,005,473 587,502 Accrued interest payable 85,092 18,523 Accrued dividends payable 257,147 -- Federal and State income taxes payable 45,100 -- ------------ ------------ Total current liabilities 4,539,625 5,685,311 ------------ ------------ Long-term liabilities Notes payable, net of current maturities Long-term debt, net of current maturities 269,878 266,100 Banks and individuals 2,500,000 1,500,000 ------------ ------------ Total liabilities 7,309,503 7,451,411 ------------ ------------ Commitments and contingencies Shareholders' Equity Preferred stock - $0.001 par value 10,000,000 shares authorized; 5,638,000 and 1,550,000 issued and outstanding, respectively 5,638 1,550 Common stock - $0.001 par value 14,000,000 shares authorized; 7,498,392 and 5,574,298 shares issued and outstanding, respectively 7,498 5,574 Additional paid-in capital 24,976,651 15,611,373 Accumulated deficit (22,160,754) (14,941,333) ------------ ------------ Total shareholders' equity 2,829,125 677,164 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,138,628 $ 8,128,575 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-5
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME December 31, 2000 and 1999 2000 1999 ------------ ------------ Revenues Kart sales - net $ 8,854,343 $ 11,997,785 ------------ ------------ Cost of sales Purchases 7,736,778 7,979,959 Direct labor 882,846 1,314,202 Other direct costs 2,299,001 2,036,030 ------------ ------------ Total cost of sales 10,918,625 11,330,191 ------------ ------------ Gross profit (2,064,282) 667,594 ------------ ------------ Operating expenses Research and development expenses 127,377 7,775 Selling expenses 488,564 459,253 General and administrative expenses Salaries and related costs 1,317,476 1,194,002 Other operating expenses 1,329,276 974,389 Depreciation and amortization 182,885 139,976 ------------ ------------ Total operating expenses 3,445,578 2,775,395 ------------ ------------ Loss from operations (5,509,860) (2,107,801) ------------ ------------ Other income (expense) Interest expense (702,907) (396,219) Expiration of option to acquire another entity (138,001) -- Write off of uncollectible note receivable (425,060) -- Write off of obsolete inventory (51,385) -- Interest and other income 56,650 155,314 ------------ ------------ Loss before income taxes (6,770,563) (2,348,706) Provision for income taxes (52,304) (17,144) ------------ ------------ Net loss (6,822,767) (2,365,850) Other comprehensive income -- -- ------------ ------------ Comprehensive income $ (6,822,767) $ (2,365,850) ============ ============ Loss per weighted-average share of common stock outstanding, computed on net loss - basic and fully diluted $ (0.98) $ (0.42) ============ ============ Weighted-average number of shares of common stock outstanding - basic and fully diluted 6,956,046 5,574,298 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 2000 and 1999 Additional Preferred Stock Common Stock paid-in Accumulated Shares Amount Shares Amount capital deficit ------------ ------------ ------------ ------------ ------------ ------------ Balances at January 1, 1999 -- $ -- 5,574,298 $ 5,574 $ 14,377,782 $(12,575,483) Sale of Preferred Stock 1,550,000 1,550 -- -- 1,548,450 -- Less amounts related to costs and expenses of raising capital -- -- -- -- (314,859) -- Net loss for the year -- -- -- -- -- (2,365,850) ------------ ------------ ------------ ------------ ------------ ------------ Balances at December 31, 1999 1,550,000 1,550 5,574,298 5,574 15,611,373 (14,941,333) Sale of common stock -- -- 1,639,995 1,640 613,360 -- Less amounts related to costs and expenses of raising capital -- -- -- -- (50,500) -- Sale of preferred stock 4,088,000 4,088 -- -- 9,595,912 -- Less amounts related to costs and expenses of raising capital -- -- -- -- (877,644) -- Common stock issued for Partial settlement of accounts payable -- -- 59,077 59 14,710 -- Payment of preferred stock dividends -- -- 225,022 225 69,532 -- Dividends paid or payable on preferred stock -- -- -- -- -- (396,654) Net loss for the year -- -- -- -- -- (6,822,767) ------------ ------------ ------------ ------------ ------------ ------------ Balances at December 31, 2000 5,638,000 $ 5,638 7,498,392 $ 7,498 $ 24,976,743 $(14,941,333) ============ ============ ============ ============ ============ ============
Total ------------ Balances at January 1, 1999 $ 1,807,873 Sale of Preferred Stock 1,550,000 Less amounts related to costs and expenses of raising capital (314,859) Net loss for the year (2,365,850) ------------ Balances at December 31, 1999 677,164 Sale of common stock 615,000 Less amounts related to costs and expenses of raising capital (50,500) Sale of preferred stock 9,600,000 Less amounts related to costs and expenses of raising capital (877,644) Common stock issued for Partial settlement of accounts payable 14,769 Payment of preferred stock dividends 69,757 Dividends paid or payable on preferred stock (396,654) Net loss for the year (6,822,767) ------------ Balances at December 31, 2000 $ 2,829,125 ============ The accompanying notes are an integral part of these consolidated financial statements. F-7
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2000 and 1999 2000 1999 ----------- ----------- Cash flows from operating activities Net loss for the year $(6,822,767) $(2,365,850) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 441,991 299,699 Bad debt expense 109,709 135,027 Interest income accrued on note receivable (9,375) (37,572) Expiration of option to acquire another entity 138,001 -- Write off of uncollectible note receivable 425,060 -- Write off of obsolete inventory 51,385 -- Loss on abandonment of fixed assets 5,200 -- (Increase) Decrease in: Accounts receivable-trade and other (11,398) (285,960) Inventory (1,949,745) (84,729) Prepaid expenses and other (301,035) (177,116) Increase (Decrease) in: Accounts payable 372,177 (379,899) Other accrued liabilities 982,177 (587,321) Income taxes payable 45,100 -- ----------- ----------- Net cash used in operating activities (6,523,520) (3,483,721) ----------- ----------- Cash flows from investing activities Cash paid for property and equipment (728,848) (222,078) Cash paid for other assets (13,778) -- Cash paid to acquire option to purchase another entity -- (14,457) ----------- ----------- Net cash used in investing activities (742,626) (236,535) ----------- ----------- Cash flows from financing activities Increase (decrease ) in cash overdraft -- (9,153) Net activity on bank and other lines of credit (2,724,005) 1,159,290 Principal payments on long-term debt (59,503) (34,592) Cash received on debenture payable 1,000,000 1,500,000 Cash received on notes payable to affiliates -- 174,279 Cash paid on notes payable to affiliates (62,056) (43,759) Cash paid to facilitate loans payable (272,442) -- Cash received on sale of preferred stock 9,600,000 1,525,000 Cash received on sale of common stock 615,000 -- Cash paid for brokerage and placement fees related to sale of preferred and common stock (928,144) (314,860) Cash paid for preferred stock dividends (69,750) -- ----------- ----------- Net cash provided by financing activities 7,099,100 3,956,205 ----------- ----------- Increase (decrease) in cash (167,046) 235,949 Cash at beginning of year 399,639 163,690 ----------- ----------- Cash at end of year $ 232,593 $ 399,639 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-8 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED December 31, 2000 and 1999 2000 1999 -------- -------- Supplemental disclosure of interest and income taxes paid Interest paid for the year $596,807 $382,231 ======== ======== Income taxes paid for the year $ 2,064 $ -- ======== ======== Supplemental disclosure of non-cash investing and financing activities Vehicles and equipment purchased with notes payable $ 61,824 $ 80,479 ======== ======== Settlement of accounts payable with common stock $ 14,769 $ -- ======== ======== Preferred stock dividends paid with common stock $ 69,757 $ -- ======== ======== The accompanying notes are an integral part of these consolidated financial statements. F-9 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Karts International Incorporated (Company) was originally incorporated on February 28, 1984 as Rapholz Silver Hunt, Inc. under the laws of the State of Florida. On February 23, 1996, the Company was reincorporated in the State of Nevada by means of a merger with and into Karts International Incorporated, a Nevada corporation incorporated on February 21, 1996. The Company was the surviving entity and changed its corporate name to Karts International Incorporated. The Company operates through four (4) wholly-owned subsidiaries, Brister's Thunder Karts, Inc., USA Industries, Inc., KINT, L. L. C. and Straight Line Manufacturing, Inc. Brister's Thunder Karts, Inc. (Brister's) (a Louisiana corporation) and USA Industries, Inc. (USA) (an Alabama corporation) manufacture and sell "fun karts" through dealers, distributors and mass merchandisers. KINT, L.L.C. (KINT) (a Louisiana limited liability corporation) was formed as a sales and marketing company focusing on the sale of customized promotional "fun karts" to various national companies. This subsidiary initially conducted business operations under the trade name of "Bird Promotions". In March 1999, Company management ceased these operations and consolidated these sales and marketing efforts within other operating subsidiaries of the Company. During 2000, Company management commenced all operations relating to fun karts utilizing the Polaris Industries, Inc. logo within this subsidiary. Straight Line Manufacturing, Inc. (a Michigan corporation) (Straight Line) principally manufactured large, full suspension "fun karts". During 2000, all operations formerly contained within Straight Line were transferred to other subsidiaries of the Company. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying consolidated financial statements contain the accounts of Karts International Incorporated and its wholly-owned subsidiaries, Brister's Thunder Karts, Inc., USA Industries, Inc., KINT, LLC and Straight Line Manufacturing, Inc. All significant intercompany transactions have been eliminated. The consolidated entities are collectively referred to as Company. For segment reporting purposes, the Company operates in only one industry segment and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. F-10 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - GOING CONCERN UNCERTAINTY During the five years ended December 31, 2000, the Company has experienced cumulative net losses from operations and has utilized cash in operating activities of approximately $13,000,000. The Company's continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis. During 2000, the Company received $615,000 and $9,600,000 in private transactions from the sale of common and preferred stock, respectively, to support Year 2000 operations and retire certain short-term lines of credit from a non-financial institution lender. Further, during the first quarter of 2000, the Company acquired an exclusive OEM licensing agreement to manufacture a line of "sport karts" from Polaris Industries, Inc., a domestic manufacturer of personal watercraft and off-road vehicles. The Company restructured its management during the third and fourth quarter of 2000, which it believes will assist in the refocusing of the Company on operations with greater opportunity for profitability and is exploring other opportunities to provide revenues outside its core "fun kart" business to compensate for seasonal slowdowns. Current management is of the opinion that these events will allow for the provision of adequate liquidity for the subsequent 12 month period. However, if necessary, there can be no assurance that the Company will be able to obtain additional funding or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents ------------------------- The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Accounts and advances receivable -------------------------------- In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the southeastern quadrant of the country. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. F-11 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 3. Inventory --------- Inventory consists of steel, engines and other related raw materials used in the manufacture of "fun karts". These items are carried at the lower of cost or market using the first-in, first-out method. As of December 31, 2000 and 1999, inventory consisted of the following components: 2000 1999 ----------- ----------- Raw materials $ 3,320,953 $ 1,701,639 Work in process 231,587 167,633 Finished goods 560,498 345,406 ----------- ----------- $ 4,113,038 $ 2,214,678 =========== =========== 4. Property, plant and equipment ----------------------------- Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives of the individual assets using the straight-line method. Gains and losses from disposition of property and equipment are recognized as incurred and are included in operations. 5. Covenant not to compete ----------------------- In conjunction with the acquisition of Straight Line Manufacturing, Inc., the Company paid $100,000 to the former sole shareholder of Straight Line for a covenant not to compete for a period of at least three (3) years. The consideration given was $50,000 cash and a note payable for $50,000. The covenant is being amortized to operations over a period of three years using the straight line method. 6. Organization costs ------------------ Costs related to the restructuring and reorganization of the Company have been capitalized and are being amortized over a five year period using the straight-line method. 7. Income taxes ------------ The Company utilizes the asset and liability method of accounting for income taxes. At December 31, 2000 and 1999, the deferred tax asset and deferred tax liability accounts, as recorded when material, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization. No valuation allowance was provided against deferred tax assets, where applicable. As of December 31, 2000 and 1999, the deferred tax asset related to the Company's net operating loss carryforward was fully reserved. F-12 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 8. Advertising ----------- The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published. For various sales publications, catalogs and other sales related items, the Company capitalizes the development and direct production costs and amortizes these costs over the estimated useful life of the related materials, not to exceed an eighteen (18) month period from initial publication of the materials. 9. Income (Loss) per share ----------------------- Basic earnings (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later. As of December 31, 2000 and 1999, the outstanding warrants and options are deemed to be anti-dilutive due to the Company's net operating loss position. NOTE D - CONCENTRATIONS OF CREDIT RISK The Company maintains its cash accounts in financial institutions subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, the Company and its subsidiaries are entitled to aggregate coverage of $100,000 per account type per separate legal entity per individual financial institution. During the year ended December 31, 2000 and 1999, the Company and its subsidiaries had credit risk exposures in excess of the FDIC coverage as follows: Highest Lowest Number of days Entity exposure exposure with exposure -------------------------------- -------- -------- -------------- Year ended December 31, 2000 - ---------------------------- Karts International Incorporated $129,619 $ 6,163 14 Brister's Thunder Karts, Inc. $670,193 $ 328 180 USA Industries, Inc. $150,392 $ 1,360 29 Year ended December 31, 1999 - ---------------------------- Karts International Incorporated $155,329 $ 5,683 31 Brister's Thunder Karts, Inc. $585,601 $ 968 139 USA Industries, Inc. $181,416 $ 400 114 F-13 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - CONCENTRATIONS OF CREDIT RISK - Continued Through May 2000, the Company utilized a lockbox system for the collection and deposit of receipts on trade accounts receivable for each operating subsidiary for the benefit of its then primary non-financial institution lender. The Company uses a corporate cash concentration sweep account whereby all excess cash funds are concentrated into one primary depository account with a financial institution. The Company and the financial institution then participate in uncollateralized reverse-repurchase agreements which are settled on a "next-business day" basis for the investment of surplus cash funds. The Company continues to have unsecured amounts invested in reverse repurchase agreements on a daily basis through December 31, 2000. As of December 31, 2000 and 1999, respectively, the Company had an unsecured outstanding reverse repurchase agreement of approximately $-0- and $368,039, respectively. The Company has not incurred any losses as a result of any of these unsecured situations. NOTE E - PROPERTY AND EQUIPMENT Property and equipment consist of the following components: Estimated 2000 1999 useful life ---------- ---------- ------------- Building and improvements $1,062,797 $1,030,269 5 to 25 years Equipment 1,679,121 1,071,416 5 to 10 years Transportation equipment 240,607 218,618 3 to 5 years Furniture and fixtures 254,842 138,392 5 years ---------- ---------- 3,237,367 2,458,695 Accumulated depreciation (837,209) (522,023) ---------- --------- 2,400,158 1,936,672 Land 32,800 32,800 ---------- ----------- Net property and equipment $2,432,958 $1,969,472 ========== ========= Total depreciation expense charged to operations for the years ended December 31, 2000 and 1999 was approximately $321,986 and $233,282, respectively. NOTE F - NOTE RECEIVABLE In December 1998, the Company acquired a $375,000 note receivable from an unrelated individual payable by an unrelated corporation in exchange for 337,838 shares of unregistered, restricted common stock. The note receivable bears interest at 10.0% and is due and payable 10 days after the expiration of an option which the Company executed to acquire 100.0% of the issued and outstanding stock of the unrelated corporation making the note. This note is unsecured. During the fourth quarter of 2000, the Company became aware that the maker of the note was insolvent and that the ultimate realization of the note was doubtful. Accordingly, the note balance was charged to operations as of December 31, 2000. F-14 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - OPTION TO ACQUIRE AN UNRELATED ENTITY Effective December 1, 1998, the Company acquired from an unrelated entity certain assets for cash of $56,000. The unrelated entity is a concession kart manufacturer located in Daytona Beach, Florida. The shareholders of the unrelated entity ( Shareholders) also granted the Company an option (Option) to acquire 100.0% of the issued and outstanding shares of the unrelated entity's common stock based on a financial formula defined in the Option. The Option expires upon the expiration of the 30-day period following the unrelated entity's fiscal year ending December 31, 2000. The Company issued to the Shareholders an aggregate of 90,090 shares of Common Stock having a market value of approximately $100,000 as payment for the Option. The Option also provides that unrelated entity can require the Company to exercise the Option if unrelated entity achieves certain financial goals during the Option term. The Company also has the right during the Option term, subject to certain conditions, to acquire for $100 certain intellectual property rights related to the business of the unrelated entity. The Company and unrelated entity also entered into a manufacturing agreement (Manufacturing Agreement) which provides that the Company will manufacture, on an exclusive basis, the unrelated entity's concession karts at a predetermined per unit price. The Manufacturing Agreement will terminate on the later of March 31, 2001 or the date that the Option is terminated or exercised. During the fourth quarter of 2000, the Company became aware of the insolvency of the target company and, accordingly, provided for the abandonment and expiration of this option as of December 31, 2000 in the accompanying statement of operations. NOTE H - NOTES PAYABLE TO BANKS AND OTHERS The Company had two lines of credit with an aggregate face value of $3,500,000. One line of credit note was tied to the Company's aggregate trade accounts receivable balances, not to exceed $2,500,000 (A/R LOC). The second line of credit was tied to the Company's aggregate inventory balances, not to exceed $1,000,000 (Inventory LOC). The total amounts which may be outstanding at any one time, and the corresponding note principal advances, are tied to the respective "Borrowing Base" calculations contained in the Loan Agreement (Agreement). During the first quarter of 2000, the lender and the Company executed two additional term notes in the amount of $300,000 and $930,000, respectively. These notes were of equal term and language as the lines of credit. These notes were paid in full during the second quarter of 2000. As of December 31, 2000 and 1999, respectively, an aggregate of approximately $-0- and $2,724,005 was outstanding on these lines of credit and term notes. The notes required the interest and fees on the notes to be paid monthly and all of the Company's trade accounts receivable collections are deposited to the lender's benefit to a lockbox controlled by the lender. The notes bore interest at the Lender's Base Rate plus 3.0% (11.50% at December 31, 1999). Further, the Agreement required a payment of a 1/12% servicing fee per month on the face amount of each line of credit during the term of each respective line of credit. F-15 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - NOTES PAYABLE TO BANKS AND OTHERS - Continued A recap of notes payable consist of the following: 2000 1999 ---------- ---------- Accounts receivable line of credit $ -- $1,724,915 Inventory line of credit -- 999,090 ---------- ---------- Total notes payable $ -- $2,724,005 ========== ========== NOTE I - LONG-TERM DEBT TO RELATED PARTIES Long-term debt consists of the following: 2000 1999 ---------- ---------- Four notes payable to the Company's Chairman of the Board aggregating $150,000. Interest at 12.0%. Accrued interest payable monthly. Principal and accrued, but unpaid, interest is due on demand. The notes are unsecured $ 150,000 $ -- $225,000 note payable to the Company's Chairman of the Board. Interest at 8.0%. Accrued interest payable monthly. Principal and accrued, but unpaid, interest is due on demand. The loan was unsecured -- 212,055 $73,875 note payable to the former sole shareholder of Straight Line. Interest at 6.0%. Principal only payment of $15,000 payable by January 31, 1999. Remaining principal and all accrued, but unpaid, interest is payable subject to the settlement of a product liability lawsuit against Straight Line Manufacturing, Inc. incurred prior to the Company's acquisition of Straight Line. If the lawsuit is settled prior to March 31, 1999; 50.0% of the principal and all accrued, but unpaid, interest will be due on October 1, 1999 and the balance will be due and payable on March 31, 2000. If the lawsuit is settled between March 31, 1999 and March 31, 2000, all principal and accrued, but unpaid, interest will be due and payable 210 days after the lawsuit settlement date or March 31, 2000, which ever is earlier. If the lawsuit is settled after March 31, 2000, all principal and accrued, but unpaid, interest is due and payable 30 days after the lawsuit settlement date. -- 17,340 ---------- ---------- Total related party long-term debt $ 150,000 $ 229,395 ========== ========== F-16
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - LONG TERM DEBT TO BANKS AND OTHERS Long-term debt payable to banks and others consist of the following at December 31, 2000 and 1999: 2000 1999 ----------- ----------- $22,678 capital lease payable to a finance company. Interest at 7.86%. Payable in monthly installments of approximately $2,144, including accrued interest. Final payment due in April 2000. Collateralized by equipment owned by Karts International Incorporated. -- 6,792 Twocapital leases payable to a finance company aggregating $52,812. Interest at 7.13% and 7.41%, respectively. Payable in monthly installments totaling approximately $1,049, including accrued interest. Final payments due in August and September 2005, respectively. Collateralized by equipment owned by Karts International Incorporated. 49,701 -- Twocapital leases payable to a finance company aggregating $9,011. Interest at 28.83% and 16.95%, respectively. Payable in monthly installments totaling approximately $381, including accrued interest. Final payments due in November and June 2003, respectively. Collateralized by computer equipment owned by Karts International Incorporated. 8,995 -- $20,770 installment note payable to a bank. Interest at 7.75%. Payable in monthly installments of approximately $419, including accrued interest. Final maturity in May 2002. Collateralized by a vehicle owned by Brister's Thunder Karts, Inc. 6,748 11,071 $23,122 installment note payable to a bank. Interest at 8.25%. Payable in monthly installments of approximately $726, including accrued interest. Final maturity in March 2001. Collateralized by a vehicle owned by Brister's Thunder Karts, Inc. 2,155 10,324 $17,829 installment note payable to a bank. Interest at 8.25%. Payable in monthly installments of approximately $561, including accrued interest. Final maturity in January 2002. Collateralized by a vehicle owned by Brister's Thunder Karts, Inc. 6,947 14,077
F-17
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - LONG TERM DEBT TO BANKS AND OTHERS - Continued Long-term debt payable to banks and others consist of the following at December 31, 2000 and 1999: 2000 1999 ------------ ------------ $20,000 installment note payable to a bank. Interest at 8.0%. Payable in monthly installments of approximately $406, including accrued interest. Final maturity in June 2004. Collateralized by a vehicle owned by Brister's Thunder Karts, Inc. 14,802 18,322 $20,000 installment note payable to a bank. Interest at 8.0%. Payable in monthly installments of approximately $406, including accrued interest. Final maturity in July 2004. Collateralized by a vehicle owned by Brister's Thunder Karts, Inc. 15,092 18,587 $22,650 installment note payable to a bank. Interest at 8.5%. Payable in monthly installments of approximately $466, including accrued interest. Final maturity in October 2004. Collateralized by a vehicle owned by Brister's Thunder Karts, Inc. 17,849 21,706 $240,020 mortgage note payable to a bank. Interest at the Bank's Commercial Base Rate (9.25% at December 31, 1998). Payable in monthly installments of approximately $2,626, including accrued interest. Final maturity in August 2010. Collateralized by land and a building owned by USA Industries, Inc. 196,441 205,598 $18,198 installment note payable to a bank. Interest at 8.25%. Payable in monthly installments of approximately $572, including accrued interest. Final maturity in March 2001. Collateralized by transportation equipment owned by USA Industries, Inc. 1,672 8,110 $14,000 installment note payable to an equipment finance company. Payable in monthly installments of approximately $345, including accrued interest. Final maturity in May 2002. Collateralized by equipment owned by USA Industries, Inc. 5,501 8,995 ------------ ------------ Total long-term debt to banks and individuals 325,904 323,582 Less current maturities (56,025) (57,482) ------------ ------------ Long-term portion $ 269,879 $ 266,100 ============ ============
F-18 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - LONG TERM DEBT TO BANKS AND OTHERS - Continued Future maturities of long-term debt are as follows: Year ending December 31, Amount ------------ -------- 2001 $ 56,025 2002 45,417 2003 44,657 2004 38,780 2005 28,260 2006 - 2010 112,765 -------- Totals $325,904 ======== NOTE K - DEBENTURE PAYABLE On June 3, 1999, the Company consummated a $1.5 million convertible loan transaction with The Schlinger Foundation (the "Foundation"), who is also a shareholder in the Company. 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 former 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. The debenture may be converted into common stock of the Company at an exchange rate of $0.375 per share at any time at the option of the debenture holder and the Company may require conversion if the closing price of the Company's common stock is in excess of $4.00 per share for 25 consecutive trading days. The debenture may be prepaid in total or in part on or after the 2nd anniversary date of the debenture upon 30 days notice being given by the Company and the payment of a 12.0% liquidation charge of the amount being prepaid. F-19
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - INCOME TAXES The components of income tax (benefit) expense for the years ended December 31, 2000 and 1999, respectively, are as follows: 2000 1999 -------- -------- Federal: Current $ -- $(10,000) Deferred -- -- -------- -------- -- (10,000) -------- -------- State: Current (52,204) (7,144) Deferred -- -- -------- -------- (52,204) (7,144) -------- -------- Total $(52,204) $(17,144) ======== ======== As of December 31, 2000, the Company has a net operating loss carryforward of approximately $11,000,000 to offset future taxable income. Subject to current regulations, this carryforward will begin to expire in 2012. The Company's income tax expense for the years ended December 31, 2000 and 1999, respectively, differed from the statutory federal rate of 34 percent as follows: 2000 1999 ----------- ----------- Statutory rate applied to earnings (loss) before income taxes $(2,319,741) $ (798,560) Increase (decrease) in income taxes resulting from: State income taxes (52,204) (7,144) Other, including reserve for deferred tax asset 2,319,741 788,560 ----------- ----------- Income tax expense $ (52,204) $ (17,144) =========== ===========
NOTE M - RELATED PARTY TRANSACTIONS The Company leases its manufacturing facilities under an operating lease with the former owner of Brister's, who is also the Company's Chairman of the Board, in addition to being a Company shareholder and director. Concurrent with the 1996 closing of the acquisition of Brister's, the Company and the former owner executed a lease agreement for a primary two-year term which expiring in 1998 and an additional two-year renewal extension which has expired as of September 30, 2000. The Company currently occupies its primary manufacturing facility on a month-to-month lease at a monthly lease payment of approximately $6,025 per month. Total payments under this agreement were approximately $72,300 and $74,700 for each of the years ended December 31, 2000 and 1999, respectively. Concurrent with the acquisition of Brister's, the Company and the former owner of Brister's entered into a Real Estate Option Right of First Refusal Agreement. This agreement provides that the Company may, at its sole option, purchase the real property and improvements in Roseland, Louisiana currently utilized by the Company or its subsidiary for an aggregate purchase price of $550,000. The option may be exercised commencing on January 1, 1998 and expires on December 31, 2000. F-20 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - RELATED PARTY TRANSACTIONS - Continued On August 1, 2000, the Company and Charles Brister, the Company's President, 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. F-21 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - RELATED PARTY TRANSACTIONS - Continued 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. NOTE N - PREFERRED STOCK Preferred stock consists of the following as of December 31, 2000 and 1999: December 31, 2000 December 31, 1999 --------------------- --------------------- # shares Par Value # shares Par Value --------- --------- --------- --------- Convertible Preferred Stock 1,550,000 $ 1,550 1,550,000 $ 1,550 Series A Preferred Stock 4,000,000 4,000 -- -- Series B Preferred Stock 88,000 88 -- -- --------- --------- --------- --------- Total 5,638,000 $ 5,638 1,550,000 $ 1,550 ========= ========= ========= ========= Through May 31, 1999, the Company sold $1,550,000 in Convertible Preferred Stock (Preferred Stock) subject to a Private Placement Memorandum. The Preferred Stock bears a dividend of 9.0%, payable semi-annually in either cash or common stock of the Company. The Preferred Stock is convertible into shares of common stock at a conversion rate of $0.25 per share at the option of the holder at any time between issuance and June 30, 2003. The Preferred Stock mandatorily converts to common stock on June 30, 2003. The Preferred Stock is redeemable by the Company on or after March 31, 2000, in whole or part, at the option of the Company at a redemption price of 109%, plus accrued dividends, if any. The dividend payable at December 31, 1999 was paid in February 2000 with the issuance of 225,022 shares of restricted, unregistered common stock. F-22 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - PREFERRED STOCK - Continued In May 2000, the Company authorized the issuance of 4,000,000 shares of Preferred Stock designated as "Series A Preferred Stock". These shares were sold on May 17, 2000 for total gross proceeds of $3,000,000. The Series A Preferred Stock bears a dividend at a rate of $0.075 per share per annum, payable on March 31, June 30, September 30 and December 31, commencing on June 30, 2000. These shares are subject to a liquidation preference equal to the sum of $0.75 per share plus declared or accrued but unpaid dividends. The Company, at its sole option, may redeem all or a portion of the issued and outstanding Series A Preferred Stock on or after May 31, 2003 at a price of $1.50 per share plus all declared or accrued but unpaid dividends. The holders of the Series A Preferred Stock have the right to convert the issued and outstanding shares at any time after the date of issuance at a rate of $0.375 per share plus all declared or accrued but unpaid dividends. These shares shall automatically be converted into common stock upon either the Company's sale of common stock with an aggregate offering price of $10,000,000 and a per share price of $5.00 and the written consent or agreement of the holders of a majority of the then outstanding shares of the Series A Preferred Stock. The dividend payable at December 31, 1999 was paid in February 2000 with the issuance of 225,022 shares of restricted, unregistered common stock. In October and November 2000, the Company sold an aggregate 88,000 shares of its Series B Preferred Stock to the Foundation for $6,600,000 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 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. NOTE O - COMMON STOCK TRANSACTIONS During the first six months of 2000, the Company sold an aggregate 1,639,995 shares of restricted, unregistered common stock pursuant to a private placement memorandum for gross proceeds of approximately $613,360. Each share was accompanied by a Warrant to purchase one additional share of restricted, unregistered common stock at a price of $0.50 per share. These warrants expire on May 31, 2005. In February 2000, the Company issued 225,022 shares of restricted, unregistered common stock for the payment of the approximate $69,757 dividend payable at December 31, 1999 on the Company's Convertible Preferred Stock. In September 2000, the Company issued approximately 59,077 shares of restricted, unregistered common stock in settlement of outstanding invoices for legal services with the Company's corporate product liability counsel in the aggregate amount of approximately $14,700, which approximates the "fair value" of the number of shares issued in this transaction. F-23 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE P - COMMON STOCK WARRANTS In September 1997, the Company sold 155,000 Underwriter's Warrants for an aggregate price of $155 pursuant to a Registration Statement filed on Form SB-2. Each warrant allows the Underwriter to purchase one share of the Company's common stock at $6.00 per share and one (1) 1997 Warrant at a price of $0.1875 per share. The 1997 warrants are described in detail in the next paragraph. These warrants expire on September 9, 2002 if not exercised by the Underwriter. In September and November 1997, the Company sold, pursuant to a Registration Statement on Form SB-2, an aggregate 1,782,500 warrants (1997 Warrants) at $0.125 each for gross proceeds of $222,813. Each warrant entitles the holder to purchase one (1) share of the Company's common stock at a price of $4.00 per share during the four year period commencing on September 9, 1998. These warrants are redeemable by the Company at a redemption price of $0.01 per warrant, at any time after September 9, 1998 upon thirty (30) days written notice to the respective warrant holders if the average closing price of the Company's common stock equals or exceeds $8.00 per share for the 20 consecutive trading days ending three (3) days prior to the notice of redemption. On March 9, 1999, the Company, as compensation for waiving certain events of default and the amendment to the Company's loan agreement with a non-financial institution lender, granted the lender a stock warrant to purchase 100,000 shares of the Company's restricted, unregistered common stock at a price of $0.54 per share. This warrant is exercisable at any time after its issuance and expires four (4) years from its issuance. In conjunction with the $300,000 and $930,000 term notes executed in the first quarter of 2000, the Company issued and additional 50,000 warrants to the non-financial institution lender at a price of $0.54 per share on terms identical to those discussed above. In conjunction with a private placement of common stock during the first six months of 2000, the Company issued 1,639,995 Warrants to purchase an equivalent share of common stock at a price of $0.50 per share. These warrants are redeemable by the Company at a price of $0.01 per Warrant at any time after the first anniversary of the "Final Closing Date" upon 30 days written notice to the Warrant holders, if the average closing price of the Company's common stock equals or exceeds $1.50 per share for the 20 consecutive trading days ending three days prior to the date of the notice of redemption. These Warrants expire on May 31, 2005. Warrants Warrants originally outstanding at issued December 31, 2000 Exercise price ---------- ----------------- --------------- Underwriter's Warrants 155,000 155,000 $4.00 per share 1997 Warrants 1,782,500 1,782,500 $4.00 per share Lender's Warrants 150,000 150,000 $0.54 per share 2000 Warrants 1,639,995 1,639,995 $0.50 per share --------- --------- Totals at December 31, 2000 3,727,495 3,727,495 ========= ========= F-24 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - STOCK OPTIONS The Company's Board of Directors has allocated an aggregate 125,377 shares of the Company's common stock for unqualified stock option plans for the benefit of employees of the Company and its subsidiaries. During 1996, the Company granted options to purchase 59,355 shares of the Company's common stock to employees of the Company and its operating subsidiaries at an exercise price of $5.63 per share. These options expire at various times during 2001. On January 30, 1997, the Board of Directors of the Company adopted a stock option plan providing for the reservation of an additional 66,667 shares of common stock for options to be granted to employees of the Company. Concurrent with this action, the Company granted options to purchase 6,667 shares of the Company's common stock at a price of $4.875 per shares to the Company's then Chief Financial Officer and the Company's Vice President of Marketing (VP Options). These options are exercisable after January 30, 1998 and expire on January 30, 2002. The options granted to the Company's former Chief Financial Officer expired concurrent with his termination in the first quarter of 1998. Further, on January 30, 1997, the Company granted options to purchase an aggregate 52,670 shares of the Company's common stock to employees of the Company and its operating subsidiaries at an exercise price of $4.875 per post-split share. These options are exercisable after January 30, 1998 and expire on January 30, 2002. During 1998, the Company granted an aggregate 265,000 options to purchase an equivalent number of shares of restricted, unregistered common stock to officers and employees in conjunction with the employment of such officers and employees. These options are exercisable at prices ranging from $1.06 per share to $3.50 per share. Concurrent with the termination of a Company officer, 210,000 of the granted 1998 options terminated. The remaining options are exercisable between March 1999 and December 1999 and expire between March 2003 and December 2003. In January 1999, as part of the Separation Agreement between the Company and its then President and Chief Executive Officer, the Company issued this individual options to purchase 15,000 shares of Common Stock at an option exercise price of $1.06 per share. This option was granted to replace options to purchase 200,000 shares of common stock which were effectively canceled at separation. These options are vested and expire on January 20, 2004. During the fourth quarter of 1999, the Company granted options to its President, Vice President of Administration and various employees. These options vested in various amounts over a period from grant through three years from the grant date. These options, if not exercised, expire between the fourth and fifth anniversary date of the option grant. These options are summarized as follows: Options granted Exercise price --------------- ---------------- President options 450,000 $0.375 per share Vice President of Administration options 225,000 $0.375 per share Employee options 3,000 $0.375 per share Employee options 117,000 $0.31 per share Concurrent with a settlement and release agreement reached with the Company's former Vice President of Administration in the third quarter of 2000, 125,000 of the granted 1999 options were terminated. F-25 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - STOCK OPTIONS - Continued The options that were granted to employees during 1996 and 1997 to purchase 46,953 shares of Common Stock originally were issued 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. There were no exercise of any options during the years ended December 31, 2000 and 1999. The following table summarizes all options granted from 1996 to December 31, 2000. Options Options Options Options Exercise price granted exercised terminated outstanding per share --------- --------- ---------- ----------- -------------- 1996 options 59,335 - 37,411 21,924 $0.375 1997 VP options 13,334 - 6,667 6,667 $0.375 1997 options 52,670 - 41,777 10,893 $0.375 1998 options 265,000 - 230,000 35,000 $0.375 1999 options 810,000 - 133,000 677,000 $0.31 - $0.688 --------- --------- --------- --------- Totals 1,200,339 - 448,855 751,484 ========= ========= ========= ========= The weighted average exercise price of all issued and outstanding options at December 31, 2000 and 1999, respectively, was $0.35 and $1.07. Had compensation cost for options granted been determined based on the fair values at the grant dates, as prescribed by SFAS 123, the Company's net loss and net loss per share would not have changed significantly as the exercise price of the options was relatively equivalent to the market price at the grant date. The calculations to estimate the fair value of the options were made using the Black-Scholes pricing model which required making significant assumptions. These assumptions include the expected life of the options, which was determined to be one year, the expected volatility, which was based on fluctuations of the stock price over a 12 month period, the expected dividends, determined to be zero based on past performance, and the risk free interest rate, which was estimated using the bond equivalent yield of 6.0% at December 31, 2000 and 1999, respectively. 1998 and 2000 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. On December 12, 2000, the stockholders of the Company approved the 2000 Stock Compensation Plan (the "2000 Plan"), which initially reserves 750,000 shares of Common Stock for issuance under the 2000 Plan. The 2000 Plan was effective on October 19, 2000 and terminates on October 19, 2010. The 1998 Plan and 2000 Plan are both administered by the Compensation Committee (the "Committee") or the entire Board. The 1998 and 2000 Plans have similar terms. Eligible participants in the both the 1998 and 2000 Plans include full time employees, directors and advisors of the Company and its subsidiaries. Options granted under the 1998 and 2000 Plans 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. F-26 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - STOCK OPTIONS - Continued Under the 1998 and 2000 Plans the Company may also grant "Restricted Stock" awards. "Restricted Stock" represents shares of Common Stock issued to eligible participants under the 1998 and 2000 Plans 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 or 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. The purchase price of the shares of the Common Stock offered under the 1998 and 2000 Plans 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 and 2000 Plans, 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. F-27 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - STOCK OPTIONS - Continued 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. As of December 31, 2000, no options have been granted under the 2000 Plan. NOTE R - COMMITMENTS AND CONTINGENCIES Building Lease - -------------- On May 16, 2000, the Company executed a lease agreement with the Town of Roseland Louisiana for a new production facility. The Company paid or accrued, upon execution, approximately $200,000, which constitutes 100.0% of the required lease payments for both the initial lease term from October 1, 2000 through September 30, 2007 and the option lease term from October 1, 2007 through September 30, 2009. The unamortized portion of this agreement is reflected as a component of prepaid expenses in the accompanying financial statements. Litigation - ---------- The Company and/or it's operating subsidiaries are as defendant(s) in several product liability lawsuits related to its "fun karts". The Company has had and continues to have commercial liability insurance coverage to cover these exposures with a $50,000 per claim deductible as of September 30, 2000. The Company is vigorously contesting each lawsuit and has accrued management's estimation of the Company's exposure in each situation. Additionally, the Company maintains a reserve for future litigation equal to the "per claim" self-insurance amount times the four-year rolling average of lawsuits filed naming the Company as a defendant. The Company anticipates no material impact to either the results of operations, its financial condition or liquidity based on the uncertainty of outcome, if any, of existing litigation, either collectively and/or individually, at this time. F-28 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE R - COMMITMENTS AND CONTINGENCIES - Continued Employment agreements - --------------------- Effective January 30, 1998, the Company entered into an Employment Agreement (Agreement) with an individual to serve as the Company's President and Chief Executive Officer (President). The Agreement is for a term of three (3) years and provides the President with an annual base salary of $150,000. Upon execution of this Agreement, the President received options to purchase up to 200,000 shares of the Company's common stock at an exercise price of $3.25 per share. The options vest as follows: 100,000 shares as of January 30, 1999; 50,000 shares as of January 31, 2000; 50,000 shares as of January 31, 2001. All unvested options vest immediately upon the termination of the Agreement if termination is for reason other than "for cause", and all unexercised options expire on January 31, 2003. The President may also receive annual performance based stock options to purchase up to 50,000 shares of the Company's common stock at a price equal to the market value of the Company's common stock on the date of issuance, as determined by the Company's Board of Directors, and an annual cash bonus not to exceed 15.0% of the annual base salary. In January 1999, this individual resigned as President, Chief Executive Officer and as a director of the Company and the Company and the individual entered into a Settlement Agreement and Full and Final Release of All Claims (Agreement) for the purpose of satisfying and discharging all obligations of the Company to the individual under the Agreement. This Agreement provides that the Company shall forgive up to $19,000 of non-reimbursable expenses incurred by the individual and pay to for one week of earned vacation. In consideration for the foregoing, the former President agreed to adhere to the non-competition and non-solicitation covenants set forth in the Employment Agreement until January 13, 2001. As part of his separation from the Company, the Company issued to the individual options to purchase 15,000 shares of Common Stock at an option exercise price of $1.06 per share which were granted to replace the options to purchase 200,000 shares of common stock which were effectively canceled at separation. These options are vested and expire on January 20, 2004. On October 27, 1998, the Company entered into an Employment Agreement (Agreement) with the former sole shareholder of Straight Line for the individual to serve as the President of the Straight Line subsidiary (Straight Line President). The Agreement is for a term of three (3) years with an automatic one year extension unless either the Company or the Straight Line President provides a thirty (30) day written notice not to continue the Agreement. This Agreement provides the Straight Line President with an annual base salary of $80,000. Upon execution of this Agreement, the Straight Line President received options to purchase up to 10,000 shares of the Company's common stock at an exercise price equal to the closing bid price of the Company's common stock as quoted on the NASDAQ SmallCap market. This individual was terminated for cause during 1999 and this agreement terminated with no future benefits due to the individual. F-29 KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE R - COMMITMENTS AND CONTINGENCIES - Continued Employment agreements - continued - --------------------- On October 19, 1999, the Company's Board of Directors ratified an Employment Agreement (Agreement) with Charles Brister to serve as the Company's President and Chief Executive Officer. The Agreement term was effective as of February 1, 1999 and expires on the third anniversary date of the Agreement with an automatic one year extension unless either the Company or the President provides a thirty (30) day written notice not to continue the Agreement. This Agreement provides the President with an annual salary of $150,000 per year, payable in either common stock of the Company or cash. At the end of each calendar quarter during the first calendar year of this Agreement, the Company shall pay the President a cash portion to satisfy the President's estimated federal and state tax liability and the balance shall be paid in shares of common stock calculated based on the closing bid price of the Company's common stock as quoted at the end of each quarter. Further, the President was granted 450,000 options to purchase shares of the Company's common stock at 100% of the closing bid price of the Company's common stock on the ratification date and the options vest as follows: 100,000 at the ratification date of this Agreement; 150,000 on the second anniversary date of this Agreement; and 200,000 on the third anniversary date of this Agreement. Additionally, the President 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 shall vest immediately upon grant and expire five years from the grant date and (b) cash, not to exceed 15% of the President's base salary. On June 1, 2000, and as amended on October 23, 2000, Charles Brister and the Company executed an Amended Employment Agreement which superceded the October 19, 1999 Agreement discussed above. Under the Amended 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 Amended Employment Agreement. The Amended 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 Amended Employment Agreement; and (c) options to purchase 150,000 shares shall vest and be exercisable upon the third anniversary date of the Amended 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 Amended Employment Agreement is terminated by the Company or Mr. Brister as a result of a change in control (as defined in the Amended 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 Amended Employment Agreement. Mr. Brister resigned as President and Chief Executive Officer on February 5, 2001 and was elected to serve as Chairman of the Board. This resignation voluntarily terminated this employment agreement. F-30
KARTS INTERNATIONAL INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE R - COMMITMENTS AND CONTINGENCIES - Continued Letter of Credit - ---------------- On March 1, 2001, the Company executed a $12,000 letter of credit in favor of a utility company to secure service to the Company's new facility in Roseland, Louisiana. NOTE S - SIGNIFICANT CUSTOMERS During the year ended December 31, 2000, the Company had one customer responsible for more than 10.0% of total net sales. Total sales to this entity totaled approximately 12.0% of total net sales. During 2000, the Company had no other single or related groups of customers that aggregated more than 10.0% of total net sales. During the year ended December 31, 1999, the Company had one customer responsible for more than 10.0% of total net sales. Total sales to this entity totaled 11.0% of total net sales. During 1999, the Company had no other single or related groups of customers that aggregated more than 10.0% of total net sales. NOTE T - SELECTED FINANCIAL DATA (Unaudited) The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999, respectively. Quarter ended Quarter ended Quarter ended Quarter ended Year ended March 31, June 30, September 30, December 31, December 31, ------------ ------------ ------------ ------------ ------------ Calendar 2000 - ------------- Net revenues $ 948,750 $ 1,840,657 $ 2,104,600 $ 3,960,336 $ 8,854,343 Gross profit 83,134 (387,315) (606,539) (1,153,562) (2,064,282) Net earnings from operations (540,261) (1,068,939) (1,697,520) (2,203,140) (5,509,860) Basic and fully diluted earnings per share $ (0.12) $ (0.16) $ (0.24) $ (0.29) $ (0.98) Weighted-average number of shares issued and outstanding 5,710,904 `7,164,009 7,448,283 7,498,392 6,956,046 Calendar 1999 - ------------- Revenues $ 1,203,359 $ 2,462,403 $ 3,013,124 $ 5,318,899 $ 11,997,785 Gross profit (169,160) 189,978 248,865 397,911 667,594 Net earnings from operations (708,387) (340,526) (483,516) (630,372) (2,162,801) Basic and fully diluted earnings per share $ (0.12) $ (0.07) $ (0.10) $ (0.13) $ (0.42) Weighted-average number of shares issued and outstanding 5,574,298 5,574,298 5,574,298 5,574,298 5,574,298
F-31 INDEX TO EXHIBITS ----------------- Exhibit Number Description of Exhibit - -------------- ---------------------------------------------------------------- 3.4+ Amended and Restated Bylaws of the Company effective May 16, 2000. 3.5+ Certificate of Amendment to the Company's Articles of Incorporation as filed on January 19, 2001 with the Nevada Secretary of State. 4.10+ Certificate of Designation Establishing Series B Preferred Stock of the Company filed with the Secretary of State of the State of Nevada on October 6, 2000. 4.11+ Certificate of Designation Establishing Series A Preferred Stock of the Company as filed on May 17, 2000 with the Nevada Secretary of State. 9.1+ Voting Agreement dated as of May 17, 2000, executed by and among the Company, the Schlinger Foundation ("Schlinger"), Charles Brister and Richard N. Jones. 10.47+ Employment Agreement dated June 1, 2000 between the Company and Charles Brister. 10.48+ Amendment No. 1 dated October 23, 2000 to the Employment Agreement dated June 1, 2000 between the Company and Charles Brister. 10.49+ Amended and Restated Loan Agreement dated May 17, 2000, executed by the Company, as Borrower, and Schlinger, as Lender. 10.50+ Promissory Note dated May 17, 2000 in the principal amount of $2.5 million payable by the Company to Schlinger. 10.51+ Amended and Restated Guaranty dated May 17, 2000, executed by Straight Line Manufacturing, Inc., a subsidiary of the Company ("SLM"), to guarantee payment of the Note referenced in Exhibit 10.51. 10.52+ Amended and Restated Guaranty dated May 17, 2000, executed by USA Industries, Inc., a subsidiary of the Company ("USA") to guarantee payment of the Note referenced in Exhibit 10.51. 10.53+ Amended and Restated Guaranty dated May 17, 2000, executed by KINT, L.L.C., a subsidiary of the Company ("KINT") to guarantee payment of the Note referenced in Exhibit 10.51. 10.54+ Amended and Restated Guaranty dated May 17, 2000, executed by Brister's Thunder Karts, Inc., a subsidiary of the Company ("Brister's") to guarantee payment of the Note referenced in Exhibit 10.51. 10.55+ Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by the Company in favor of Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.51. 10.56+ Form of Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by SLM and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.51 (exhibits and schedules omitted). 10.57+ Form of Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by USA and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.51 (exhibits and schedules omitted). 10.58+ Form of Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by KINT and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.51 (exhibits and schedules omitted). 10.59+ Form of Amended and Restated Pledge and Security Agreement dated May 17, 2000, executed by Brister's and Schlinger to secure payment of the $2.5 million Note referenced in Exhibit 10.51 (exhibits and schedules omitted). 10.60+ Stock Purchase Agreement between the Company and Schlinger dated May 17, 2000 regarding the sale of 4,000,000 shares of Series A Preferred Stock of the Company to Schlinger for an aggregate purchase price of $3,000,000 (exhibits and schedules omitted). 10.61+ Registration Rights Agreement dated as of May 17, 2000, executed by the Company and Schlinger. 10.62+ Stock Purchase Agreement dated October 9, 2000 between the Company and the Schlinger Foundation in connection with the purchase by Schlinger of 73,333 shares of Series B Preferred Stock of the Company for an aggregate purchase price of $5,500,000 (exhibits and schedules omitted). 10.63+ Stock Purchase Agreement between the Company and the Schlinger Foundation dated November 28, 2000 regarding the purchase by the Foundation of 14,667 shares of Series B Preferred Stock of the Company for an aggregate purchase price of $1,100,000 (exhibits and schedules omitted). 10.64+ License Agreement dated August 1, 2000 between the Company and Charles Brister providing for the Company to use the pedal override and clutch lube systems on its products held under certain patent rights by Charles Brister. 10.65+ License Agreement dated October 10, 2000 between Charles Brister and the Company to market safety fuel tank and filler cap apparatus which is held under certain patent rights by Charles Brister. 10.66+ License Agreement between Polaris Industries and the Company dated January 6, 2000. 10.67+ Amendment No. 1 to Registration Rights Agreement dated October 9, 2000 by and among the Company and Schlinger. 27.1+ Financial Data Schedule - ------------------------- + Filed herewith. EX-3.4 2 0002.txt AMENDED AND RESTATED BYLAWS EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS OF KARTS INTERNATIONAL INCORPORATED TABLE OF CONTENTS ARTICLE I -- OFFICES Section 1. Registered Office........................................1 Section 2. Other Offices............................................1 ARTICLE II -- SHAREHOLDERS Section 1. Place of Meetings........................................1 Section 2. Annual Meeting...........................................1 Section 3. List of Shareholders.....................................1 Section 4. Special Meetings.........................................2 Section 5. Notice...................................................2 Section 6. Quorum...................................................2 Section 7. Voting...................................................2 Section 8. Method of Voting.........................................2 Section 9. Record Date..............................................3 Section 10. Action by Consent........................................3 Section 11. Exclusion of NRS 78.378 to 78.3793.......................3 ARTICLE III -- BOARD OF DIRECTORS Section 1. Management...............................................3 Section 2. Qualification; Election; Term............................3 Section 3. Number...................................................3 Section 4. Removal..................................................4 Section 5. Vacancies................................................4 Section 6. Place of Meetings........................................4 Section 7. Annual Meeting...........................................4 Section 8. Regular Meetings.........................................4 Section 9. Special Meetings.........................................4 Section 10. Quorum...................................................4 Section 11. Interested Directors.....................................4 Section 12. Committees...............................................5 Section 13. Action by Consent........................................5 Section 14. Compensation of Directors................................5 ARTICLE IV NOTICE Section 1. Form of Notice...........................................5 Section 2. Waiver...................................................5 ARTICLE V -- OFFICERS AND AGENTS Section 1. In General...............................................6 Section 2. Election.................................................6 Section 3. Other Officers and Agents................................6 Section 4. Compensation.............................................6 Section 5. Term of Office and Removal...............................6 Section 6. Employment and Other Contracts...........................6 Section 7. Chairman of the Board of Directors.......................6 - i - Section 8. Chief Executive Officer..................................6 Section 9. President................................................7 Section 10. Chief Financial Officer..................................7 Section 11. Secretary................................................7 Section 12. Bonding..................................................7 ARTICLE VI -- CERTIFICATES REPRESENTING SHARES Section 1. Form of Certificates.....................................7 Section 2. Lost Certificates........................................8 Section 3. Transfer of Shares.......................................8 Section 4. Registered Shareholders..................................8 ARTICLE VII -- GENERAL PROVISIONS Section 1. Dividends................................................8 Section 2. Reserves.................................................8 Section 3. Telephone and Similar Meetings...........................9 Section 4. Books and Records........................................9 Section 5. Fiscal Year..............................................9 Section 6. Seal.....................................................9 Section 7. Advances of Expenses.....................................9 Section 8. Indemnification.........................................10 Section 9. Insurance...............................................10 Section 10. Resignation.............................................10 Section 11. Amendment of Bylaws.....................................10 Section 12. Invalid Provisions......................................10 Section 13. Relation to the Articles of Incorporation...............10 - ii - AMENDED AND RESTATED BYLAWS OF KARTS INTERNATIONAL INCORPORATED ARTICLE I OFFICES ------- Section 1. Registered Office. The registered office and registered agent of Karts International Incorporated (the "Corporation") will be as from time to time set forth in the Corporation's Articles of Incorporation (as may be amended from time to time) or in any certificate filed with the Secretary of State of the State of Nevada, and the appropriate county Recorder or Recorders, as the case may be, to amend such information. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II SHAREHOLDERS ------------ Section 1. Place of Meetings. All meetings of the shareholders for the election of Directors will be held at such place, within or without the State of Nevada, as may be fixed from time to time by the Board of Directors. Meetings of shareholders for any other purpose may be held at such time and place, within or without the State of Nevada, as may be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. An annual meeting of the shareholders will be held at such time as may be determined by the Board of Directors, at which meeting the shareholders will elect a Board of Directors, and transact such other business as may properly be brought before the meeting. Section 3. List of Shareholders. At least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at said meeting, arranged in alphabetical order, with the address of and the number of voting shares registered in the name of each, will be prepared by the officer or agent having charge of the stock transfer books. Such list will be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place will be specified in the notice of the meeting, or if not so specified at the place where the meeting is to be held. Such list will be produced and kept open at the time and place of the meeting during the whole time thereof, and will be subject to the inspection of any shareholder who may be present. - 1 - Section 4. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by law, the Articles of Incorporation or these Bylaws, may be called by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors. Section 5. Notice. Written or printed notice stating the place, day and hour of any meeting of the shareholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, will be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the Chief Executive Officer, the President, the Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at the meeting. If mailed, such notice will be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Section 6. Quorum. At all meetings of the shareholders, the presence in person or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote will be necessary and sufficient to constitute a quorum for the transaction of business except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. If, however, such quorum is not present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, will have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each shareholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. Section 7. Voting. When a quorum is present at any meeting of the Corporation's shareholders, the vote of the holders of a majority of the shares entitled to vote on, and voted for or against, any matter will decide any questions brought before such meeting, unless the question is one upon which, by express provision of law, the Articles of Incorporation or these Bylaws, a different vote is required, in which case such express provision will govern and control the decision of such question. The shareholders present in person or by proxy at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 8. Method of Voting. Each outstanding share of the Corporation's capital stock, regardless of class, will be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation, as amended from time to time. At any meeting of the shareholders, every shareholder having the right to vote will be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such shareholder and bearing a date not more than three years prior to such meeting, unless such instrument provides for a longer period. Each proxy will be revocable unless expressly provided therein to be irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Such proxy will be filed with the Secretary of the Corporation prior to or at the time of the meeting. Voting on any question or in any election, other than for directors, may be by voice vote or show of hands unless the presiding officer orders, or any shareholder demands, that voting be by written ballot. - 2 - Section 9. Record Date. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will not be less than ten nor more than sixty days prior to such meeting. In the absence of any action by the Board of Directors, the close of business on the date next preceding the day on which the notice is given will be the record date, or, if notice is waived, the close of business on the day next preceding the day on which the meeting is held will be the record date. Section 10. Action by Consent. Any action required or permitted by law, the Articles of Incorporation or these Bylaws to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and will be delivered to the Corporation by delivery to its registered office in Nevada, its principal place of business or an officer or agent of the Corporation having custody of the minute book. Section 11. Exclusion of NRS 78.378 to 78.3793. The Corporation expressly elects not to be governed by the provisions of NRS 78.378 to 78.3793, inclusive, of the Nevada General Corporation Law. ARTICLE III BOARD OF DIRECTORS ------------------ Section 1. Management. The business and affairs of the Corporation will be managed by or under the direction of its Board of Directors who may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. Section 2. Qualification; Election; Term. None of the Directors need be a shareholder of the Corporation or a resident of the State of Nevada. Each Director shall hold office until whichever of the following occurs first: his successor is elected and qualified, his resignation, his removal from office by the shareholders or his death. At each annual meeting of shareholders of the Corporation, the successors to the directors whose term expires at the meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the following year of their election. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote on the election of Directors at any annual or special meeting of shareholders. Such election shall be by written ballot. Section 3. Number. The number of Directors of the Corporation will be at least one and not more than nine. The number of Directors authorized will be fixed as the Board of Directors may from time to time designate, or if no such designation has been made, the number of Directors will be the same as the number of members of the initial Board of Directors as set forth in the Articles of Incorporation. - 3 - Section 4. Removal. Any Director may be removed, only for cause, at any special meeting of shareholders by the affirmative vote of the holders of a majority of all outstanding voting stock entitled to vote; provided that notice of the intention to act upon such matter has been given in the notice calling such meeting. Section 5. Vacancies. Newly created directorships resulting from any increase in the authorized number of Directors and any vacancies occurring in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Directors or otherwise, may be filled by the vote of a majority of the Directors then in office, though less than a quorum, or a successor or successors may be chosen at a special meeting of the shareholders called for that purpose, and each successor Director so chosen will hold office until the next election of Directors or until whichever of the following occurs first: his successor is elected and qualified, his resignation, his removal from office by the shareholders or his death. Section 6. Place of Meetings. Meetings of the Board of Directors, regular or special, may be held at such place within or without the State of Nevada as may be fixed from time to time by the Board of Directors. Section 7. Annual Meeting. The first meeting of each newly elected Board of Directors will be held without further notice immediately following the annual meeting of shareholders and at the same place, unless by unanimous consent, the Directors then elected and serving change such time or place. Section 8. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as is from time to time determined by resolution of the Board of Directors. Section 9. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President on oral or written notice to each Director, given either personally, by telephone, by telegram or by mail; special meetings will be called by the Chairman of the Board, Chief Executive Officer, President or Secretary in like manner and on like notice on the written request of at least three Directors. The purpose or purposes of any special meeting will be specified in the notice relating thereto. Section 10. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of Directors fixed by these Bylaws will be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Directors present at any meeting at which there is a quorum will be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Articles of Incorporation or these Bylaws. If a quorum is not present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present. Section 11. Interested Directors. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of the Corporation's Directors or officers are directors or officers or have a financial interest, will be void or voidable solely for this reason, solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his or their votes are - 4 - counted for such purpose, if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum, (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction. Section 12. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board, designate committees, each committee to consist of two or more Directors of the Corporation, which committees will have such power and authority and will perform such functions as may be provided in such resolution. Such committee or committees will have such name or names as may be designated by the Board and will keep regular minutes of their proceedings and report the same to the Board of Directors when required. Section 13. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee of the Board of Directors may be taken without such a meeting if a consent or consents in writing, setting forth the action so taken, is signed by all the members of the Board of Directors or such committee, as the case may be. Section 14. Compensation of Directors. Directors will receive such compensation for their services and reimbursement for their expenses as the Board of Directors, by resolution, may establish; provided that nothing herein contained will be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV NOTICE ------ Section 1. Form of Notice. Whenever by law, the Articles of Incorporation or of these Bylaws, notice is to be given to any Director or shareholder, and no provision is made as to how such notice will be given, such notice may be given in writing, by mail, postage prepaid, addressed to such Director or shareholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail will be deemed to be given at the time the same is deposited in the United States mails. Section 2. Waiver. Whenever any notice is required to be given to any shareholder or Director of the Corporation as required by law, the Articles of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, will be equivalent to the giving of such notice. Attendance of a shareholder or Director at a meeting will constitute a waiver of notice of such meeting, except where such shareholder or Director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. - 5 - ARTICLE V OFFICERS AND AGENTS ------------------- Section 1. In General. The officers of the Corporation will consist of a Chief Executive Officer, President, Chief Financial Officer and Secretary and such other officers as shall be elected by the Board of Directors or the Chief Executive Officer. Any two or more offices may be held by the same person. Section 2. Election. The Board of Directors, at its first meeting after each annual meeting of shareholders, will elect the officers, none of whom need be a member of the Board of Directors. Section 3. Other Officers and Agents. The Board of Directors and Chief Executive Officer may also elect and appoint such other officers and agents as it or he deems necessary, who will be elected and appointed for such terms and will exercise such powers and perform such duties as may be determined from time to time by the Board or the Chief Executive Officer. Section 4. Compensation. The compensation of all officers and agents of the Corporation will be fixed by the Board of Directors or any committee of the Board, if so authorized by the Board. Section 5. Term of Office and Removal. Each officer of the Corporation will hold office until his death, his resignation or removal from office, or the election and qualification of his successor, whichever occurs first. Any officer or agent elected or appointed by the Board of Directors or the Chief Executive Officer may be removed at any time, for or without cause, by the affirmative vote of a majority of the entire Board of Directors or at the discretion of the Chief Executive Officer (without regard to how the agent or officer was elected), but such removal will not prejudice the contract rights, if any, of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors or, in the case of a vacancy in the office of officer other than Chief Executive Officer and President, such vacancy may be filled by the Chief Executive Officer. Section 6. Employment and Other Contracts. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances. The Board of Directors may, when it believes the interest of the Corporation will best be served thereby, authorize executive employment contracts that will have terms no longer than ten years and contain such other terms and conditions as the Board of Directors deems appropriate. Nothing herein will limit the authority of the Board of Directors to authorize employment contracts for shorter terms. Section 7. Chairman of the Board of Directors. If the Board of Directors has elected a Chairman of the Board, he will preside at all meetings of the shareholders and the Board of Directors. Section 8. Chief Executive Officer. The Chief Executive Officer will be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, will supervise and control all of the business and affairs of the Corporation. The Chief Executive Officer shall have the authority to elect any officer of the Corporation other than the Chief Executive Officer or President. He will, in the absence of the Chairman of the Board, preside at all meetings of the shareholders and the Board of Directors. The Chief Executive Officer will have all powers and perform all duties - 6 - incident to the office of Chief Executive Officer and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe. During the absence or disability of the President, the Chief Executive Officer will exercise the powers and perform the duties of President. Section 9. President. The President will have responsibility for oversight of the Corporation's operating and development activities. In the absence or disability of the Chief Executive Officer and the Chairman of the Board, the President will exercise the powers and perform the duties of the Chief Executive Officer. The President will render to the Directors whenever they may require it an account of the operating and development activities of the Corporation and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. Section 10. Chief Financial Officer. The Chief Financial Officer will have principal responsibility for the financial operations of the Corporation. The Chief Financial Officer will render to the Directors whenever they may require it an account of the operating results and financial condition of the Corporation and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. Section 11. Secretary. The Secretary will attend all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary will perform like duties for the Board of Directors and committees thereof when required. The Secretary will give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors. The Secretary will keep in safe custody the seal of the Corporation. The Secretary will be under the supervision of the Chief Executive Officer. The Secretary will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. Section 12. Bonding. The Corporation may secure a bond to protect the Corporation from loss in the event of defalcation by any of the officers, which bond may be in such form and amount and with such surety as the Board of Directors may deem appropriate. ARTICLE VI CERTIFICATES REPRESENTING SHARES -------------------------------- Section 1. Form of Certificates. Certificates, in such form as may be determined by the Board of Directors, representing shares to which shareholders are entitled will be delivered to each shareholder. Such certificates will be consecutively numbered and will be entered in the stock book of the Corporation as they are issued. Each certificate will state on the face thereof the holder's name, the number, class of shares, and the par value of such shares or a statement that such shares are without par value. They will be signed by the Chief Executive Officer or President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, ceases to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such - 7 - certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it may require and/or to give the Corporation a bond, in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the Corporation within a reasonable time after such holder has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such notification, the holder of record is precluded from making any claim against the Corporation for the transfer of a new certificate. Section 3. Transfer of Shares. Shares of stock will be transferable only on the books of the Corporation by the holder thereof in person or by such holder's duly authorized attorney. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it will be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Shareholders. The Corporation will be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by law. ARTICLE VII GENERAL PROVISIONS ------------------ Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, subject to the provisions of the General Corporation Law of the State of Nevada and the Articles of Incorporation. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to receive payment of any dividend, such record date will not precede the date upon which the resolution fixing the record date is adopted, and such record date will not be more than sixty days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the close of business on the date upon which the Board of Directors adopts the resolution declaring such dividend will be the record date. Section 2. Reserves. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the Directors from time to time, in their discretion, deem proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for such other purpose as the Directors may deem beneficial to the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. Surplus of the Corporation to the extent so reserved will not be available for the payment of dividends or other distributions by the Corporation. - 8 - Section 3. Telephone and Similar Meetings. Shareholders, directors and committee members may participate in and hold meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in such a meeting will constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Section 4. Books and Records. The Corporation will keep correct and complete books and records of account and minutes of the proceedings of its shareholders and Board of Directors, and will keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Section 5. Fiscal Year. The fiscal year of the Corporation will be December 31 unless otherwise fixed by resolution of the Board of Directors. Section 6. Seal. The Corporation may have a seal, and the seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the Corporation will have authority to affix the seal to any document requiring it. Section 7. Advances of Expenses. The Corporation will advance to its directors and officers expenses incurred by them in connection with any "Proceeding," which term includes any threatened, pending or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature (including all appeals therefrom), in which a director or officer may be or may have been involved as a party or otherwise, by reason of the fact that he is or was a director or officer of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as such, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise ("Official," which term also includes directors and officers of the Corporation in their capacities as directors and officers of the Corporation), whether or not he is serving in such capacity at the time any liability or expense is incurred; provided that the Official undertakes to repay all amounts advanced unless: (i) in the case of all Proceedings other than a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, that he did not have reasonable cause to believe his conduct was unlawful; provided that the termination of any such Proceeding by judgment, order of court, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not by itself create a presumption as to whether the Official acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, as to whether he had reasonable cause to believe his conduct was unlawful; or - 9 - (ii) in the case of a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided that if in such a Proceeding the Official is adjudged to be liable to the Corporation, all amounts advanced to the Official for expenses must be repaid except to the extent that the court in which such adjudication was made shall determine upon application that despite such adjudication, in view of all the circumstances, the Official is fairly and reasonably entitled to indemnity for such expenses as the court may deem proper. Section 8. Indemnification. The Corporation will indemnify its directors and officers to the fullest extent permitted by the General Corporation Law of the State of Nevada and may, if and to the extent authorized by the Board of Directors, so indemnify such other persons whom it has the power to indemnify against any liability, reasonable expense or other matter whatsoever. Section 9. Insurance. The Corporation may at the discretion of the Board of Directors purchase and maintain insurance on behalf of the Corporation and any person whom it has the power to indemnify pursuant to law, the Articles of Incorporation, these Bylaws or otherwise. Section 10. Resignation. Any director, officer or agent may resign by giving written notice to the President or the Secretary. Such resignation will take effect at the time specified therein or immediately if no time is specified therein. Unless otherwise specified therein, the acceptance of such resignation will not be necessary to make it effective. Section 11. Amendment of Bylaws. Other than as set forth herein, these Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting. Section 12. Invalid Provisions. If any part of these Bylaws is held invalid or inoperative for any reason, the remaining parts, so far as possible and reasonable, will be valid and operative. Section 13. Relation to the Articles of Incorporation. These Bylaws are subject to, and governed by, the Articles of Incorporation of the Corporation as amended from time to time. Adopted by the Board of Directors and Effective May 16, 2000 /s/ Richard N. Jones ----------------------------------------------- RICHARD N. JONES, Secretary - 10 - EX-3.5 3 0003.txt ARTICLES OF INCORPORATION CERTIFICATE OF AMENDMENT EXHIBIT 3.5 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 December 12, 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 24,626,408 votes were cast for the amendment, 74,063 votes were against the amendment and 60,918 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. CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION - Page 1 KARTS INTERNATIONAL INCORPORATED ________________________________________________ Charles Brister, President ________________________________________________ Geoffrey Craig benRichard, Secretary State of Texas ss. ss. County of Dallas ss. 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 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION - Page 2 EX-4.10 4 0004.txt CERTIFICATE OF DESIGNATION FOR SERIES B PREFERRED EXHIBIT 4.10 CERTIFICATE OF DESIGNATION ESTABLISHING SERIES B PREFERRED STOCK OF KARTS INTERNATIONAL INCORPORATED 1. The name of the Corporation is Karts International Incorporated, a Nevada corporation (the "Corporation"). 2. The Board of Directors of the Corporation duly adopted the following resolutions at a special meeting of the Board of Directors held on September 25, 2000: WHEREAS, the Corporation's directors have reviewed and approved the Designation of Preferences, Limitations and Rights of Series B Preferred Stock of Karts International Incorporated ("Certificate"), attached hereto as Exhibit A and incorporated herein by reference, delineating the number of shares, the voting powers, designations, preferences and relative, participating, optional, redemption, conversion, exchange, dividend or other special rights and qualifications, limitations or restrictions of a series of Preferred Stock to be issued by the Corporation and designated Series B Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock"); RESOLVED, that 100,000 shares of authorized but unissued Preferred Stock of the Corporation be designated Series B Preferred Stock and authorized for issuance and that the Series B Preferred Stock have the rights, preferences, limitations and restrictions set forth herein. FURTHER RESOLVED, that the Chief Executive Officer, President or any Vice President of the Corporation, individually or collectively, and the Secretary or Assistant Secretary of the Corporation, individually or collectively, be, and such officers hereby are, authorized and directed to execute, acknowledge, attest, record and file with the Secretary of State of the State of Nevada a Certificate of Designation in accordance with Section 78.1955 of the Nevada General Corporation Law and to take all other actions that such officers deem necessary to effectuate the Certificate of Designation and establish the Series A Preferred Stock. 3. The authorized number of shares of Preferred Stock of the Corporation is 10,000,000, of which 2,500,000 shares have previously been designated as 9% Convertible Preferred Stock and 4,000,000 shares have previously been designated as Series A Preferred Stock (the "Existing Preferred"), and the number of shares of the Series B Preferred Stock, none of which has been issued, is 100,000. 4. The resolutions set forth above have been duly adopted by all necessary action on the part of the Corporation. 1 IN WITNESS WHEREOF, Karts International Incorporated has caused this Certificate to be executed by Charles Brister, President, this 26th day of September, 2000. KARTS INTERNATIONAL INCORPORATED By: ____________________________________ Charles Brister, President ATTEST: By: _____________________________________ Geoffrey Craig benRichard barAbba, Corporate Secretary STATE OF TEXAS ss. ss. COUNTY OF DALLAS ss. The foregoing instrument was acknowledged before me, on the 26th day of September, 2000, by Charles Brister, President, and Geoffrey Craig benRichard barAbba, Secretary of Karts International Incorporated, a Nevada corporation, on behalf of the corporation. Given under my hand and official seal this 26th day of September, 2000. ________________________________ Notary Public 2 DESIGNATION OF PREFERENCES, LIMITATIONS AND RIGHTS OF SERIES B PREFERRED STOCK OF KARTS INTERNATIONAL INCORPORATED 1. Dividend Provisions. The holders of shares of Series B Preferred Stock shall not be entitled to receive any dividends. 2. Liquidation Preference. (a) The preferences, limitations and rights of the Series B Preferred Stock is subordinate to the preferences, limitations and rights of the Company's outstanding Series A Preferred Stock and pari passu with the preferences, limitations and rights of the outstanding 9% Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock"). In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series A Preferred Stock shall first have received complete payment for the Series A Preferred Stock then outstanding as provided under the Certificate of Designation Establishing Series A Preferred Stock then in effect (the "Series A Preferred Stock Certificate") and thereafter the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, other than to the holders of the outstanding Series A Preferred Stock, by reason of their ownership thereof, an amount per share equal to the sum of (i) $75.00 for each outstanding share of Series B Preferred Stock and the holders of Convertible Preferred Stock shall be entitled to receive an amount of $1.00 per share for each outstanding share of Convertible Preferred Stock, plus all accrued and unpaid dividends on each such share up to the date fixed for distribution (subject to adjustment of such fixed dollar amount for any stock splits, stock dividends, combinations, recapitalizations or the like). Subject to the prior rights of the holders of the Series A Preferred Stock, if the assets and funds thus distributed among the holders of the Series B Preferred Stock and Convertible Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the available assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock and Convertible Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive under this subsection (a). (b) Upon the completion of the distribution required by subsection (a) of this Section 2, including the distribution to the holders of the Series A Preferred Stock, the remaining assets of this corporation available for distribution to stockholders shall be distributed among the holders of Series A Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming full conversion of all such Series A Preferred Stock). The Series B Preferred Stock and Convertible Preferred Stock shall have no further rights to participate in the distribution of the assets of the Corporation. (c) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of the Company shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the Series A Preferred Stock then outstanding shall determine otherwise), (A) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Company; or (B) a sale of all or substantially all of the assets of the Company. EXHIBIT A - Page 1 (ii) In any of such events, if the consideration received by the Company is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over the counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the Series A Preferred Stock and Series B Preferred Stock then outstanding. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate), shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the Series A Preferred Stock and Series B Preferred Stock then outstanding. (iii) In the event the requirements of this subsection 2(b) are not complied with, the Company shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series B Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iv) hereof. (iv) The Company shall give each holder of record of Series B Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the Company shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Company has given the first notice provided for herein or sooner than ten (10) days after the Company has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Series B Preferred that an entitled to such notice rights or similar notice rights and that represent at least a majority of the Series B Preferred Stock then outstanding. EXHIBIT A - Page 2 3. Redemption. (a) Subject to the prior written consent of the holders of at least a majority of the outstanding Series A Preferred Stock, on or after May 31, 2003, the Company may redeem all or a portion of the Series B Preferred (in multiples of $1,000,000), by paying in cash therefor a sum equal to $150.00 per share of Series B Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like) (the "Redemption Price"). Any redemption of Series B Preferred Stock elected pursuant to this subsection 3(a) shall be made on a pro rata basis among the holders of the Series B Preferred Stock in proportion to the number of shares of Series B Preferred Stock proposed to be redeemed by the Company. (b) At least thirty (30) but no more than forty-five (45) days prior to each date on which the Series B Preferred Stock may be redeemed, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business: on the business day next preceding the day on which notice is given) of the Series B Preferred Stock to be redeemed, at the address last shown on the records of the Company for such holder, notifying such holder of the same, specifying the number of shares that may be subject to any such redemption, the date set for such redemption, the Redemption Price for any such redemption, the place at which payment may be obtained and calling upon such holder to surrender to the Company, in the manner and at the place designated, his, her, or its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). For purposes hereof the term "Redemption Date" shall be deemed to refer to the date set by the Company for a redemption. Except as provided in subsection (3), on or after each Redemption Date, each holder of Series B Preferred Stock to be redeemed on such Redemption Date shall surrender to the Company the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on the certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less then all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after each Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of shares of Series B Preferred Stock designated for redemption on such Redemption Date in the Redemption Notice as holders of Series B Preferred Stock (except the right to receive the applicable Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such redeemed shares, and such shares shall not thereafter be transferred on the books of the Company or redeemed to be outstanding for any purpose whatsoever. If the funds of the Company legally available for redemption of shares of Series B Preferred EXHIBIT A - Page 3 on a Redemption Date are insufficient to redeem the total number of shares of Series B Preferred Stock to be redeemed on such date, those funds that are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed such that each holder of a share of Series B Preferred Stock receives the same percentage of the applicable Series B Redemption Price, as the case may be. The shares of Series B Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series B Preferred Stock, such funds will immediately be used to redeem the balance of the shares that the Company has become obliged to redeem on any Redemption Date but that it has not redeemed. 4. Conversion. The holders of the Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such shares into such number of fully paid and nonassessable shares of Common Stork as is determined by dividing the Conversion Price per share of such Series B Preferred in effect at the time of conversion into the sum of $75. The initial "Conversion Price" per share for shares of Series B Preferred Stock shall be $0.375; provided, however that the Conversion Price for the Series B Preferred Stock shall be subject to adjustment as set forth in subsection 4(d). (b) Automatic Conversion. Each share of Series B Preferred shall automatically be converted into shares of Common Stock at the Conversion Price at that time in effect for such Series B Preferred Stock immediately, in the manner specified in Section 4(a) above, upon (i) the Company's sale of its Common Stock with an aggregate offering price of $10,000,000 and a per share price of $5.00, and (ii) the written consent or agreement of the holders of a majority of the then outstanding shares of the Series B Preferred Stock. (c) Mechanics of Conversion. Before any holder of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for the Series B Preferred Stock, and shall give written notice to the Company at its principal corporate office, of the election to convert the same and shall state them in the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Preferred Stock to be converted, and the person or persons entitled to receive the. shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. EXHIBIT A - Page 4 (d) Conversion Price. Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series B Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) If the Company shall issue after the date upon which any shares of Series B Preferred Stock are first issued pursuant to the Stock Purchase Agreement, any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price for the Series B Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for the Series B Preferred Stock in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price equal to the price paid per share for such Additional Stock. (B) No adjustment of the Conversion Price for the Series B Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof (D) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors and a majority of the shares of Series B Preferred Stock, irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4,(d)(i) and subsection 4(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 4(d)(j)(C) and (d)(i)(D)), if any, received by the Company upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. EXHIBIT A - Page 5 (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (to the extent then convertible or exchangeable) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable, securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus their minimum additional consideration. if any, to be received by the Company (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Company upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series B Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities the Conversion Price of the Series B Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(I) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any share of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(j)(E)) by the Company after September 26, 2000 (the "Initial Purchase Date"), other than: (A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof, or EXHIBIT A - Page 6 (B) up to an aggregate of 1,000,000 shares of Common Stock issuable to employees, consultants, directors or vendors (if in transactions with primarily non-financing purposes) of the Company directly or pursuant to options currently outstanding as of the date of the filing of this Certificate of Designation and issued pursuant to the 1998 Stock Compensation Plan of the Company as it exists on the Initial Purchase Date and any other Stock Compensation Plan of the Company approved after the Initial Purchase Date by the holders of at least a majority of the then outstanding voting capital stock of the Company; (C) Common Stock issued or issuable upon conversion of the Convertible Preferred Stock, Series A Preferred Stock and Series B Preferred Stock; (D) Common Stock issued upon the exercise of any warrant or convertible security of the Company outstanding as of the date of the filing of this Certificate of Designation; (E) The issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; and (F) Common Stock issued as a dividend on outstanding Preferred Stock as it exists on the Initial Purchase Date. (iii) In the event the Company should at any time or from time to time after the Initial Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter or referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series B Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series B Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E). (iv) If the number of shares of Common Stock outstanding at any time after the Initial Purchase Date is decreased by combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series B Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Series B Preferred Stock shall be decreased in proportion to such decrease in outstanding shares and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E). EXHIBIT A - Page 7 (e) Other Distributions. In the event the Company shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the holders of the Series B Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Company into which their shares of Series B Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2) provision shall be made so that the holders of the Series B Preferred Stock shall thereafter be entitled to receive upon conversion of the Series B Preferred Stock the number of shares of stock or other securities or property of the Company or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series B Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series B Preferred Stock) shall be. applicable after that event as nearly equivalent as may be practicable, (g) No Impairment. The Company will not by amendment of its Articles of Incorporation, this Certificate of Designation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action a may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment. (h) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series B Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares; of Series B Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series B Preferred Stock pursuant to this Section 4, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the, terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This Company shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to holder a like certificate setting forth (A) such adjustment and readjustment (B) the Conversion Price for such series of Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series B Preferred Stock. EXHIBIT A - Page 8 (i) Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series B Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or tight. (j) Reservation of Stock Issuable Upon Conversion. The Company shall as soon as practicable after the filing of this Certificate with the Secretary of the State of Nevada seek approval of its shareholders for an amendment to the Company's Articles of Incorporation increasing the authorized shares of Common Stock of the Company from 35,000,000 shares to at least 50 million shares of Common Stock and thereafter the Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of affecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Certificate of Designation. (k) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Company. 5. Voting Rights. (a) General Voting Rights. The holder of each share of Series B Preferred Stock Shall have the right to one vote for each share of Common Stock into which such Series B Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, not withstanding any provision hereof, to notice of any stockholder meeting in accordance with the bylaws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series B Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). EXHIBIT A - Page 9 (b) Voting for the Election of Directors. The holders of Series B Preferred Stock and Common Stock (voting together as a single class and not as separate series, and on an as-converted basis) shall be entitled to elect the directors of the Company; provided, however for so long as a majority of the shares of Series A Preferred Stock originally issued remain outstanding, the holders of such shares of Series A Preferred Stock shall be entitled to elect a majority of the directors of the Company at each annual election of directors; provided, further however for so long as a majority of the shares of Series A Preferred Stock originally issued remain outstanding, if additional directors are elected to the Board of Directors by the holders of the Company's outstanding Convertible Preferred Stock pursuant to that certain Certificate of Designation, Preferences and Rights of 9% Cumulative Convertible Preferred Stock adopted by the Board of Directors of the Company on March 25, 1999, the holders of such shares of Series A Preferred Stock shall be entitled to elect such additional directors as shall be necessary to maintain a majority of directors on the Board of Directors of the Company. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or series may be affirmative vote of a majority thereof (or the remaining director so elected if there be but one, or if there am no such directors remaining, by the affirmative vote of the holders of a majority of the shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the holders of a class or series of stock or by any directors so elected as provided in the immediately preceding sentence hereof may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to unanimous written consent. 6. Protective Provisions. So long as any shares of Series B Preferred Stock are outstanding, the Company shall. not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock; EXHIBIT A - Page 10 (b) authorize to issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security, having a preference over the Series B Preferred Stock with respect to liquidation, redemption or voting; (c) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Series B Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to (A) the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment or (B) the redemption of any share or shares of Series A Preferred Stock or Series B Preferred Stock in accordance with Section 3; (d) authorize any dividend or other distribution (other than a stock dividend) with respect to any capital stock of the Company, other than the dividends payable to the holders of the Series A Preferred Stock or to the holders of the Convertible Preferred Stock outstanding on the date of this resolution. (e) merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this corporation is disposed of if the Company shall have caused the Series B Preferred Stock to remain outstanding after the merger or consolidation and be convertible into the same consideration received by the holders of the Common Stock in the merger or consolidation; (f) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series B Preferred Stock; or (g) amend the Company's Articles of Incorporation or bylaws. 7. Status of Redeemed or Converted Stock. All shares of Series B Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized, unissued shares of undesignated preferred stock available for issuance by the Company. EXHIBIT A - Page 11 EX-4.11 5 0005.txt CERTIFICATE OF DESIGNATION FOR SERIES A PREFERRED EXHIBIT 4.11 CERTIFICATE OF DESIGNATION ESTABLISHING SERIES A PREFERRED STOCK OF KARTS INTERNATIONAL INCORPORATED 1. The name of the Corporation is Karts International Incorporated, a Nevada corporation (the "Corporation"). 2. The Board of Directors of the Corporation duly adopted the following resolutions at a special meeting of the Board of Directors held on May 16, 2000: WHEREAS, the Corporation's directors have reviewed and approved the Designation of Preferences, Limitations and Rights of Series A Preferred Stock of Karts International Incorporated ("Certificate"), attached hereto as Exhibit A and incorporated herein by reference, delineating the number of shares, the voting powers, designations, preferences and relative, participating, optional, redemption, conversion, exchange, dividend or other special rights and qualifications, limitations or restrictions of a series of Preferred Stock to be issued by the Corporation and designated Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"); RESOLVED, that 4,000,000 shares of authorized but unissued Preferred Stock of the Corporation be designated Series A Preferred Stock and authorized for issuance and that the Series A Preferred Stock have the rights, preferences, limitations and restrictions set forth herein. FURTHER RESOLVED, that the Chief Executive Officer, President or any Vice President of the Corporation, individually or collectively, and the Secretary or Assistant Secretary of the Corporation, individually or collectively, be, and such officers hereby are, authorized and directed to execute, acknowledge, attest, record and file with the Secretary of State of the State of Nevada a Certificate of Designation in accordance with Section 78.1955 of the Nevada General Corporation Law and to take all other actions that such officers deem necessary to effectuate the Certificate of Designation and establish the Series A Preferred Stock. 3. The authorized number of shares of Preferred Stock of the Corporation is 10,000,000, of which 2,500,000 have previously been designated as 9% Convertible Preferred Stock (the "Existing Preferred"), and the number of shares of the Series A Preferred Stock, none of which has been issued, is 4,000,000. 4. The resolutions set forth above have been duly adopted by all necessary action on the part of the Corporation. 1 IN WITNESS WHEREOF, Karts International Incorporated has caused this Certificate to be executed by Richard N. Jones, at Vice President of Administration, this 16th day of May, 2000. KARTS INTERNATIONAL INCORPORATED By:____________________________________ Richard N. Jones, Vice President of Administration ATTEST: By:______________________________________ Richard N. Jones, Assistant Secretary STATE OF TEXAS ) ) COUNTY OF DALLAS ) The foregoing instrument was acknowledged before me, on the 16TH day of May, 2000, by Richard N. Jones, Vice President,.and Richard N. Jones, Assistant Secretary of Karts International Incorporated, a Nevada corporation, on behalf of the corporation. Given under my hand and official seal this 16TH day of May, 2000. ____________________________________ Notary Public 2 DESIGNATION OF PREFERENCES, LIMITATIONS AND RIGHTS OF SERIES A PREFERRED STOCK OF KARTS INTERNATIONAL INCORPORATED 1. Dividend Provisions. (a) The holders of shares of Series A Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Company) on the capital stock of the Company, at the rate of $0.075 per share per annum for the Series A Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like), or, if greater (as determined on a per annum basis and on an as converted basis for the Series A Preferred Stock), an amount equal to that paid on any other outstanding shares of the Company, payable when, as, and if declared by the Board of Directors. The holders of the outstanding Series A Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1 upon the affirmative vote or written consent of the holders of at least a majority of the Series A Preferred Stock then outstanding. (b) The dividend described in Section 1(a) shall be fully cumulative and shall accrue from the date of issuance of each share of Series A Preferred Stock and shall be payable in cash, to the extent permitted by applicable law (and if not then permitted by applicable law, at such time as the Company is permitted by applicable law to pay any such dividends) on each March 31, June 30, September 30 and December 31 beginning June 30, 2000 to the holders of record of the Series A Preferred Stock on each corresponding March15, June 15, September 15 and December 15. The amount of dividends which accrue shall be computed on the basis of a 365-day year and the actual number of days elapsed (including the first day, but not the last day) occurring in the period for which such amount is payable. 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of capital stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.75 for each outstanding share of Series A Preferred Stock plus (ii) declared or accrued but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive under this subsection (a). EXHIBIT A - Page 1 (b) Upon the completion of the distribution required by subsection (a) of this Section 2, the remaining assets of this corporation available for distribution to stockholders shall be distributed among the holders of Series A Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming full conversion of all such Series A Preferred Stock). (c) (i) For purposes of this Section 2, a liquidation, dissolution or winding up of the Company shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the Series A Preferred Stock then outstanding shall determine otherwise), (A) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Company; or (B) a sale of all or substantially all of the assets of the Company. (ii) In any of such events, if the consideration received by the Company is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the Series A Preferred Stock then outstanding. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the Series A Preferred Stock then outstanding. (iii) In the event the requirements of this subsection 2(b) are not complied with, the Company shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with; or (B) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in subsection 2(c)(iv) hereof. EXHIBIT A - Page 2 (iv) The Company shall give each holder of record of Series A Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the Company shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Company has given the first notice provided for herein or sooner than ten (10) days after the Company has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Series A Preferred that are entitled to such notice rights or similar notice rights and that represent at least a majority of the Series A Preferred Stock then outstanding. 3. Redemption. (a) On or after May 31, 2003, the Company may redeem all or a portion of the Series A Preferred (in multiples of $1,000,000), by paying in cash therefor a sum equal to $1.50 per share of Series A Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like) plus all declared or accrued but unpaid dividends on such share (the "Redemption Price"). Any redemption of Series A Preferred Stock effected pursuant to this subsection 3(a) shall be made on a pro rata basis among the holders of the Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock proposed to be redeemed by the Company. (b) At least thirty (30) but no more than forty-five (45) days prior to each date on which the Series A Preferred Stock may be redeemed, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series A Preferred Stock to be redeemed, at the address last shown on the records of the Company for such holder, notifying such holder of the same, specifying the number of shares that may be subject to any such redemption, the date set for such redemption, the Redemption Price for any such redemption, the place at which payment may be obtained and calling upon such holder to surrender to the Company, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). For purposes hereof, the term "Redemption Date" shall be deemed to refer to the date set by the Company for a redemption. Except as provided in subsection (3), on or after each Redemption Date, each holder of Series A Preferred Stock to be redeemed on such Redemption Date shall surrender to the Company the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. EXHIBIT A - Page 3 (c) From and after each Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series A Preferred Stock designated for redemption on such Redemption Date in the Redemption Notice as holders of Series A Preferred Stock (except the right to receive the applicable Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such redeemed shares, and such shares shall not thereafter be transferred on the books of the Company or be deemed to be outstanding for any purpose whatsoever. If the funds of the Company legally available for redemption of shares of Series A Preferred on a Redemption Date are insufficient to redeem the total number of shares of Series A Preferred Stock to be redeemed on such date, those funds that are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed such that each holder of a share of Series A Preferred Stock receives the same percentage of the applicable Series A Redemption Price, as the case may be. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Company are legally available for the redemption of shares of Series A Preferred Stock, such funds will immediately be used to redeem the balance of the shares that the Company has become obliged to redeem on any Redemption Date but that it has not redeemed. 4. Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Conversion Price per share of such Series A Preferred in effect at the time of conversion into the sum of (i) $0.75 plus (ii) all accrued or unpaid dividends (whether declared or undeclared) on the Series A Preferred Stock so converted. The initial "Conversion Price" per share for shares of Series A Preferred Stock shall be $0.375; provided, however, that the Conversion Price for the Series A Preferred Stock shall be subject to adjustment as set forth in subsection 4(d). (b) Automatic Conversion. Each share of Series A Preferred shall automatically be converted into shares of Common Stock at the Conversion Price at that time in effect for such Series A Preferred Stock immediately, in the manner specified in Section 4(a) above, upon (i) the Company's sale of its Common Stock with an aggregate offering price of $10,000,000 and a per share price of $5.00, and (ii) the written consent or agreement of the holders of a majority of the then outstanding shares of the Series A Preferred Stock. (c) Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for the Series A Preferred Stock, and shall give written notice to the Company at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. EXHIBIT A - Page 4 (d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) (A) If the Company shall issue after the date upon which any shares of Series A Preferred Stock are first issued pursuant to the Stock Purchase Agreement, any Additional Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price for the Series A Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for the Series A Preferred Stock in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this clause (i)) be adjusted to a price equal to the price paid per share for such Additional Stock. (B) No adjustment of the Conversion Price for the Series A Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment. (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof. (D) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors and a majority of the shares of Series A Preferred Stock, irrespective of any accounting treatment. (E) In the case of the issuance (whether before, on or after the applicable Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (to the extent then exercisable) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by the Company upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. EXHIBIT A - Page 5 (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (to the extent then convertible or exchangeable) for, any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Company (without taking into account potential antidilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)). (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Company upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price of the Series A Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either subsection 4(d)(i)(E)(3) or (4). (ii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E)) by the Company after May ___, 2000 (the "Initial Purchase Date"), other than: (A) Common Stock issued pursuant to a transaction described in subsection 4(d)(iii) hereof; or EXHIBIT A - Page 6 (B) up to an aggregate of 1,000,000 shares of Common Stock issuable to employees, consultants, directors or vendors (if in transactions with primarily non- financing purposes) of the Company directly or pursuant to options currently outstanding as of the date of the filing of this Certificate of Designation and issued pursuant to the 1998 Stock Compensation Plan of the Company as it exists on the Initial Purchase Date; (C) Common Stock issued or issuable upon conversion of the Series A Preferred Stock; (D) Common Stock issued upon the exercise of any warrant or convertible security of the Company outstanding as of the date of the filing of this Certificate of Designation; (E) The issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise; and (F) Common Stock issued as a dividend on the Existing Preferred as it exists on the Initial Purchase Date. (iii) In the event the Company should at any time or from time to time after the Initial Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series A Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E). (iv) If the number of shares of Common Stock outstanding at any time after the Initial Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock shall be decreased in proportion to such decrease in outstanding shares and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in subsection 4(d)(i)(E). EXHIBIT A - Page 7 (e) Other Distributions. In the event the Company shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Company into which their shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution. (f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2) provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock the number of shares of stock or other securities or property of the Company or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) No Impairment. The Company will not, by amendment of its Articles of Incorporation, this Certificate of Designation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment. (h) No Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Series A Preferred Stock pursuant to this Section 4, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. This Company shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series A Preferred Stock. EXHIBIT A - Page 8 (i) Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series A Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (j) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Certificate of Designation. (k) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Company. 5. Voting Rights. (a) General Voting Rights. The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Company, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). EXHIBIT A - Page 9 (b) Voting for the Election of Directors. The holders of Series A Preferred Stock and Common Stock (voting together as a single class and not as separate series, and on an as-converted basis) shall be entitled to elect the directors of the Company; provided, however, for so long as a majority of the shares of Series A Preferred Stock originally issued remain outstanding, the holders of such shares of Series A Preferred Stock shall be entitled to elect a majority of the directors of the Company at each annual election of directors; provided, further, however, for so long as a majority of the shares of Series A Preferred Stock originally issued remain outstanding, if additional directors are elected to the Board of Directors by the holders of the Existing Preferred pursuant to Section 2(b) of that certain Certificate of Designation, Preferences and Rights of 9% Cumulative Convertible Preferred Stock adopted by the Board of Directors of the Company on March 25, 1999, the holders of such shares of Series A Preferred Stock shall be entitled to elect such additional directors as shall be necessary to maintain a majority of directors on the Board of Directors of the Company. In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or series may by affirmative vote of a majority thereof (or the remaining director so elected if there be but one, or if there are no such directors remaining, by the affirmative vote of the holders of a majority of the shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant. Any director who shall have been elected by the holders of a class or series of stock or by any directors so elected as provided in the immediately preceding sentence hereof may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to unanimous written consent. 6. Protective Provisions. So long as any shares of Series A Preferred Stock are outstanding, the Company shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock; (b) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security, having a preference over the Series A Preferred Stock with respect to dividends, liquidation, redemption or voting; (c) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Series A Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to (A) the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment or (B) the redemption of any share or shares of Series A Preferred Stock in accordance with Section 3; or EXHIBIT A - Page 10 (d) authorize any dividend or other distribution (other than a stock dividend) with respect to any capital stock of the Company, other than the dividends payable to the holders of the Series A Preferred Stock as provided herein or to the holders of the Existing Preferred outstanding on the date of this resolution. (e) merge into or consolidate with any other corporation (other than a wholly- owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this corporation is disposed of if the Company shall have caused the Series A Preferred Stock to remain outstanding after the merger or consolidation and be convertible into the same consideration received by the holders of the Common Stock in the merger or consolidation; (f) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Preferred Stock (other than as necessary to distribute the dividend to the holders of the Series A Preferred Stock as described in Section (1)(b)); or (g) amend the Company's Articles of Incorporation or bylaws. 7. Status of Redeemed or Converted Stock. All shares of Series A Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized, unissued shares of undesignated preferred stock available for issuance by the Company. EXHIBIT A - Page 11 EX-9.1 6 0006.txt VOTING AGREEMENT EXHIBIT 9.1 VOTING AGREEMENT ---------------- THIS VOTING AGREEMENT (this "Agreement") is entered into as of May 17, 2000 by and among Karts International Incorporated, a Nevada corporation (the "Company"), each of the parties listed on Schedule A attached hereto (the "Investor"), and each of the parties listed on Schedule B attached hereto and such other parties as may from time to time and with the consent of the Company become parties hereto (the parties listed on Schedule B and such other parties being collectively referred to as the "Principal Shareholders"). This Agreement shall become effective as of the Closing (as defined therein) of that certain Series A Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement") by and among the Company and the Investor named therein. The Agreement relates to the issued and outstanding common stock (the "Shares") of the Company currently owned or which may, in the future, be acquired by the Principal Shareholders. RECITALS -------- WHEREAS, the Company and the Investor have entered into the Purchase Agreement, providing, among other things, for the purchase of shares of the Company's Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"); WHEREAS, the execution and delivery of this Agreement by the Company, the Investor and the Principal Shareholders is a condition to the closing of the issuance, sale and purchase of the Series A Preferred Stock pursuant to the Purchase Agreement; and WHEREAS, the Principal Shareholders believe it is in their best interests to provide for the future voting of the shares and desire to set forth their agreement with respect to voting the Shares. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I VOTING ------ 1.01 General Agreement. The Principal Shareholders hereby agree to take all action that may be necessary, and to cause their respective Shares to be voted in such a manner as to carry out and enforce the terms and intent of this Agreement. 1.02 Voting. During the term of this Agreement, each Principal Shareholder agrees it shall vote the Shares in the manner directed by Investor or its designee (the "Voting Person"), subject to the terms of this Agreement. In that regard, each Principal Shareholder acknowledges and agrees that his Shares will be voted in accordance with the terms and conditions of this Agreement (including, but not limited to, Sections 1.03 and 1.07 of this Agreement) at all meetings of shareholders of the Company, annual and special, and whenever action is to be taken by the shareholders of the Company by written consent or otherwise, at all times during the term of this Agreement. 1 1.03 Manner of Voting. The Voting Person shall vote the Shares at all meetings and on all matters (including but not limited to the election of directors) upon which the holders of common stock of the Company are entitled to vote. The Voting Person shall vote the Shares as the Voting Person, in his sole discretion, may deem in the best interests of the Company. Without limiting the generality of the foregoing, the Principal Shareholders specifically agree that the Voting Person shall have the right to vote the Shares by written consent. 1.04 Liability of Voting Person. The Voting Person assumes no responsibility for any action taken by him or by any agent appointed by him as herein provided, and the Voting Person, whether or not acting under the advice of counsel, shall not incur or be under any responsibility or liability as shareholder, trustee, fiduciary or otherwise, by reason of any error or law, or of any matter or thing done or suffered or omitted to be done by the Voting Person under this Agreement, except for his own gross negligence or willful malfeasance. 1.05. Compensation and Expenses. The Voting Person shall not be compensated for serving as such. 1.06. Other Rights of Principal Shareholders. Except as contemplated by this Agreement, each Principal Shareholder shall exercise the full rights of a Principal Shareholder with respect to the Shares registered in his name, subject to any applicable laws or any other written agreements entered into by such Principal Shareholder. 1.07. Irrevocable Proxy. To enable the Voting Person to exercise the power to vote the Shares as provided herein, each Principal Shareholder agrees to execute and deliver to the Voting Person simultaneously with the execution of this Agreement an irrevocable proxy in the form attached hereto as Schedule 1.07. THE PROXY GRANTED PURSUANT TO THIS AGREEMENT BY EACH OF THE SHAREHOLDERS TO THE VOTING PERSON IS IRREVOCABLE AND SHALL BE DEEMED COUPLED WITH AN INTEREST AND SHALL BE VALID DURING THE ENTIRE TERM OF THIS AGREEMENT, WHICH SHALL BE MORE THAN ELEVEN (11) MONTHS FROM THE DATE OF THIS AGREEMENT. ARTICLE II LEGEND ON CERTIFICATES ---------------------- The parties hereto agree that all certificates representing all Shares which at any time are subject to the provisions of this Agreement shall have conspicuously endorsed upon them a legend substantially to the following effect: The shares of stock represented by this certificate are subject to a Voting Agreement dated as of May ___, 2000, a copy of which is on file at the principal office of the Company. 2 ARTICLE III REMEDIES -------- 3.01. Defenses. Each Principal Shareholder agrees and acknowledges that each restriction, covenant and agreement set forth herein constitutes a separate agreement independently supported by good and adequate consideration. The existence of any claim or cause of action of any Principal Shareholder against any other Principal Shareholder or Investor, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the other Principal Shareholders or Investor of the restrictions, covenants and agreements contained in this Agreement. 3.02. Specific Enforcement. Each Principal Shareholder acknowledges and recognizes that a violation or threatened violation by him of the restrictions, agreements or covenants contained in this Agreement will cause such damage to the other Principal Shareholders and Investor as will be irreparable and that the other Principal Shareholders and Investor will have no adequate remedy at law for such violation or threatened violation. Accordingly, each party hereto agrees that Investor shall be entitled as a matter of right to seek and obtain an injunction from any court of competent jurisdiction, restraining any further violation or threatened violation of such restrictions, agreements or covenants and granting mandatory relief compelling such offender to carry out his obligations hereunder. Such right to injunctive and mandatory relief shall be cumulative and in addition to whatever other remedies the other Principal Shareholders or Investor may have at law or in equity. 3.03. Severability and Reformation. The parties hereto intend all provisions of this Agreement to be enforced to the fullest extent permitted by law. Accordingly, should a court of competent jurisdiction determine that the scope of any provision is too broad to be enforced as written, the parties intend that the court should reform the provision to such narrower scope as it determines to be enforceable. If, however, any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future law, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision were never a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance. 3.04. Attorneys' Fees. If any legal action is brought by any party hereto to enforce the terms and conditions of this Agreement, it is expressly agreed that the party in whose favor a final judgment is entered shall be entitled, in addition to any other relief which may be awarded, to recover from the other party or parties its reasonable attorneys' fees, together with such prevailing party's other costs and reasonable and necessary expenses incurred in connection with such litigation. ARTICLE IV TERM ---- This Agreement shall terminate on May 1, 2015. 3 ARTICLE V MISCELLANEOUS PROVISIONS ------------------------ 5.01. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties at the address for such party set forth below (or at such other address for a party as shall be specified by like notice): (i) in the case of the Company: Karts International Incorporated P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Fax Number: (504) 747-2700 (ii) in the case of an Investor, to the address listed for such Investor on Schedule A ---------- hereto; and (iii) in the case of a Principal Shareholder, to the address listed for such Principal Shareholder on Schedule B hereto. Notice given by personal delivery, courier service or mail shall be effective upon actual receipt. Notice given by telecopier shall be confirmed by appropriate answer back and shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All notices by telecopier shall be confirmed promptly after transmission in writing by certified mail, commercial delivery service or personal delivery. Any party may change any address to which notice is to be given to it by giving notice as provided above of such change of address. The above addresses may be changed only by giving written notice of such change of address to other Principal Shareholders. 5.02. Construction. The use of the singular number shall include the plural and the plural number shall include the singular wherever appropriate. 5.03. Gender. The use of any gender in this Agreement shall be deemed to be or include the other gender wherever appropriate. 5.04. Governing Law. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA. 4 5.05. Inurement, Transfers. The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the assigns, successors in interest, personal representatives, estates, heirs and legatees of each of the parties hereto. To the extent applicable, each Principal Shareholder agrees to insert in his will a direction and an authorization to his executor to fulfill and comply with the provisions hereof. Any transferring Principal Shareholder shall cause any transferee of any Shares to execute a consent, in the form attached hereto as Schedule 5.05, agreeing to be bound by the provisions of this Agreement. 5.06. Amendment. This Agreement may only be amended by written consent of all the parties to this Agreement at the time of such amendment. 5.07. Headings. The headings used in this Agreement are used for administrative purposes only and do not constitute substantive matters to be considered in construing the terms of this Agreement. 5.08. Spouses as Parties. The parties hereto agree that, if applicable, the spouse of each Principal Shareholder shall be deemed to be a party to this Agreement, shall be bound by all of terms and conditions hereof and shall so signify by executing this Agreement. 5.09. Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof. 5.10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original hereof, but all of which shall constitute one and the same document. [Signature pages follow.] 5 IN WITNESS WHEREOF, the parties have executed this Fundu.com, Inc. Voting Agreement on the date first indicated above. COMPANY: ------- KARTS INTERNATIONAL CORPORATION By: Charles Brister President and CEO INVESTOR: -------- THE SCHLINGER FOUNDATION By: Name: Title: [SIGNATURE PAGE TO VOTING AGREEMENT] 6 PRINCIPAL SHAREHOLDERS: ---------------------- ----------------------- ----------------------- [SIGNATURE PAGE TO VOTING AGREEMENT] 7 Schedule A Schedule of Investor The Schlinger Foundation 1944 Edison Street Santa Ynez, California 93460 8 Schedule B Schedule of Principal Shareholders Name Address ---------------------------- ---------------------------- Charles Brister [To Come] Richard N. Jones [To Come] Halter Financial Group, Inc. 14160 Dallas Parkway Suite 950 Dallas, Texas 75240 9 PROXY BY EXECUTION HEREOF, and in accordance with the terms of that certain Voting Agreement dated May ___, 2000, by and among Karts International Incorporated, a Nevada corporation (the "Company"), each of the parties listed on Schedule A attached thereto (the "Investor"), and each of the parties listed on Schedule B attached thereto and such other parties as may from time to time and with the consent of the Company become parties hereto, the undersigned shareholder (the "Shareholder") of the Company hereby constitutes and appoints the Voting Person as defined in the Voting Agreement, being The Schlinger Foundation, as Attorney and Proxy of the Shareholder, to exercise the right to vote or consent to shareholder action with respect to all stock owned by the Shareholder, at any and all meetings of the shareholders, of the Company or whenever action needs to be taken by the shareholders, by written consent or otherwise, upon any business or matter that may properly come before any such meeting or may properly be determined by a written consent of or otherwise by the shareholders of the Company. THE PROXY GRANTED HEREBY TO THE VOTING PERSON IS IRREVOCABLE AND SHALL BE DEEMED COUPLED WITH AN INTEREST, AND SHALL BE VALID DURING THE ENTIRE TERM OF THE VOTING AGREEMENT, WHICH SHALL IN ANY EVENT BE MORE THAN ELEVEN MONTHS FROM THE DATE OF EXECUTION OF SUCH VOTING AGREEMENT. The proxy granted herein may not be revoked by the Shareholder except upon termination of the Voting Agreement as provided in Article IV thereof. Dated as of May ___, 2000. 10 CONSENT The undersigned, having acquired shares of Common Stock, no par value, of Karts International Incorporated (the "Company"), hereby agrees to be bound by the terms and conditions of the Voting Agreement, dated as of May _, 2000, among the Shareholders therein named, the form of which is attached hereto, as if the undersigned had been a party to, and a "Shareholder" as defined in, such Voting Agreement as of the date thereof. Name: Signature: Address: No. of Shares: Spouse's Name: Spouse's Signature: 11 EX-10.47 7 0007.txt EMPLOYMENT AGREEMENT EXHIBIT 10.47 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made on June 1, 2000, by and between Karts International Incorporated, a Nevada corporation (the "Employer"), and Charles "Chuck" Brister (the "Employee"). WHEREAS, the Employer is engaged in the business of designing, manufacturing, distributing and marketing go-karts; WHEREAS, the Employee is experienced and qualified to perform duties connected and associated with the business of Employer; WHEREAS, as a condition of Employee's employment, Employer desires to receive from Employee certain covenants and agreements; and WHEREAS, Employer and Employee desire to set forth in writing the terms and conditions of their agreements and undertakings with respect to these covenants, as this Agreement is a condition of Employee's employment and ancillary thereto, but does not purport to set forth all the terms of such employment. NOW, THEREFORE, IN CONSIDERATION of the herein recited undertakings, the compensation to be paid by Employer to Employee and the other covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto agree as follows: 1. Employment. Employer hereby employs Employee as an employee of Employer upon the terms and subject to the conditions hereinafter set forth. 2. Duties of Employee. The Employee shall serve as President and Chief Executive Officer, with such duties, power and authority as are customarily associated with such positions. Without limiting the generality of the foregoing, the Employee shall be responsible for and have complete authority: (a) for day-to-day operations; (b) implementation of strategic plans approved by the Board of Directors; (c) all personnel decisions including complete hire and fire authority; and (d) determining an employee organizational structure. The Employee shall have such other duties and responsibilities as may from time to time be assigned to Employee by the Board of Directors. The Employee will be a voting member of the Board of Directors and be entitled to attend any and all meetings of the Board of Directors or any committees established by the Board of Directors. 3. Term of Agreement. The term of this Agreement shall begin on June 1, 2000 (the "Effective Date") and shall, subject to early termination as hereinafter set forth in this Agreement, continue until and terminate on the third (3rd) anniversary date of the Effective Date of this Agreement (the "Initial Term"); provided, however, that the term of Employment of Employee under this Agreement shall be automatically extended for an additional period of one year after the expiration of the Initial Term, unless at least thirty (30) days prior to such date either Employer or Employee shall give written notice to the other that Employee's term of employment under this Agreement shall end upon the expiration of the Initial Term. If Employee's term of employment is automatically extended at the expiration of the Initial Term, it shall be further automatically extended from year to year thereafter unless at least thirty (30) days prior to the anniversary date of any such extension, written notice is given by either Employer or Employee to the other that Employee's term of employment under this Agreement shall end on such anniversary. -1- 4. Place of Employment. The duties to be performed by Employee shall be performed at the office of Employer, located in Roseland, Louisiana (the "Company Headquarters"), as well as at such other temporary locations as the Board of Directors of Employer may from time to time determine or require for the performance of his duties as an employee of Employer. However, Employee will not be required to permanently relocate during the Initial Term and any requirement to work at a temporary location will be limited in duration to 7 days per month, unless specifically agreed to by Employee. 5. Time Requirements. Employee shall devote substantially his entire productive time (exclusive of vacation, reasonable personal matters, funeral leave, illness, temporary disability, holidays and weekends), ability and attention to the business of Employer during the term of this Employment Agreement. The Employee shall at all times faithfully and to the best of his ability perform his duties under this Agreement. The duties shall be rendered at the Corporation's principal office, at any of the subsidiary company locations, or at such other place or places and at such times as the needs of the Corporation may from time-to-time dictate. This section specifically acknowledges that the Employee may continue to participate as a director of a non-affiliated corporation and as an officer and director of a not-for-profit karting association. 6. Compensation. Effective as of the Effective Date of this Agreement, Employer shall pay or provide to Employee during the Initial Term of this Employment Agreement and any extension hereof (unless this Agreement is earlier terminated as hereinafter provided in Section 7 hereof) the following compensation and benefits set forth in subsections (a) through (c) (collectively the "Benefits"), subject to deductions, offsets and credits as elsewhere set forth in this Section 6: (a) Base Compensation. (i) Salary. Employee shall receive an annual salary of $200,000 ("Base Salary"), subject to mandatory deductions and withholdings as required by law, payable in cash in accordance with Employer's established payroll procedures, subject to proration for any partial employment period. Employee's Base Salary may be increased at any time at the sole discretion of the Board of Directors. (ii) Stock Options. Employee shall receive options (the "Options") to purchase an aggregate of 250,000 shares of Employer's Common Stock at an exercise price equal to 100% of the closing bid price of the Common Stock on the date this Agreement is approved by the Company's Board of Directors, as quoted on the Nasdaq SmallCap Market or OTC Electronic Bulletin Board. The Options, whose terms shall not be inconsistent with this Agreement, shall vest and be exercisable as follows: (a) options to purchase 100,000 shares shall vest and be exercisable on the date this Agreement is approved by the Company's Board of Directors; (b) options to purchase 75,000 shares of Common Stock shall vest and be exercisable on the second anniversary of the Effective Date of this Agreement; and (c) options to purchase the remaining 75,000 shares of Common Stock shall vest and be exercisable on the third anniversary of the Effective Date of this Agreement. All unvested Options shall vest immediately in the event this Agreement is terminated either as the result of the death or disability of Employee as contemplated in subsection (a) of Section 7 of this Agreement, "without cause" as provided for in subsection (c) of Section 7 of this Agreement or due to a "change in ownership" as provided for in subsection (e) of Section 7 of this Agreement. The Options shall expire on the fifth anniversary of the Effective Date of this Agreement. -2- (iii) Bonus. Employee may be eligible to receive an annual bonus, which bonus shall be in the form of (a) options to purchase up to 50,000 shares of Employer's Common Stock, which options shall vest immediately upon issuance and shall expire five years from the date of grant, and (b) cash in an amount established in an annual performance based management bonus program which will be approved by the Board of Directors, subject to mandatory deductions and withholdings as required by law. (b) Employee Benefits. (i) Medical, Dental and Life. Employer agrees to include Employee and his dependents, if applicable, with no delay in coverage, in any hospital, surgical, medical, dental, term life insurance plan or plans of Employer for its employees generally from time to time during the term of this Employment Agreement. The costs of participating in such plan or plans shall be borne by Employer provided such cost does not exceed $8,400 per year. Any costs associated with providing the benefits of this sub- section (b)(i) which exceeds $8,400 per year shall be the responsibility of Employee. In the event Employer does not subscribe to any form of medical or dental plan, Employee and his dependents shall be reimbursed for medical and dental insurance contracted for by them on an independent basis or actual expenses incurred, which reimbursement shall not exceed $8,400 per year. This annual limitation will automatically increase at the same rate that the Employer's medical and dental plan premiums increase. (i) Other Benefit Plans. Employee may be eligible to be included in any profit sharing, pension, deferred compensation or other benefit plans of Employer, including long-term group disability, for all or any portion of its employees, including its key employees, from time to time during the term of this Employment Agreement. The costs of participating in any of such benefit plans shall be borne as provided in rules and regulations adopted by Employer from time to time dealing with any of such plans. It is agreed and understood that there shall be no obligation on the part of Employer to provide for the participation of Employee in, or to institute, any such plan or plans or to make any contribution or contributions thereunder. (ii) Vacations, Personal Days and Holidays. Employee shall be entitled to paid vacation and personal days as follows (a) during the first year of the Initial Term of this Agreement, Employee shall be entitled to three (3) weeks vacation and five (5) personal days; and (b) during the second and third years of the Initial Term of this Agreement, and upon any extension thereof, Employee shall be entitled to four (4) weeks vacation and ten (10) personal days, which vacation shall be taken by Employee at reasonable times and on or before each anniversary of the Effective Date of this Agreement. Unused vacation days may not be carried over if not taken prior to an annniversary date. In addition, Employee shall be entitled to such holidays as Employer elects to provide for its employees generally. -3- (c) Other Benefits. Employee may be eligible to participate in any stock option plan, incentive compensation plan or bonus plan which may be provided by Employer or by any affiliate of Employer to its officers, the actual participants therein, including Employee, and benefits granted therunder, if any, to be at the sole discretion of Employer or its affiliates. Such plans are subject to any rights reserved by Employer or its affiliates to modify or terminate any such plans. 7. Termination. This Employment Agreement shall terminate earlier than provided in Section 3 hereof upon the first to occur of any of the following: (a) Death or Disability. In the event Employee shall die or become disabled during the term of this Employment Agreement, then and in such event, this Employment Agreement shall automatically terminate as of such date. Employer shall pay to Employee or Employee's legal representatives all Benefits, if any, then due and owing to Employee figure prorata up to and including the date of death or disability. As used in this Agreement, the term "disability" shall have the meaning given such term in any disability insurance policy or policies covering Employee if any such policy or policies is in force at the time a determination of disability is to be made. If no such policy is in force at such time, the term "disability" or "disabled" shall mean the physical or mental incapacity of Employee which has prevented or will prevent such Employee from substantially performing the usual duties of his employment with Employer for a substantially continuous period of at least one-hundred twenty (120) days. If there is any dispute as to whether Employee is disabled (whether or not any disability policy is in force), Employee and Employer shall each select a medical doctor duly licensed in the state of Employee's permanent residence within 15 days of the date the issue of disability first arises. The two doctors so selected shall then within 15 days thereafter mutually agree on a third medical doctor duly licensed in such state. The three doctors so selected shall then within 30 days following the selection of a third medical doctor make a determination as to whether Employee is disabled. The decision of the three medical doctors so selected shall be conclusive on all parties concerned. The cost and expense of the three medical doctors so selected shall be borne by Employer. (b) Termination for Good Cause. This Employment Agreement may be terminated, and Employee discharged, prior-to the expiration of the Initial Term for "Good Cause" as defined in this section. (i) if Employee fails to devote substantially his entire productive time, ability and attention as a representative of Employer, as defined in Section 5 of this Agreement; (ii) if Employee is conviction of or enters a plea of guilty or nolo contendere to a felony which has or may have a material adverse effect on the Employee's ability to carry out his duties under this Agreement or upon the reputation of the Employer; (iii) material or repeated failure to comply with reasonable and lawful directions of the Board of Directors; or (iv) if Employee, without the express written consent of the Company, engages in competition with the Company during the term of this Agreement, accepts employment with any other business or entity during the term of this Agreement. -4- In the event the Company believes "Good Cause" exists for terminating this Agreement pursuant to Sections 3(i)(iv) or (v), the Company shall be required to give the Employee written notice of such acts or omissions constituting "Good Cause" (a "Cause Notice"), and no termination of this Agreement shall be effective unless and until the Employee fails to cure such acts or omissions within ten (10) business days after receipt of the Cause Notice. With respect to any other provisions herein constituting "Good Cause" the Company shall not be required to give a Cause Notice to the Employee and the Employee may be terminated immediately. In the event of termination of this Employment Agreement prior to the completion of the Initial Term of employment specified in it, for any reasons set forth above, Employee shall be entitled to the Benefits earned prior to the date of termination, computed prorata up to and including the date of termination. Employee shall be entitled to no further Benefits and will be relieved of all duties and obligations under this Employment Agreement as of the date of termination. (c) Termination Without Cause. This Employer may terminate the Employee's employment without cause at any time after expiration of the three-year term of this Agreement. If termination occurs without cause prior to the expiration of the three-year term of this Agreement, the Employee shall receive severance pay in the amount of the Employee's compensation in cash, including health care benefits, then in effect for a period of thirty-six (36) months subsequent to the date of termination. (d) Early Termination by Employee. If Employee resigns prior to the expiration of the term provided in Section 3 hereof, Employee shall forfeit and shall not be entitled to receive any Benefits from Employer whatsoever except any salary and bonus actually earned by him prior to the date of termination as provided for in this Agreement. Any termination pursuant to this Section 7(d) shall not limit any right or remedy that Employer may have against Employee. (e) Change in Control. If this Agreement is terminated by either Employer or Employee as a result of a Change in Control, as hereinafter defined, Employee 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 Employee by Employer under the terms of this Employment Agreement. In addition, any amounts due to the Employee from the Employer, whether in the form of unreimbursed expenses, loans or accrued and unpaid interest will be immediately paid by Employer. A Change in Control will be deemed to have occurred for purposes hereof (i) when a change of stock ownership of Employer of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any successor Item of a similar nature has occurred; or (ii) upon the acquisition of beneficial ownership, directly or indirectly, by any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) of securities of Employer representing 50% or more of the combined voting power of Employer's then outstanding securities; or (iii) a change during any period of twelve (12) consecutive months of a majority of the members of the Board of Directors of Employer for any reason, unless the election, or the nomination for election by Employer's shareholders, of each director was approved by a vote of a majority of the directors then still in office who were directors at the beginning of the period; provided that a Change in Control will not be deemed to have occurred for purposes hereof with respect to any person meeting the requirements of clauses (i) and (ii) of Rule 13-d(b)(1) promulgated under the Exchange Act, as amended. -5- 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 circumstance(s) when any change in the actual or beneficial ownership of any type of stock of Employer held by the Schlinger Foundation is transferred by the Schlinger Foundation to another person or persons, trust, corporations or entities, which are by contract either affiliated with, in voting trust with, or effectively controlled by the Schlinger Foundation. 8. Status of Agreement. The Benefits or payments made under this Employment Agreement shall be independent of and in addition to those under any other agreement which may be in effect between the parties hereto or any other compensation payable to Employee or his designees or estate by Employer and unless specifically referred to herein or unless otherwise provided by agreement or law, nothing contained herein shall be deemed to exclude Employee from any pension, profit-sharing, insurance or other benefits to which he may otherwise be or might become entitled as an employee of Employer. 9. Ownership of Work Product. The Employee acknowledges and agrees that the Employer shall be the sole and exclusive owner of any work product (including, without limitation, all ideas, methods, inventions, formulae, processes, trade secrets, know-how, techniques, confidential or proprietary information, research, software, computer programs, designs, plans, discoveries, improvements or developments, whether patentable or not patentable, television, radio, film, audio or video productions, photographs, literary works, records or recordings, publications and/or images, photographs or displays of the Employee's name, likeness, voice and/or talents), which is (i) made or conceived by the Employee, solely or jointly with other employees of the Employer, while employed by the Employer as President and Chief Executive Officer or suggested by any work done for the Employer whether on the time of the Employer or the Employee's own, but only so far as the same either related to work assigned by the Employer, the Employer's business, or the Employer's actual or demonstrably anticipated research, or (ii) made or conceived at the Employer's expense, or utilizing the Employer's facilities in any material manner or (iii) the result of any services created or performed by the Employer during the term of this Agreement, and that any such work product shall be considered a "work for hire." Employer acknowledges and agrees that the patents and applications for patent listed on Schedule A to this Agreement are owned by the Employee. 10. Non-Competition Agreement. Employee and Employer acknowledge that as an employee and representative of the Employer, the Employee will be responsible for building and maintaining business relationships and goodwill with customers and employees. The Employee acknowledges and agrees that this responsibility creates a special relationship of trust and confidence between the Employer, the Employee and these persons or entities. The Employee acknowledges and agrees that this special relationship of trust and confidence between the Employer, the Employee and the Employer's customers and other employees creates a high risk and opportunity for the Employee to misappropriate these relationships and goodwill existing between the Employer and such persons and entities. The Employee acknowledges and agrees that it is fair and reasonable for the Company to take steps to protect the Company from the risk of such misappropriation. -6- (a) Consideration. The Employee acknowledges and agrees that he has received and will continue to receive substantial, valuable consideration for the agreements set forth in this section, including: (i) access to Confidential Information; (ii) continued employment; and (iii) compensation and benefits as described above in Section 6. (b) Scope of Non-Solicitation Obligation. In consideration for the valuable consideration described above, the Employee acknowledges and agrees that for a period of twelve (12) months following the termination of this Agreement by either party, for whatever reason except for the Employer's filing of a petition in a court of bankruptcy, the Employee will not solicit any person, company or business that was customer, vendor, client or prospect of the Company, at any time during the twelve (12) months preceding termination of this Agreement, for the purpose of engaging or becoming involved in, directly or indirectly, the Same or a Similar Business as the Company. The Employee acknowledges and agrees that these non-solicitation agreements shall survive any termination, including non-renewal, of this Agreement and shall be fully enforceable by the Employer or its successor or assignee subsequent to the termination or non-renewal of the Employee's employment, regardless of the reason for such termination or non-renewal except for the Employer's filing of a petition in a court of bankruptcy. (c) Scope of Non-Competition Obligation. In consideration for the valuable consideration described above, the Employee acknowledges and agrees that for a period of twelve (12) months following the termination of this Agreement by either party, for whatever reason except for the Employer's filing of a petition in a court of bankruptcy, the Employee will not engage or become involved in, directly or indirectly, the Same or a Similar Business as the Company, including becoming an owner of or working for any company or business as an agent, consultant, partner, employee, officer, shareholder or independent contractor, in any Market Area in which the Company did business in the twelve (12) months preceding the termination of this Agreement. The Employee acknowledges and agrees that these non-competition agreements shall survive any termination, including non-renewal, of this Agreement and shall be fully enforceable by the Employer or its successor or assignee subsequent to the termination or non- renewal of the Employee's employment, regardless of the reason for such termination or non- renewal except for the Employer's filing of a petition in a court of bankruptcy. (d) Definitions. For the purpose of this section, the following definitions shall apply: (1) The term "Same or a Similar Business as the Company" shall be defined as developing, promoting, marketing, providing, or subcontracting any business in which (i) the Company engages during the term of this Agreement or (ii) the Company has notified the Employee during the term of this Agreement of its intent to engage in within twelve (12) months of such notice. (2) The term "Market Area" shall be defined as any state, U.S. territory or foreign country in which the Company either (i) markets any of its services; (ii) broadcasts or circulates any promotional material related to its services; or (iii) has actively engaged in preparations for engaging in any of the foregoing activities. -7- 11. Miscellaneous Provisions. (a) Notice. All notices, demands, changes of address, requests or other communications that may be or are required to be given, served or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery or telegram, or by overnight courier. (b) Governing Law. This Agreement shall be subject to, governed by and construed in accordance with federal law and the internal substantive laws, not the law of conflicts, of the State of Louisiana. (c) Captions. The captions used herein are for administrative and convenience purpose only and shall not be construed in interpreting this Agreement. (d) Gender. Whenever the context so requires, the masculine shall include the feminine and neuter, and the singular shall include the plural, and conversely. (e) Legal Construction. If any portion of this Agreement shall be held invalid or inoperative, then so far as reasonable and possible (i) the remainder of this Agreement shall be considered valid and operative, and (ii) effect shall be given to the intent manifested by the portion held invalid or inoperative and that portion shall be modified to the extent necessary to render it enforceable. (f) Amendments. This Agreement may be amended from time to time by an instrument in writing signed by all those who are parties to this Agreement at the time of such amendment, such instrument being designated on its face as an "Amendment" to this Agreement. (g) Waiver. The failure of any party to insist in one or more instances upon the performance of any of the terms or conditions of this Agreement shall not be construed as a waiver or relinquishment of any right granted hereunder or of the future performance of any such term or condition, but the obligations of any party with respect thereto shall continue in full force and effect. (h) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. (i) Remedies. Each party hereto acknowledges that a remedy at law for any breach or attempted breach of this Agreement will be inadequate, agrees that each other party hereto shall be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach and further agrees to waive any requirement for securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. Such remedy shall be cumulative and not exclusive and shall be in addition to any other rights or remedies any party may have against the other. (j) Attorneys' Fees. If any action at law or in equity, including any action for injunctive or declaratory relief, is brought to enforce or interpret any of the provisions of this Agreement, the prevailing party shall be entitled to recover attorneys' fees and expenses from the other party, which fees and expenses may be set by the court in the trial of such action or may be enforced in a separate action brought for that purpose and which fees and expenses shall be in addition to any other relief which may be awarded. -8- (k) Prior Agreements. This Agreement (and the exhibits hereto) contains the entire employment agreement between the parties hereto and supersedes any and all prior employment agreements, whether written or oral, between the parties with respect to the within subject matter. All other employment, salary continuation, bonus, incentive compensation and other similar agreements heretofore entered into between Employer and Employee and in effect as of the date hereof are hereby cancelled and shall be of no further force or effect. This Agreement does not supersede, modify, limit or otherwise effect any stock options previous granted, any existing or future license or lease agreements between the Employer, including its subsidiaries, and Employee. (l) Separate Counsel. The parties acknowledge that the Employer has been represented in this transaction by its own attorneys, that the Employee has not been represented in this transaction by the Employer's attorneys; and the Employee has been advised to seek separate legal advice and representation in this matter. 12. Time of the Essence. Time shall be of the essence throughout the term of this Employment Agreement. 13. Effective Date. The effective date of this Agreement is June 1, 2000. EMPLOYER: KARTS INTERNATIONAL INCORPORATED By: ___________________________________ Address: 62204 Commercial Street Roseland, Louisiana 70456 EMPLOYEE: ________________________________________ Charles Brister Address: 505 Ellis Road Amite, Louisiana 70422 -9- SCHEDULE A ---------- PATENTS AND PATENT APPLICATIONS FILED BY CHARLES BRISTER 1) Acceleration Peal Override Apparatus for Self-Propelled Motorized Cart with Aligned Brake and Accelerator Pushrod Type Pedals (Pedal Override Apparatus) Patent No. 5,477,940 2) Clutch Assembly for Chain-Driven Cart Patent No. 5,328,011 3) Safety Fuel Tank and Filler Cap Apparatus Patent Application No. 09/288,402 and 09/267,877 -10- EX-10.48 8 0008.txt EMPLOYMENT AGREEMENT AMENDMENT NO. 1 EXHIBIT 10.48 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1 ("Amendment") to Employment Agreement dated June 1, 2000, is made and entered into on this 23rd day of October, 2000, by and between Karts International Incorporation, a Nevada corporation (the "Employer"), and Charles "Chuck" Brister (the "Employee"). WHEREAS, on June 1, 2000, the Employer and Employee entered into an Employment Agreement (the "June Employment Agreement"); WHEREAS, pursuant to the Employment Agreement between the Employer and Employee effective as of February 1, 1999 (the "Old Employment Agreement") Employee was granted options to purchase 450,000 shares of the Employer's Common Stock; WHEREAS, options to purchase 100,000 shares of Common Stock were vested in Employee pursuant to the Old Employment Agreement; WHEREAS, the June Employment Agreement superceded the Old Employment Agreement, except that the options to purchase 100,000 shares of Common Stock granted to Employee survived the termination of the Old Employment Agreement; WHEREAS, the Employee and Employer intended that the June Employment Agreement would provide Employee options to purchase 350,000 shares of Employer Common Stock in order that Employee would receive options to purchase an aggregate of 450,000 shares of Employer Common Stock under the Old Employment Agreement and June Employment Agreement; and WHEREAS, the parties desire to increase the number of stock options to be granted to Employee under the June Employment Agreement from options to purchase 250,000 shares of Common Stock to options to purchase 350,000 shares of Common Stock. NOW, THEREFORE, in consideration of the herein recited undertakings, the other covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto agree as follows: 1. The parties hereby agree to amend Section 6(a)(ii) of the June Employment Agreement by deleting in its entirety the provisions of Section 6(a)(ii) and in its place and stead inserting the following language: 6.(a)(ii) Stock Options. Employee shall receive options (the "Options") to purchase an aggregate of 350,000 shares of Employer's Common Stock at an exercise price equal to 100% of the closing bid price of the Common Stock on the date this Agreement is approved by the Company's Board of Directors (August 21, 2000), as quoted on the Nasdaq SmallCap market or OTC Electronic Bulletin Board. The Options, whose terms shall not be inconsistent with this Agreement, shall vest and be exercisable as follows: (a) options to purchase 100,000 shares shall vest and be exercisable on the date this Agreement is approved by the Company's Board of Directors (August 21, 2000); (b) options to purchase 100,000 shares of Common Stock shall vest and be exercisable on the second anniversary of the Effective Date of this Agreement; and (c) options to purchase the remaining 150,000 shares of Common Stock shall vest and be exercisable on the third anniversary of the Effective Date of this Agreement. All unvested Options shall vest immediately in the event this Agreement is terminated either as the result of the death or disability of Employee as contained in subsection (a) of Section 7 of this Agreement, "without cause" as provided for in subsection(c) of Section 7 of this Agreement or due to a "change in ownership" as provided for in subsection (e) of Section 7 of this Agreement. The Options shall expire on the fifth anniversary of the Effective Date of this Agreement. AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT - Page 1 WITNESS our signatures this 23rd day of October, 2000. EMPLOYER: KARTS INTERNATIONAL INCORPORATED By:____________________________________________ Geoffrey Craig benRichard barAbba, Secretary EMPLOYEE: ______________________________________________ CHARLES "Chuck" Brister AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT - Page 2 EX-10.49 9 0009.txt AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10.49 AMENDED AND RESTATED LOAN AGREEMENT THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement") is made as of this 17th day of May, 2000 by and between KARTS INTERNATIONAL INCORPORATED, a Nevada corporation ("Borrower") and THE SCHLINGER FOUNDATION ("Schlinger"). In connection with the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Definitions. All terms and phrases used herein which are defined in the Uniform Commercial Code in the State of Texas, as amended from time to time (the "UCC"), shall have the meanings given them in the UCC unless otherwise defined herein. The following definitions shall apply throughout this Agreement: "Affiliate" means with respect to any Person in question, any other Person owned or controlled by, or which owns or controls or is under common control or is otherwise affiliated with such Person in question. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "BTK" means Brister's Thunder Karts, Inc., a Louisiana corporation. "Business Day" means any day other than Saturday, Sunday or any other day on which financial institutions doing business in Dallas, Texas are closed. "Collateral" has the meaning given it in Section 4. "Common Stock" shall mean the common stock, $.001 par value, of the Borrower. "Environmental Laws" means any and all federal, state and local laws, regulations, rules, orders, licenses, agreements or other governmental restrictions relating to the protection of human health or the environment or to emissions, discharges or releases of pollutants or industrial, toxic or hazardous substances into the environment, or otherwise relating to the manufacture, processing, treatment, transport or handling of pollutants or industrial, toxic or hazardous substances. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Affiliate" means with respect to any Person in question, any Person that would be treated as a single, employer with Borrower. "ERISA Plan" means any pension benefit plan subject to Title IV of ERISA maintained by Borrower or any ERISA Affiliate thereof with respect to which Borrower or any ERISA Affiliate has a fixed or contingent liability. 1 "Event of Default" has the meaning given it in Section 12. "GAAP" means those generally accepted accounting principles and practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor), consistently applied throughout the period involved. "Guarantors" means USA, BTK, KINT and Straight Line (whether one or more). "Indemnified Claims" means any and all claims, demands, actions, causes of action, judgments, suits, liabilities, obligations, losses, damages and consequential damages, penalties, fines, costs, fees, expenses and disbursements (including without limitation, fees and expenses of attorneys and other professional consultants and experts in connection with any investigation or defense) of every kind or nature, known or unknown, existing or hereafter arising, foreseeable or unforeseeable, which may be imposed upon, threatened or asserted against or incurred or paid by any Indemnified Person at any time and from time to time, because of or resulting from, in connection with or in any way relating to or arising out of the Loan, the Collateral or any other transaction, act, omission, event or circumstance in any way connected with or contemplated by this Agreement or the other Loan Documents or any action taken or omitted by any such Indemnified Person under or in connection with any of the foregoing (including but not limited to any investigation, litigation, proceeding, enforcement of Schlinger's rights or defense of Schlinger's actions related to or arising out of this Agreement or the other Loan Documents), whether or not any Indemnified Person is a party hereto. "Indemnified Person" shall collectively mean Schlinger and its officers, directors, shareholders, employees, attorneys, representatives, agents, Affiliates, successors and assigns. "KINT" means KINT, L.L.C., a Louisiana limited liability company. "Lien" means any mortgage, lien, pledge, assignment, adverse claim, charge, security interest or other encumbrance. "Loan" has the meaning given it in Section 2. "Loan Documents" means this Agreement, the Note and all other documents, agreements and instruments now or hereafter required by Schlinger to be executed and delivered in connection herewith (including, without limitation, all documents, agreements and instruments evidencing, securing, governing, guaranteeing and/or pertaining to the Note and the Loan). "Maximum Rate" means, with respect to Schlinger, the maximum non-usurious interest rate, if any, that any time or from time to time may be contracted for, taken, reserved, charged or received with respect to the Loan or other amount as to which such rate is to be determined, payable to Schlinger pursuant to this Agreement or any other Loan Document, under laws applicable to Schlinger which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments and other charges in respect of the Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrower at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be (a) the "weekly ceiling" described in and computed in accordance with the provisions of Section 303.003 of the Texas Finance Code, as amended or (b) if the parties subsequently contract as allowed by Texas law, the quarterly ceiling or the annualized ceiling computed pursuant to Section 303.008 of the Texas Finance Code, as amended; provided, however, that at any time the "weekly ceiling", the quarterly ceiling or the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Section 303.009(a) and Section 303.009(b) of the Texas Finance Code, as amended, shall control for purposes of such determination, as applicable. 2 "Net Profit" means net income after taxes (including extraordinary losses and excluding extraordinary gains) as of the end of time period being measured. "Note" has the meaning given it in Section 3. "Obligations" means any and all indebtedness, liabilities and obligations of Borrower or any other Obligor to Schlinger, evidenced by and/or arising pursuant to any of the Loan Documents (including, without limitation, this Agreement and the Note), now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, including, without limitation, (a) the obligations of the Borrower or any other Obligor to repay the Loan, to pay interest on the Loan (including, without limitation, interest accruing after any, if any, bankruptcy, insolvency, reorganization or other similar filing) and to pay all fees, indemnities, costs and expenses (including attorneys' fees) provided for in the Loan Documents and (b) the indebtedness constituting the Loan and such interest, fees, indemnities, costs and expenses. "Obligors" means Borrower and Guarantors. "Original Loan Agreement" means that certain Loan Agreement dated June 3, 1999 between Schlinger and Borrower, as amended. "Original Loan" means the "Loan" as such term is defined in the Original Loan Agreement. "Original Loan Documents" means the "Loan Documents" as such term is defined in the Original Loan Agreement. 3 "Person" means a corporation, association, partnership, limited liability company, organization, business, individual, governmental or political subdivision thereof or governmental agency. "Subordinated Debt" means indebtedness owing by Borrower to a creditor other than Schlinger which has been subordinated and subject in right of payment to the prior payment of all indebtedness and obligations now or hereafter owing by Borrower to Schlinger, such subordination to be evidenced by a written agreement between Schlinger and the subordinated creditor which is in form and substance satisfactory to Schlinger. "Straight Line" means Straight Line Manufacturing, Inc., a Michigan corporation. "Tangible Net Worth" means, as of any date, the amount by which Borrower's total assets exceeds its total liabilities plus Subordinated Debt, less any intangible assets (as defined by GAAP), less deferred charges. "Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii) any other reportable event described in Section 4043 of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA, (b) the withdrawal of Borrower or any Affiliate of Borrower from any ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan. "USA" means USA Industries Incorporated, an Alabama corporation. 2. Loan. (a) Loan and Repayment. Subject to the terms of this Agreement, on the date of this Agreement or at such time that all applicable conditions have been satisfied, whichever is later, Schlinger will make a loan in one or more advances to the Borrower (the "Loan"), to the extent requested by the Borrower as of such date, in an original principal amount not to exceed Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000) in the aggregate. Notwithstanding anything to the contrary contained in this Agreement, the Borrower and Schlinger agree that, as of the date hereof, the aggregate outstanding principal amount of the Original Loan is $___________, which amount shall be deemed outstanding as part of the Loan hereunder. (Such loans referred to in this Section 2 (a) now or hereafter made or deemed made by Schlinger to Borrower are hereinafter collectively called the "Loan".) Principal of the Loan shall be due and payable in one installment of all unpaid principal and accrued unpaid interest on May ___, 2005. (b) Prepayment. On or after the second anniversary of the date hereof, Borrower may prepay the Loan in full or in part at any time prior to May __, 2005, provided, that the Borrower shall (i) give Schlinger thirty (30) days' written notice of the Borrower's intention to do so [and (ii) pay to Schlinger, as liquidated damages and not as a penalty, an amount equal to the twelve percent (12%) multiplied by the principal amount of the Loan being prepaid at such time.- in previous deal] 4 3. Promissory Note. (a) Note. Borrower agrees to execute, contemporaneously herewith, a promissory note payable to the order of Schlinger, in form and substance acceptable to Schlinger in Schlinger's sole and absolute discretion, for the Loan provided hereunder to evidence the indebtedness owing by Borrower to Schlinger under the Loan (whether one or more, together with any renewals, extensions and increases thereof, the "Note"). (b) Rate and Payments. The principal of and interest on the Note shall be due and payable and may be prepaid in accordance with the terms and conditions set forth in the Note and in this Agreement. Interest on the Note shall accrue at the rate set forth therein. (c) Conversion. The Note and the outstanding amount of the Loan shall be convertible into common stock and/or preferred stock of the Borrower and shall have certain registration rights in favor of the holder thereof, in accordance with the terms and conditions set forth in the Note. 4. Collateral. As security for the Obligations, Schlinger shall receive a Lien in and to the collateral described in the other Loan Documents (the "Collateral"). 5. Guarantors. As a condition precedent to Schlinger's obligation to provide the Loan to Borrower, Borrower agrees to cause the Guarantors to each execute and deliver to Schlinger contemporaneously herewith a guaranty agreement, in form and substance acceptable to Schlinger in Schlinger's sole and absolute discretion. 6. Representations and Warranties. Borrower hereby represents and warrants to Schlinger as follows: (a) Existence. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and is duly licensed, qualified to do business and is in good standing in all other states in which such licensing, qualification and good standing are necessary. Borrower has all requisite power and authority (i) to own and operate its properties, (ii) to carry on its business as now conducted and as proposed to be conducted, and (iii) to execute and deliver this Agreement and the other Loan Documents to which Borrower is a party. (b) Binding Obligations. The execution, delivery, and performance of this Agreement and all of the other Loan Documents by Borrower have been duly authorized by all necessary action by Borrower, have been duly executed and delivered by Borrower and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and except to the extent specific remedies may generally be limited by equitable principles. 5 (c) No Consent. The execution, delivery and performance of this Agreement and the other Loan Documents, and the consummation of the transactions contemplated hereby and thereby, do not (i) conflict with, result in a violation of, or constitute a default under (A) any provision of Borrower's articles or certificate of incorporation or bylaws, (B) any law, governmental regulation, court decree or order applicable to Borrower, or (C) any other document or agreement to which Borrower is a party, or (ii) require the consent, approval or authorization of any third party. (d) Financial Condition. Each financial statement of Borrower supplied to Schlinger is true, correct and complete in all material respects and fairly presents Borrower's financial condition in all material respects as of the date of each such statement. There has been no material adverse change in such financial condition or results of operations of Borrower subsequent to the date of the most recent financial statement supplied to Schlinger. (e) Litigation. There are no actions, suits or proceedings, pending or, to the knowledge of Borrower, threatened against or affecting Borrower or the properties of Borrower, before any court or governmental department, commission or board, which, if determined adversely to Borrower, would have a material adverse effect on the business, financial condition, properties, operations or prospects of Borrower. (f) Taxes. Governmental Charges. Borrower has filed all federal, state and local tax reports and returns required by any law or regulation to be filed by it and has either duly paid all taxes, duties and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. There is no tax Lien notice against Borrower or its properties presently on file. (g) ERISA Compliance. Borrower is in compliance with ERISA concerning Borrower's ERISA Plan, if any, or is not required to contribute to any "multi-employer plan" as defined in Section 401 of ERISA. (h) Compliance with Laws. Borrower is conducting its business in material compliance with all statutes, rules, regulations and/or ordinances imposed by any governmental unit upon Borrower or upon its businesses, operations and property (including, without limitation, all Environmental Laws). Borrower has all permits and licenses necessary for the operations of its business as presently conducted and as proposed to be conducted. (i) Tradenames. Borrower and Guarantors conduct business under no trade or assumed name except KINT conducts business under the tradename Bird Promotions. 6 7. Conditions Precedent to Loan. Schlinger's obligation to make the Loan under this Agreement and the other Loan Documents shall be subject to the conditions precedent that, as of the date of such Loan and after giving effect thereto (i) all representations and warranties made to Schlinger in this Agreement and the other Loan Documents shall be true and correct, as of and as if made on such date, (ii) no material adverse change in the financial condition of Borrower or its business since the effective date of the most recent financial statements furnished to Schlinger by Borrower shall have occurred, (iii) no Event of Default shall have occurred and no event has occurred and is continuing, or would result from the requested Loan, which with notice or lapse of time, or both, would constitute an Event of Default (as hereinafter defined), (iv) Schlinger shall have received all Loan Documents appropriately executed by Borrower and all other proper parties and all such Loan Documents are in full force and effect, (v) all indebtedness, liabilities and obligations of each of the Obligors to KBK Financial, Inc. shall be paid in full concurrently with the making of the Loan, (vi) Schlinger shall have received all documents, certificates, agreements and instruments relating to the issuance of [preferred shares of capital stock] of Borrower to Schlinger, in form and substance satisfactory to Schlinger, appropriately executed by Borrower and all other proper parties, (vii) Charles Brister and Rick Jones shall have each entered into an employment agreement with Borrower that is for a term of at least three (3) years and is otherwise in form and substance satisfactory to Schlinger and (viii) Schlinger shall have received all fees and expenses owing to Schlinger under this Agreement and the other Loan Documents (including, without limitation, legal fees incurred in connection with the Original Loan Agreement and the other Original Loan Documents in the amount of $__________ which are reimbursable by Borrower to Schlinger). 8. Affirmative Covenants. Until the Note and all other obligations and liabilities of Borrower under this Agreement and the other Loan Documents are fully paid and satisfied, and Borrower agrees and covenants that it will, unless Schlinger shall otherwise consent in writing (which consent may be withheld by Schlinger in Schlinger's sole and absolute discretion): (a) Accounts and Records. Maintain its books and records in accordance with GAAP. (b) Right of Inspection. Permit Schlinger to visit its properties and installations and to examine, audit and make and take away copies or reproductions of Borrower's books and records, at all reasonable times. Borrower agrees to pay all costs associated with any such audits, at a rate equal to $500.00 per day, per person, plus out-of-pocket expenses; provided, however, as long as no Event of Default has occurred, Borrower's obligation for Schlinger's audits shall not exceed $15,000.00 per calendar year. (c) Right to Additional Information. Furnish Schlinger with such additional information and statements, lists of assets and liabilities, tax returns, and other reports with respect to Borrower's financial condition and business operations as Schlinger may request from time to time. 7 (d) Compliance with Laws. Conduct its business in an orderly and efficient manner consistent with good business practices, and perform and comply with all statutes, rules, regulations and/or ordinances imposed by any governmental unit upon Borrower, its businesses, operations and properties (including without limitation, all Environmental Laws). (e) Taxes. Pay and discharge when due all assessments, taxes, governmental charges and levies, of every kind and nature, imposed upon Borrower or its properties, income or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a Lien upon any of Borrower's property, income or profits; provided, however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy or claim so long as (i) same shall be contested in good faith by appropriate judicial, administrative or other legal proceedings timely instituted, (ii) Borrower shall have established adequate reserves with respect to such contested assessment, tax, charge, levy or claim in accordance with GAAP, and (iii) the perfection and priority of Schlinger's security interest in the Collateral, or the value of the Collateral, is not impaired. (f) Insurance. Maintain, with financially sound and reputable insurers, such insurance as deemed necessary or otherwise reasonably required by Schlinger, including but not limited to, fire insurance, comprehensive property damage, public liability, worker's compensation and business interruption insurance. (g) Notice of Material Change/Litigation. Borrower shall promptly notify Schlinger in writing (i) of any material adverse change in Borrower's financial condition or its businesses, and (ii) of any litigation or claims against Borrower which could materially affect Borrower or its business operations, financial condition or prospects. (h) Corporate Existence. Maintain its corporate existence and good standing in the state of its incorporation and its qualification and good standing in all other states where required by applicable law. (i) ERISA. Borrower shall promptly notify Schlinger in writing of the adoption or amendment of any plan that results in the representations in Subsection 7(g) no longer being true and correct. (j) Additional Documentation. Execute and deliver, or cause to be executed and delivered, any and all other agreements, instruments or documents which Schlinger may reasonably request in order to give effect to the transactions contemplated under this Agreement and the other Loan Documents. 8 9. Negative Covenants. Until the Note and all other obligations and liabilities of Borrower under this Agreement and the other Loan Documents are fully paid and satisfied, Borrower will not and will cause Guarantors to not, without the prior written consent of Schlinger (which consent, withhold in Schlinger's sole and absolute discretion): (a) Nature of Business. Make any material change in the nature of its business as carried on as of the date hereof. (b) Liquidations, Mergers, Consolidations; Acquisitions; Name Change. Liquidate, merge or consolidate with or into any other Person, convert from one type of legal entity to another type of legal entity, form or acquire any new subsidiary or acquire by purchase or otherwise all or substantially all of the assets of any other Person, or change its name or operate under any new trade or assumed names. (c) Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate of any Obligor, except in the ordinary course of and pursuant to the reasonable requirements of an Obligor's business, upon fair and reasonable terms no less favorable to Obligor than would be obtained in a comparable arm's-length transaction with a person or entity not an Affiliate of any Obligor and in accordance with the terms and provisions of the Loan Documents. (d) Sale of Assets. Sell, lease, transfer or otherwise dispose of all or substantially all of its assets or properties, other than inventory sold in the ordinary course of business and as necessary to replace obsolete equipment. (e) Liens. Create or incur any Lien on any of its assets, other than (i) Liens securing indebtedness owing to Schlinger, (ii) pledges or deposits to secure the payment of obligations under any worker's compensation laws or similar laws, (iii) deposits to secure the payment of public or statutory obligations, (iv) mechanic's, carriers', workman's, repairman's or other Liens arising by operation of law in the ordinary course of business which secure obligations that are not overdue or are being contested in good faith and for which such entity has established adequate reserves in accordance with generally accepted accounting principles, (and for which Schlinger's security interest in the Collateral is not impaired) and (v) Liens existing as of the date hereof which have been disclosed to and approved by Schlinger in writing. (f) Change in Management. Permit a change in the senior management of Borrower. (g) Loans. Make any loans to any person or entity. 10. Financial Covenants. Until the Note and all other obligations and liabilities of Borrower under this Agreement and the other Loan Documents are fully paid and satisfied, Obligors, on a consolidated basis, will maintain the following financial covenants: (a) Current Ratio. At the end of each fiscal month, a ratio of (i) current assets (excluding prepaid expenses), to (ii) current liabilities of not less than 1.5 to 1.0. 9 (b) Debt/Tangible Net Worth Ratio. At the end of each fiscal month, a ratio of total liabilities to Tangible Net Worth of less than 2.5 to 1.0. (c) Tangible Net Worth. At the end of each fiscal month, its Tangible Net Worth of not less than $2,500,000.00. Unless otherwise specified, all accounting and financial terms and covenants set forth above are to be determined according to GAAP. 11. Reporting Requirements. Until the Note and all other obligations and liabilities of Borrower under this Agreement and the other Loan Documents are fully paid and satisfied, Borrower will and will cause the Guarantors to, unless Schlinger shall otherwise consent in writing, furnish to Schlinger: (a) Financial Statements. The following financial statements: (i) within 120 days after the last day of each fiscal year of Borrower a consolidated statement of income and a consolidated statement of cash flows of Obligors for such fiscal year, and a consolidated balance sheet of Obligors as of the last day of such fiscal year in each case audited by an independent certified public accounting firm acceptable to Schlinger, together with a copy of any report to management delivered to Borrower by such accountants in connection therewith; and (ii) within 30 days after the last day of each fiscal month of Borrower, an unaudited consolidated statement of income and statement of cash flows of Obligors for such fiscal month, and an unaudited consolidated balance sheet of Obligors as of the last day of such fiscal month. Borrower represents and warrants that each such statement of income and statement of cash flows will fairly represent, in all material respects, the results of operations and cash flows of Borrower for the period set forth therein, and that each such balance sheet will fairly represent, in all material respects, the financial condition of Borrower as of the date set forth therein, all in accordance with GAAP, (or, with respect to unaudited financial statements, in the notes thereto and subject to year-end review adjustments). (b) Inventory Listing. A list of inventory for USA and BTK by location and type (to include the following: raw materials, work in process and finished goods) within ten (10) Business Days after the end of each month, in form and detail satisfactory to Schlinger. 12. Events of Default. Each of the following shall constitute an "Event of Default" under this Agreement and the other Loan Documents: (a) Failure to Pay Indebtedness. Borrower shall fail to pay as and when due any part of the principal of, or interest on, the Note or any other Obligations now or hereafter owing to Schlinger by Borrower. (b) Non-Performance of Covenants. Any of the Obligors shall breach any covenant or agreement made herein in any of the other Loan Documents or in any other agreement now or hereafter entered into between any of the Obligors and Schlinger. 10 (c) False Representation. Any warranty or representation made herein, or in any of the other Loan Documents shall be false or misleading in any material respect when made. (d) Default Under Other Loan Documents. The occurrence of an event of default under any of the other Loan Documents or any other agreement now or hereafter entered into between any of the Obligors and Schlinger. (e) Untrue Financial Report. Any report, certificate, schedule, financial statement, profit and loss statement or other statement furnished by any Obligor, or by any other person on behalf of any Obligor, to Schlinger is not true and correct in any material respect. (f) Default to Third Party. The occurrence of any event which permits the acceleration of the maturity of any indebtedness owing by any of the Obligors to any third party under any agreement or undertaking. (g) Bankruptcy. The filing of a voluntary or involuntary case by or against any of the Obligors under the United States Bankruptcy Code or other present or future federal or state insolvency, bankruptcy or similar laws, or the appointment of a receiver, trustee, conservator or custodian for a substantial portion of the assets of any of the Obligors. (h) Insolvency. Any of the Obligors shall become insolvent, make a transfer in fraud of creditors or make an assignment for the benefit of creditors. (i) Involuntary Lien. The filing or commencement of any involuntary Lien, garnishment, attachment or the like shall be issued against or with respect to the Collateral. (j) Material Adverse Change. A material adverse change shall have occurred in the financial condition, business prospects or operations of any of the Obligors. (k) Tax Lien. Any of the Obligors shall have a federal or state tax Lien filed against any of its properties. (l) Execution on Collateral. The Collateral or any portion thereof is taken on execution or other process of law. (m) ERISA Plan. Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of $25,000 exists with respect to any ERISA Plan of Borrower or its ERISA Affiliate, or (ii) any Termination Event occurs with respect to any ERISA Plan of Borrower or its ERISA Affiliate and the then current value of such ERISA Plan's benefit liabilities exceeds the then current value of such ERISA Plan's assets available for the payment of such benefit liabilities by more than $25,000. 11 (n) Guarantor's Obligations. If any of the obligations of any Guarantor is limited or terminated by operation of law or by such Guarantor, or any such Guarantor becomes the subject of an insolvency proceeding. (o) Judgment. The entry against any of the Obligors of a final and nonappealable judgment for the payment of money in excess of $25,000 (not covered by insurance satisfactory to Schlinger in Schlinger's sole discretion). Nothing contained in this Loan Agreement shall be construed to limit the events of default enumerated in any of the other Loan Documents and all such events of default shall be cumulative. 13. Remedies. Upon the occurrence of any one or more of the foregoing Events of Default, the entire unpaid balance of principal of the Note, together with all accrued but unpaid interest thereon, and all other indebtedness owing to Schlinger by Borrower at such time shall, at the option of Schlinger, become immediately due and payable without further notice, demand, presentation, notice of dishonor, notice of intent to accelerate, notice of acceleration, protest or notice of protest of any kind, all of which are expressly waived by Borrower; provided, however, concurrently and automatically with the occurrence of an Event of Default under Subsections 12 (g) or 12 (h) of this Agreement the Note and all other indebtedness owing to Schlinger by Borrower at such time shall, without any action by Schlinger, become immediately due and payable, without further notice, demand, presentation, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest or notice of protest of any kind, all of which are expressly waived by Borrower. All rights and remedies of Schlinger set forth in this Agreement and in any of the other Loan Documents are cumulative and may also be exercised by Schlinger, at its option and in its sole discretion, upon the occurrence of an Event of Default. 14. Indemnification. Borrower hereby indemnifies and agrees to hold harmless and defend all Indemnified Persons from and against any and all Indemnified Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED PERSON, but shall exclude any of the foregoing resulting from such Indemnified Person's gross negligence or willful misconduct. If Borrower or any third party ever alleges any gross negligence or willful misconduct by any Indemnified Person, the indemnification provided for in this Section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and affect of the alleged gross negligence or willful misconduct. Upon notification and demand, Borrower agrees to provide defense of any Indemnified Claim and to pay all costs and expenses of counsel selected by any Indemnified Person in respect thereof. Any Indemnified Person against whom any Indemnified Claim may be asserted reserves the right to settle or compromise any such Indemnified Claim as such Indemnified Person may determine in its sole discretion, and the obligations of such Indemnified Person, if any, pursuant to any such settlement or compromise shall be deemed included within the Indemnified Claims. Except as specifically provided in this Section, Borrower waives all notices from any Indemnified Person. The provisions of this Section shall survive the termination of this Agreement. 12 15. Rights Cumulative. All rights of Schlinger under the terms of this Agreement shall be cumulative of, and in addition to, the rights of Schlinger under any and all other agreements between Borrower and Schlinger (including, but not limited to, the other Loan Documents), and not in substitution or diminution of any rights now or hereafter held by Schlinger under the terms of any other agreement. 16. Waiver and Agreement. Neither the failure nor any delay on the part of Schlinger to exercise any right, power or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver of any provision in this Loan Agreement or in any of the other Loan Documents and no departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Schlinger, and then shall be effective only in the specific instance as specified in such writing. No modification or amendment to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced. 17. Benefits. This Agreement shall be binding upon and inure to the benefit of Schlinger and Borrower, and their respective successors and assigns; provided, however, that Borrower may not, without the prior written consent of Schlinger, assign any rights, powers, duties or obligations under this Agreement or any of the other Loan Documents. 18. Notices. All notices, requests, demands or other communications required or permitted to be given pursuant to this Agreement shall be in writing and given by (i) personal delivery, (ii) expedited delivery service with proof of delivery, (iii) United States mail, postage prepaid, registered or certified mail, return receipt requested, or (iv) telecopy (with receipt thereof confirmed by telecopier) sent to the intended addressee at the address set forth on the signature page hereof and shall be deemed to have been received either, in the case of personal delivery, as of the time of personal delivery, in the case of expedited delivery service, as of the date of first attempted delivery at the address and in the manner provided herein, in the case of mail, upon deposit in a depository receptacle under the care and custody of the United States Postal Service, or in the case of telecopy, upon receipt. Either party shall have the right to change its address for notice hereunder to any other location within the continental United States by notice to the other party of such new address at least thirty (30) days prior to the effective date of such new address. 19. Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. BORROWER AND SCHLINGER EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. BORROWER AND SCHLINGER EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 13 20. Waiver of Jury Trial. BORROWER AND SCHLINGER EACH HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH. 21. Invalid Provisions. If any provision of this Agreement or any of the other Loan Documents is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Agreement or any of the other Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance. 22. Expenses. Borrower shall pay all costs and expenses (including, without limitation, reasonable attorneys' fees) in connection with (i) the preparation of the Loan Documents, (ii) any action required in the course of administration of the indebtedness and obligations evidenced by the Loan Documents, and (iii) any action in the enforcement of Schlinger's rights upon the occurrence of Event of Default. 23. Participation of the Loan. Provided that the prospective purchaser and/or assignee is not a business competitor of Borrower, as determined by Schlinger in its reasonable discretion, Borrower agrees that Schlinger may, at its option, sell interests in the Loan and its rights under this Agreement and the other Loan Documents and, in connection with each such sale, Schlinger may disclose any financial and other information available to Schlinger concerning Borrower to each prospective purchaser and assignee. 24. Maximum Interest Rate. 14 (a) No interest rate specified in this Agreement or any other Loan Document shall at any time exceed the Maximum Rate. If at any time the interest rate (the "Contract Rate") for the Loan or any other indebtedness, liability or obligation shall exceed the Maximum Rate, thereby causing the interest accruing thereon to be limited to the Maximum Rate, then any subsequent reduction in the Contract Rate therefor shall not reduce the rate of interest therefor below the Maximum Rate until the aggregate amount of interest accrued thereon equals the aggregate amount of interest which would have accrued thereon if the Contract Rate had at all times been in effect. (b) Notwithstanding anything to the contrary contained in this Agreement or the other Loan Documents, none of the terms and provisions of this Agreement or the other Loan Documents shall ever be construed to create a contract or obligation to pay interest at a rate in excess of the Maximum Rate; and Schlinger shall never charge, receive, take, collect, reserve or apply, as interest on the Loan or any other indebtedness, liability or obligation, any amount in excess of the Maximum Rate. The parties hereto agree that any interest, charge, fee, expense or other obligation provided for in this Agreement or in the other Loan Documents which constitutes interest under applicable law shall be, ipso facto and under any and all circumstances, limited or reduced to an amount equal to the lesser of (i) the amount of such interest, charge, fee, expense or other obligation that would be payable in the absence of this Section 24(b) or (ii) an amount, which when added to all other interest payable under this Agreement and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the foregoing, Schlinger ever contracts for, charges, receives, takes, collects, reserves or applies as interest any amount in excess of the Maximum Rate, such amount which would be deemed excessive interest shall be deemed a partial payment or prepayment of principal of the Loan or any other indebtedness, liability or obligation and treated hereunder as such; and if the Loan or any other indebtedness, liability or obligation, or applicable portions thereof, are paid in full, any remaining excess shall promptly be paid to the Borrower or other applicable Obligor or Obligors (as appropriate). In determining whether the interest paid or payable, under any specific contingency, exceeds the Maximum Rate, the Borrower and the other Obligors and Schlinger shall, to the maximum extent permitted by applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the Loan or any other indebtedness, liability or obligation, or applicable portions thereof, so that the interest rate does not exceed the Maximum Rate at any time during the term of the Loan or any other indebtedness, liability or obligation; provided that, if the unpaid principal balance is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Rate, Schlinger shall refund to the Borrower or other applicable Obligor or Obligors (as appropriate) the amount of such excess and, in such event, Schlinger shall not be subject to any penalties provided by any laws for contracting for, charging, receiving, taking, collecting, reserving or applying interest in excess of the Maximum Rate. 15 25. Conflicts. In the event any term or provision hereof is inconsistent with or conflicts with any term or provision in any of the Loan Documents, the terms and provisions contained in this Agreement shall be controlling. 26. Counterparts. This Agreement may be separately executed in any number of counterparts, each of which shall be an original, but all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by telecopy shall be equally as effective as delivery of a manually executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telecopy also shall deliver a manually executed counterpart of this Agreement but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 27. Amendment and Restatement of the Original Loan Agreement. Effective as of the date hereof, this Agreement shall constitute an amendment and restatement of all, but not an extinguishment, discharge, satisfaction or novation of any, indebtedness liabilities and/or obligations of Borrower under the Original Loan Agreement. 28. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. THIS AGREEMENT ALSO AMENDS AND SUPERSEDES ANY OF THE TERMS OF ANY PRIOR WRITTEN AGREEMENTS WITH RESPECT TO THE MATTERS SET FORTH IN THIS AGREEMENT. 16 EXECUTED as of the date first above written. BORROWER: SCHLINGER: KARTS INTERNATIONAL INCORPORATED THE SCHLINGER FOUNDATION By:_______________________ Charles Brister President & C.E.O. By:___________________ Name:_________________ Borrower's Address: Title:________________ P. O. Box 695 Schlinger's Address: 62204 Commercial Street Roseland, Louisiana 70456 The Schlinger Foundation Telecopy No.: 504-747-2700 1944 Edison Street Santa Yinez, California 93460 Telecopy No.: (805) 686-1618 17 EX-10.50 10 0010.txt AMENDED AND RESTATED CONVERTIBLE TERM NOTE EXHIBIT 10.50 AMENDED AND RESTATED CONVERTIBLE TERM NOTE ------------------------------------------ $2,500,000.00 May 17, 2000 FOR VALUE RECEIVED, on or before May 17, 2005 (the "Maturity Date"), the undersigned and if more than one, each of them, jointly and severally (hereinafter referred to as "Borrower"), promises to pay to the order of THE SCHLINGER FOUNDATION ("Schlinger") at its offices in 1944 Edison Street, Santa Yinez, California 93460, the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,500,000.00) (the "Total Principal Amount"), together with interest at the rate set forth below. 1. Interest Rate. The unpaid principal amount of this Note shall bear interest at a rate per annum which shall be equal to three percent (3%) plus the Prime Rate (the "Contract Rate"); provided, however, in no event shall the Contract Rate exceed the maximum rate allowed by applicable law. As used herein, "Prime Rate" means, as of any date, the rate of interest quoted in the Wall Street Journal as the "Prime Rate" for such date, provided that for any date for which the Wall Street Journal is not published or does not publish a quote for the "Prime Rate" such rate shall be the rate most recently published as the "Prime Rate". 2. Repayment Terms. The principal of and all accrued but unpaid interest on this Note (the "Loan") shall be due and payable as follows: (a) interest shall be due and payable monthly as it accrues, commencing on the 30th day of June, 2000 and continuing on the last day of each successive month thereafter during the term of this Note; and (b) principal of the Loan shall be due and payable in one installment of all unpaid principal and accrued unpaid interest on May ___, 2005. 3. Prepayment Penalty. On or after the second anniversary of the date hereof, Borrower may prepay the Loan in full or in part at any time prior to May ___, 2005, provided, that Borrower shall (i) give Schlinger thirty (30) days' written notice of Borrower's intention to do so [and (ii) pay to Schlinger, as liquidated damages and not as a penalty, an amount equal to the twelve percent (12%) multiplied by the principal amount of the Loan being prepaid at such time - --- In Previous Deal] . 4. Loan Documents. This Note is subject to the terms and conditions set forth in that certain Amended and Restated Loan Agreement dated May ___, 2000, by and between Borrower and Schlinger, as may be amended from time to time (the "Loan Agreement"). All capitalized terms used herein that are not otherwise defined herein shall have the same meaning given to such terms in the Loan Agreement. This Note, the Loan Agreement and all other documents evidencing, securing, governing, guaranteeing and/or pertaining to this Note are hereinafter collectively referred to as the "Loan Documents". The holder of this Note is entitled to the benefits and security provided in the Loan Documents. 1 5. Purpose. Borrower agrees that no proceeds of the Loan under this Note shall be used for personal, family or household purposes, and that the proceeds of the Loan hereunder shall be used solely for business, commercial, investment or other similar purposes. 6. Event of Default. Borrower agrees that upon the occurrence of any one or more of the following events of default ("Event of Default"): (a) failure of Borrower to pay when due any installment of principal of or interest on this Note or on any other indebtedness now or hereafter owing by Borrower to Schlinger, or (b) the occurrence of any event of default specified in any of the other Loan Documents; or (c) the bankruptcy or insolvency of, the assignment for the benefit of creditors by, or the appointment of a receiver for any of the property of, or the liquidation, termination, dissolution or death or legal incapacity of Borrower; the holder of this Note may, at its option, without further notice or demand, (i) declare the outstanding principal balance of and accrued but unpaid interest on this Note at once due and payable, (ii) foreclose all liens securing payment hereof, (iii) pursue any and all other rights, remedies and recourse available to the holder hereof, including but not limited to any such rights, remedies or recourse under the other Loan Documents, at law or in equity, or (iv) pursue any combination of the foregoing. The failure to exercise the option to accelerate the maturity of this Note or any other right, remedy or recourse available to the holder hereof upon the occurrence of an Event of Default hereunder shall not constitute a waiver of the right of the holder of this Note to exercise the same at that time or at any subsequent time with respect to such Event of Default or any other Event of Default. The rights, remedies and recourse of the holder hereof, as provided in this Note and in any of the other Loan Documents, shall be cumulative and concurrent and may be pursued separately, successively or together as often as occasion therefore shall arise, at the sole discretion of the holder hereof. The acceptance by the holder hereof of any payment under this Note which is less than the payment in full of all amounts due and payable at the time of such payment shall not (i) constitute a waiver of or impair, reduce, release or extinguish any right, remedy or recourse of the holder hereof, or nullify any prior exercise of any such right, remedy or recourse, or (ii) impair, reduce, release or extinguish the obligations of any party liable under any of the other Loan Documents as originally provided herein or therein. 7. Compliance With Usury Laws. (a) No interest rate specified in this Note or any other Loan Document shall at any time exceed the Maximum Rate. If at any time the Contract Rate for the Loan or any other indebtedness, liability or obligation shall exceed the Maximum Rate, thereby causing the interest accruing thereon to be limited to the Maximum Rate, then any subsequent reduction in the Contract Rate therefor shall not reduce the rate of interest therefor below the Maximum Rate until the aggregate amount of interest accrued thereon equals the aggregate amount of interest which would have accrued thereon if the Contract Rate had at all times been in effect. 2 (b) Notwithstanding anything to the contrary contained in this Note or the other Loan Documents, none of the terms and provisions of this Note or the other Loan Documents shall ever be construed to create a contract or obligation to pay interest at a rate in excess of the Maximum Rate; and Schlinger shall never charge, receive, take, collect, reserve or apply, as interest on the Loan or any other indebtedness, liability or obligation, any amount in excess of the Maximum Rate. The parties hereto agree that any interest, charge, fee, expense or other obligation provided for in this Note or in the other Loan Documents which constitutes interest under applicable law shall be, ipso facto and under any and all circumstances, limited or reduced to an amount equal to the lesser of (i) the amount of such interest, charge, fee, expense or other obligation that would be payable in the absence of this Section 7 (b) or (ii) an amount, which when added to all other interest payable under this Note and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the foregoing, Schlinger ever contracts for, charges, receives, takes, collects, reserves or applies as interest any amount in excess of the Maximum Rate, such amount which would be deemed excessive interest shall be deemed a partial payment or prepayment of principal of the Loan or any other indebtedness, liability or obligation and treated hereunder as such; and if the Loan or any other indebtedness, liability or obligation, or applicable portions thereof, are paid in full, any remaining excess shall promptly be paid to the Borrower or other applicable Obligor or Obligors (as appropriate). In determining whether the interest paid or payable, under any specific contingency, exceeds the Maximum Rate, the Borrower and the other Obligors and Schlinger shall, to the maximum extent permitted by applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the Loan or any other indebtedness, liability or obligation, or applicable portions thereof, so that the interest rate does not exceed the Maximum Rate at any time during the term of the Loan or any other indebtedness, liability or obligation; provided that, if the unpaid principal balance is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Rate, Schlinger shall refund to the Borrower or other applicable Obligor or Obligors (as appropriate) the amount of such excess and, in such event, Schlinger shall not be subject to any penalties provided by any laws for contracting for, charging, receiving, taking, collecting, reserving or applying interest in excess of the Maximum Rate. The terms of this Section shall be deemed to be incorporated into every other Loan Document. As used herein the term "Maximum Rate" means, with respect to Schlinger, the maximum non-usurious interest rate, if any, that any time or from time to time may be contracted for, taken, reserved, charged or received with respect to the Loan or other amount as to which such rate is to be determined, payable to Schlinger pursuant to this Note or any other Loan Document, under laws applicable to Schlinger which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments and other charges in respect of the Loan Documents that constitute interest under applicable law. Each 3 change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrower at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the weekly rate ceiling described in, and computed in accordance with the Texas Finance Code or any successor or replacement statute; provided, however, that, to the extent permitted by applicable law, Schlinger shall have the right to change the applicable rate ceiling from time to time in accordance with applicable law. 8. Costs of Collection; Waivers. If this Note is placed in the hands of an attorney for collection, or is collected in whole or in part by suit or through probate, bankruptcy or other legal proceedings of any kind, Borrower agrees to pay, in addition to all other sums payable hereunder, all costs and expenses of collection, including but not limited to reasonable attorneys' fees. Borrower and any and all endorsers and guarantors of this Note severally waive presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration and dishonor, diligence in enforcement and indulgences of every kind and without further notice hereby agree to renewals, extensions, exchanges or releases of collateral, taking of additional collateral indulgences or partial payments, either before or after maturity. 9. Governing Law; Venue; Submission to Jurisdiction. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS NOTE IS PERFORMABLE IN DALLAS COUNTY, TEXAS. BORROWER AGREES THAT DALLAS COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS NOTE, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. BORROWER CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 10. Waiver of Jury Trial. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH. 4 11. Final Agreement. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN SCHLINGER AND BORROWER WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 12. Amended and Restated Note. This Note shall constitute an amendment and restatement of, but shall not constitute or result in an extinguishment of any indebtedness evidenced by, that certain Convertible Term Note dated June 3, 1999, in the original principal amount of $1,500,000 made by Borrower payable to the order of Schlinger (the "Previous Note"). The indebtedness evidenced by and outstanding under such prior promissory notes shall be deemed to be indebtedness evidenced by and outstanding under this Note. BORROWER: KARTS INTERNATIONAL INCORPORATED By:_________________________________________ Name: Charles Brister Title: President & C.E.O. 5 EX-10.51 11 0011.txt AMENDED AND RESTATED SPECIFIC GUARANTY EXHIBIT 10.51 AMENDED AND RESTATED SPECIFIC GUARANTY THIS AMENDED AND RESTATED SPECIFIC GUARANTY (this "Guaranty") dated the 17th day of May, 2000, is executed by the undersigned, STRAIGHT LINE MANUFACTURING, INC., whose address for notice hereunder is 62194 Commercial Street, Roseland, Louisiana 70458 ("Guarantor") in favor of THE SCHLINGER FOUNDATION, whose address for notice hereunder is 1944 Edison Street, Santa Yinez, California 93460 ("Schlinger"). 1. Obligations. As an inducement to Schlinger to extend or continue to extend credit and other financial accommodations to KARTS INTERNATIONAL INCORPORATED, a Nevada corporation ("Borrower") pursuant to the terms of that certain Amended and Restated Loan Agreement dated as of May 17, 2000 between Borrower and Schlinger (as the same may be amended from time to time, the "Loan Agreement"), Guarantor, for value received, does hereby unconditionally and absolutely guarantee the prompt and full payment and performance of the Guaranteed Indebtedness when due or declared to be due and at all times thereafter. The term "Guaranteed Indebtedness" shall mean (i) all amounts owing by Borrower under that certain Amended and Restated Term Note of even date herewith payable by Borrower to the order of Schlinger in the stated principal amount of $2,500,000.00, (the "Note"), (ii) all other Obligations (hereinafter as defined in the Loan Agreement) of Borrower to Schlinger, (iii) all costs and expenses incurred by Schlinger in connection with the collection of all or any part of the indebtedness and obligations owing by Borrower under the Note and/or any of the other Loan Documents (hereinafter as defined in the Loan Agreement), or the protection of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, (iv) all renewals, extensions, modifications and rearrangements of the Obligations. This is an absolute, continuing and unconditional guarantee of payment and not of collection and if at any time or from time to time there is no outstanding Guaranteed Indebtedness, the obligations of Guarantor with respect to any and all Guaranteed Indebtedness incurred thereafter shall not be affected. This Guaranty and the Guarantor's obligations hereunder are irrevocable and, in the event of Guarantor's death, shall be binding upon Guarantor's estate pursuant to paragraph 8 herein. All of the Guaranteed Indebtedness shall be conclusively presumed to have been made or acquired in acceptance hereof. Guarantor shall be liable, jointly and severally, with Borrower and any other guarantor of all or any part of the Guaranteed Indebtedness. 2. Representations and Warranties. Guarantor hereby represents and warrants the following to Schlinger: (a) This Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of Directors of Guarantor has determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, or (ii) if Guarantor is a partnership, the requisite number of its partners have determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor; and (b) Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower and Guarantor is not relying on Schlinger to provide such information to Guarantor either now or in the future; and Specific Guaranty 05/28/99 1 (c) Guarantor has the power and authority to execute, deliver and perform this Guaranty and any other agreements executed by Guarantor contemporaneously herewith, and the execution, delivery and performance of this Guaranty and any other agreements executed by Guarantor contemporaneously herewith do not and will not violate (i) any agreement or instrument to which Guarantor is a party, (ii) any law, rule, regulation or order of any governmental authority to which Guarantor is subject, or (iii) its articles or certificate of incorporation or bylaws, if Guarantor is a corporation, or its partnership agreement, if Guarantor is a partnership; and (d) Neither Schlinger nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty; and (e) The financial statements and other financial information regarding Guarantor heretofore and hereafter delivered to Schlinger are and shall be true and correct in all material respects and fairly present the financial position of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor reflected in the financial statements and other financial information regarding Guarantor heretofore delivered to Schlinger since the date of the last statement thereof; and (f) As of the date hereof, and after giving effect to this Guaranty and the obligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) the fair saleable value of Guarantor's assets exceeds and will continue to exceed its liabilities (both fixed and contingent), (iii) Guarantor is and will continue to be able to pay its debts as they mature, and (iv) if Guarantor is not an individual, Guarantor has and will continue to have sufficient capital to carry on its business and all businesses in which it is about to engage; and (g) Guarantor, together with Borrower and the other Obligors defined in the Loan Agreement, are a combined enterprise with a common purpose, each dependent on the other, and the successful operations and viability of any one of them enures to the benefit of each of them. Guarantor has determined that the availability of credit to Borrower, and the ability of Borrower to make proceeds of such credit available for its respective subsidiaries, is of direct and indirect benefit to it, of equivalent value, and that execution and performance of this Guaranty is in its best interest; and (h) Except as may be set out on any exhibit attached hereto or as disclosed in the Borrower's annual report on form 10-K filed with the SEC for the year ended December 31, 1999 or the Borrower's quarterly report on form 10-Q filed with the SEC for the quarter ended March 31, 2000, (i) there are no legal proceedings, material claims or demands pending or, to the knowledge of Guarantor, threatened against Guarantor or any of Guarantor's assets, (ii) Guarantor is not in material breach or material default of any legal requirement; and (iii) no event has occurred which, with a lapse of time or action by a third party, could result in Guarantor's material breach or material default under any legal requirement. Specific Guaranty 05/28/99 2 3. Covenants. Guarantor hereby covenants and agrees with Schlinger as follows: (a) Guarantor shall not, so long as its obligations under this Guaranty continue, transfer or pledge any material portion of its assets for less than full and adequate consideration; and (b) Guarantor shall promptly furnish to Schlinger at any time and from time to time such financial statements and other financial information of Guarantor as Schlinger may require, in form and substance satisfactory to Schlinger (including, without limitation, annual financial statements within 45 days after the end of each calendar year); and (c) Guarantor shall promptly inform Schlinger of (i) any litigation or governmental investigation against Guarantor or affecting any security for all or any part of the Guaranteed Indebtedness or this Guaranty which, if determined adversely, might have a material adverse effect upon the financial condition of Guarantor or upon such security or might cause a default under any of the Loan Documents, (ii) any claim or controversy which might become the subject of such litigation or governmental investigation, and (iii) any material adverse change in the financial condition of Guarantor; and (d) Guarantor hereby subordinates all indebtedness now or hereafter owing by Borrower to Guarantor to the Guaranteed Indebtedness. 4. Consent and Waiver. (a) Guarantor waives (i) promptness, diligence and notice of acceptance of this Guaranty and notice of the incurring of any obligation, indebtedness or liability to which this Guaranty applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind, and (ii) the taking of any other action by Schlinger, including without limitation giving any notice of default or any other notice to, or making any demand on, Borrower, any other guarantor of all or any part of the Guaranteed Indebtedness or any other party. (b) Schlinger may at any time, without the consent of or notice to Guarantor, without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of Guarantor hereunder: (i) change the manner, place or terms of payment of all or any part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or alter all or any part of the Guaranteed Indebtedness; (ii) change the interest rate accruing on any of the Guaranteed Indebtedness (including, without limitation, any periodic change in such interest rate that occurs because such Guaranteed Indebtedness accrues interest at a variable rate which may fluctuate from time to time); (iii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty or setoff against all or any part of the Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Indebtedness or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (v) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (vi) settle or compromise all or any part of the Guaranteed Indebtedness and subordinate the payment of all or any part of the Guaranteed Indebtedness to the payment of any obligations, indebtedness or liabilities which may be due or become due to Schlinger or others; (vii) apply any payment, collections through process of law or otherwise or other collateral of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to Schlinger not guaranteed under this Guaranty; and (viii) apply any sums paid to Schlinger by Guarantor, Borrower or others to the Guaranteed Indebtedness in such order and manner as Schlinger, in its sole discretion, may determine. Specific Guaranty 05/28/99 3 (c) Should Schlinger seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) Schlinger first enforce any rights or remedies against Borrower or any other person or entity liable to Schlinger for all or any part of the Guaranteed Indebtedness, including without limitation that a judgment first be rendered against Borrower or any other person or entity, or that Borrower or any other person or entity should be joined in such cause, or (ii) Schlinger first enforce rights against any collateral which shall ever have been given to secure all or any part of the Guaranteed Indebtedness or this Guaranty. Such waiver shall be without prejudice to Schlinger's right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (d) In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Schlinger, its directors, officers, employees, representatives or agents in connection with Schlinger's administration of the Guaranteed Indebtedness, except for Schlinger's willful misconduct and gross negligence. 5. Obligations Not Impaired. (a) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events: (i) the death, disability or lack of corporate power of Borrower, Guarantor (except as provided in paragraph 8 herein) or any other guarantor of all or any part of the Guaranteed Indebtedness, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other guarantor of all or any part of the Guaranteed Indebtedness, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, whether occurring by reason of law or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking or accepting of any other guaranty for all or any part of the Guaranteed Indebtedness; (vi) any failure by Schlinger to acquire, perfect or continue any lien or security interest on collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (viii) any failure by Schlinger to sell any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; or (x) any other circumstance which might otherwise constitute a defense available to, or discharge of, Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness. Specific Guaranty 05/28/99 4 (b) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Schlinger upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other guarantor of all or any part of the Guaranteed Indebtedness, or otherwise, all as though such payment had not been made. (c) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the existence of any other guaranty or the payment by any other guarantor of all or any part of the Guaranteed Indebtedness. (d) Guarantor's obligations hereunder shall not be released, diminished, impaired, reduced or affected by, nor shall any provision contained herein be deemed to be a limitation upon, the amount of credit which Schlinger may extend to Borrower, the number of transactions between Schlinger and Borrower, payments by Borrower to Schlinger or Schlinger's allocation of payments by Borrower. (e) In the event Borrower is a corporation or partnership, none of the following shall affect Guarantor's liability hereunder: (i) the unenforceability of all or any part of the Guaranteed Indebtedness against Borrower by reason of the fact that the Guaranteed Indebtedness exceeds the amount permitted by law; (ii) the act of creating all or any part of the Guaranteed Indebtedness is ultra vires; or (iii) the officers or partners creating all or any part of the Guaranteed Indebtedness acted in excess of their authority. Guarantor hereby acknowledges that withdrawal from, or termination of, any ownership interest in Borrower now or hereafter owned or held by Guarantor shall not alter, affect or in any way limit the obligations of Guarantor hereunder. 6. Actions against Guarantor. In the event of a default in the payment or performance of all or any part of the Guaranteed Indebtedness when such Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or otherwise, Guarantor shall pay the amount due thereon to Schlinger, in lawful money of the United States, at Schlinger's address set forth above within 5 days after demand thereof by Schlinger. One or more successive or concurrent actions may be brought against Guarantor, either in the same action in which Borrower is sued or in separate actions, as often as Schlinger deems advisable. The exercise by Schlinger of any right or remedy under this Guaranty or under any other agreement or instrument, at law, in equity or otherwise, shall not preclude concurrent or subsequent exercise of any other right or remedy. The books and records of Schlinger shall be admissible in evidence in any action or proceeding involving this Guaranty and shall be prima facie evidence of the payments made on, and the outstanding balance of, the Guaranteed Indebtedness. Specific Guaranty 05/28/99 5 7. Payment by Guarantor. Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Schlinger contemporaneously with such payment. In the absence of such notice to Schlinger by Guarantor in compliance with the provisions hereof, any sums received by Schlinger on account of the Guaranteed Indebtedness shall be conclusively deemed paid by Borrower. 8. Death of Guarantor. In the event of the death of Guarantor, the obligations of the deceased Guarantor under this Guaranty shall continue as an obligation against Guarantor's estate as to (a) all of the Guaranteed Indebtedness that is outstanding on the date of Guarantor's death, and any renewals or extensions thereof, and (b) all loans, advances and other extensions of credit made to or for the account of Borrower on or after the date of Guarantor's death pursuant to an obligation of Schlinger under a commitment or agreement described in paragraph 1 above and made to or with Borrower prior to the date of Guarantor's death. The terms and conditions of this Guaranty, including without limitation the consents and waivers set forth in paragraph 4 hereof, shall remain in effect with respect to the Guaranteed Indebtedness described in the preceding sentence in the same manner as if Guarantor had not died. 9. Notice of Sale. In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice shall be deemed given when such notice is deposited in the United States mail, postage prepaid, at the address for Guarantor set forth on the first page of this Guaranty, five (5) days prior to the date any public sale, or after which any private sale, of any such collateral is to be held; provided, however, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 10. Waiver by Schlinger. No delay on the part of Schlinger in exercising any right hereunder or failure to exercise the same shall operate as a waiver of such right. In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Schlinger, and then only in the specific instance and for the purpose given. 11. Successors and Assigns. This Guaranty is for the benefit of Schlinger, its successors and assigns, and in the event of an assignment by Schlinger of the Guaranteed Indebtedness, or any part thereof, the rights and benefits hereunder shall be transferred with such indebtedness. This Guaranty is binding upon Guarantor and Guarantor's heirs, executors, administrators, personal representatives and successors, including without limitation any person or entity obligated by operation of law upon the reorganization, merger, consolidation or other change in the organizational structure of Guarantor. Specific Guaranty 05/28/99 6 12. Costs and Expenses. Guarantor shall pay on demand by Schlinger all costs and expenses, including without limitation all reasonable attorneys' fees, incurred by Schlinger in connection with the enforcement and/or collection of this Guaranty. This covenant shall survive the payment of the Guaranteed Indebtedness. 13. Severability. If any provision of this Guaranty is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Guaranty and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable. 14. No Obligation. Nothing contained herein shall be construed as an obligation on the part of Schlinger to extend or continue to extend credit to Borrower. 15. Amendment. No modification or amendment of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by an officer of Schlinger, and then shall be effective only in the specific instance and for the purpose for which given. 16. Cumulative Rights. All rights and remedies of Schlinger hereunder are cumulative of each other and of every other right or remedy which Schlinger may otherwise have at law or in equity or under any instrument or agreement, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies. 17. Governing Law; Venue; Submission to Jurisdiction. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS. GUARANTOR AGREES THAT DALLAS COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Specific Guaranty 05/28/99 7 18. Compliance with Applicable Usury Laws. Notwithstanding any other provision of this Guaranty or of any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, Guarantor and Schlinger by its acceptance hereof agree that Guarantor shall never be required or obligated to pay interest in excess of the maximum nonusurious interest rate as may be authorized by applicable law for the written contracts which constitute the Guaranteed Indebtedness. It is the intention of Guarantor and Schlinger to conform strictly to the applicable laws which limit interest rates, and any of the aforesaid contracts for interest, if and to the extent payable by Guarantor, shall be held to be subject to reduction to the maximum nonusurious interest rate allowed under said law. 19. Descriptive Headlines. The headings in this Guaranty are for convenience only and shall not define or limit the provisions hereof. 20. Gender. Within this Guaranty, words of any gender shall be held and construed to include the other gender. 21. Limitation regarding Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this Guaranty, the Guaranteed Indebtedness of Guarantor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; provided, however, that, for purposes of the immediately preceding clause, it shall be presumed that the Guaranteed Indebtedness of Guarantor under this Guaranty do not equal or exceed any aggregate amount which would render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary. Subject to but without limiting the generality of the foregoing sentence, the provisions of this Guaranty are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of Guarantor under this Guaranty would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by Guarantor or Schlinger, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding. 22. Notices. All notices hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, to the address for Schlinger and Guarantor set forth on the first page of this Guaranty. Schlinger and Guarantor may, by proper written notice hereunder, change the address to which notices may be sent thereafter to such party. 23. Entire Agreement. This Guaranty contains the entire agreement between Guarantor and Schlinger regarding the subject matter hereof and supersedes all prior written and oral agreements and understandings, if any, regarding same; provided, however, this Guaranty is in addition to and does not replace, cancel, modify or affect any other guaranty of Guarantor now or hereafter held by Schlinger that relates to Borrower or any other person or entity. Specific Guaranty 05/28/99 8 24. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH. 25. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 26. Amendment and Restatement of Original Guaranty. Effective as of the date hereof, this Agreement shall constitute an amendment and restatement of all, but not an extinguishment, discharge, satisfaction or novation of any, indebtedness liabilities and/or obligations of Borrower under that certain Specific Guaranty dated June 3, 1999 executed by Guarantor to and in favor of Schlinger. EXECUTED AND EFFECTIVE as of the date first set forth above. GUARANTOR: STRAIGHT LINE MANUFACTURING, INC. By: _____________________________________ Name: _____________________________________ Title: _____________________________________ Specific Guaranty 05/28/99 9 EX-10.52 12 0012.txt AMENDED AND RESTATED SPECIFIC GUARANTY EXHIBIT 10.52 AMENDED AND RESTATED SPECIFIC GUARANTY THIS AMENDED AND RESTATED SPECIFIC GUARANTY (this "Guaranty") dated the 17th day of May, 2000, is executed by the undersigned, USA INDUSTRIES, INCORPORATED, whose address for notice hereunder is 202 Challenge Avenue, Prattville, Alabama 36067 ("Guarantor") in favor of THE SCHLINGER FOUNDATION, whose address for notice hereunder is 1944 Edison Street, Santa Yinez, California 93460 ("Schlinger"). 1. Obligations. As an inducement to Schlinger to extend or continue to extend credit and other financial accommodations to KARTS INTERNATIONAL INCORPORATED, a Nevada corporation ("Borrower") pursuant to the terms of that certain Amended and Restated Loan Agreement dated as of May 17, 2000 between Borrower and Schlinger (as the same may be amended from time to time, the "Loan Agreement"), Guarantor, for value received, does hereby unconditionally and absolutely guarantee the prompt and full payment and performance of the Guaranteed Indebtedness when due or declared to be due and at all times thereafter. The term "Guaranteed Indebtedness" shall mean (i) all amounts owing by Borrower under that certain Amended and Restated Term Note of even date herewith payable by Borrower to the order of Schlinger in the stated principal amount of $2,500,000.00, (the "Note"), (ii) all other Obligations (hereinafter as defined in the Loan Agreement) of Borrower to Schlinger, (iii) all costs and expenses incurred by Schlinger in connection with the collection of all or any part of the indebtedness and obligations owing by Borrower under the Note and/or any of the other Loan Documents (hereinafter as defined in the Loan Agreement), or the protection of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, (iv) all renewals, extensions, modifications and rearrangements of the Obligations. This is an absolute, continuing and unconditional guarantee of payment and not of collection and if at any time or from time to time there is no outstanding Guaranteed Indebtedness, the obligations of Guarantor with respect to any and all Guaranteed Indebtedness incurred thereafter shall not be affected. This Guaranty and the Guarantor's obligations hereunder are irrevocable and, in the event of Guarantor's death, shall be binding upon Guarantor's estate pursuant to paragraph 8 herein. All of the Guaranteed Indebtedness shall be conclusively presumed to have been made or acquired in acceptance hereof. Guarantor shall be liable, jointly and severally, with Borrower and any other guarantor of all or any part of the Guaranteed Indebtedness. 2. Representations and Warranties. Guarantor hereby represents and warrants the following to Schlinger: (a) This Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of Directors of Guarantor has determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, or (ii) if Guarantor is a partnership, the requisite number of its partners have determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor; and (b) Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower and Guarantor is not relying on Schlinger to provide such information to Guarantor either now or in the future; and Specific Guaranty 05/28/99 1 (c) Guarantor has the power and authority to execute, deliver and perform this Guaranty and any other agreements executed by Guarantor contemporaneously herewith, and the execution, delivery and performance of this Guaranty and any other agreements executed by Guarantor contemporaneously herewith do not and will not violate (i) any agreement or instrument to which Guarantor is a party, (ii) any law, rule, regulation or order of any governmental authority to which Guarantor is subject, or (iii) its articles or certificate of incorporation or bylaws, if Guarantor is a corporation, or its partnership agreement, if Guarantor is a partnership; and (d) Neither Schlinger nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty; and (e) The financial statements and other financial information regarding Guarantor heretofore and hereafter delivered to Schlinger are and shall be true and correct in all material respects and fairly present the financial position of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor reflected in the financial statements and other financial information regarding Guarantor heretofore delivered to Schlinger since the date of the last statement thereof; and (f) As of the date hereof, and after giving effect to this Guaranty and the obligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) the fair saleable value of Guarantor's assets exceeds and will continue to exceed its liabilities (both fixed and contingent), (iii) Guarantor is and will continue to be able to pay its debts as they mature, and (iv) if Guarantor is not an individual, Guarantor has and will continue to have sufficient capital to carry on its business and all businesses in which it is about to engage; and (g) Guarantor, together with Borrower and the other Obligors defined in the Loan Agreement, are a combined enterprise with a common purpose, each dependent on the other, and the successful operations and viability of any one of them enures to the benefit of each of them. Guarantor has determined that the availability of credit to Borrower, and the ability of Borrower to make proceeds of such credit available for its respective subsidiaries, is of direct and indirect benefit to it, of equivalent value, and that execution and performance of this Guaranty is in its best interest; and (h) Except as may be set out on any exhibit attached hereto or as disclosed in the Borrower's annual report on form 10-K filed with the SEC for the year ended December 31, 1999 or the Borrower's quarterly report on form 10-Q filed with the SEC for the quarter ended March 31, 2000, (i) there are no legal proceedings, material claims or demands pending or, to the knowledge of Guarantor, threatened against Guarantor or any of Guarantor's assets, (ii) Guarantor is not in material breach or material default of any legal requirement; and (iii) no event has occurred which, with a lapse of time or action by a third party, could result in Guarantor's material breach or material default under any legal requirement. Specific Guaranty 05/28/99 2 3. Covenants. Guarantor hereby covenants and agrees with Schlinger as follows: (a) Guarantor shall not, so long as its obligations under this Guaranty continue, transfer or pledge any material portion of its assets for less than full and adequate consideration; and (b) Guarantor shall promptly furnish to Schlinger at any time and from time to time such financial statements and other financial information of Guarantor as Schlinger may require, in form and substance satisfactory to Schlinger (including, without limitation, annual financial statements within 45 days after the end of each calendar year); and (c) Guarantor shall promptly inform Schlinger of (i) any litigation or governmental investigation against Guarantor or affecting any security for all or any part of the Guaranteed Indebtedness or this Guaranty which, if determined adversely, might have a material adverse effect upon the financial condition of Guarantor or upon such security or might cause a default under any of the Loan Documents, (ii) any claim or controversy which might become the subject of such litigation or governmental investigation, and (iii) any material adverse change in the financial condition of Guarantor; and (d) Guarantor hereby subordinates all indebtedness now or hereafter owing by Borrower to Guarantor to the Guaranteed Indebtedness. 4. Consent and Waiver. (a) Guarantor waives (i) promptness, diligence and notice of acceptance of this Guaranty and notice of the incurring of any obligation, indebtedness or liability to which this Guaranty applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind, and (ii) the taking of any other action by Schlinger, including without limitation giving any notice of default or any other notice to, or making any demand on, Borrower, any other guarantor of all or any part of the Guaranteed Indebtedness or any other party. (b) Schlinger may at any time, without the consent of or notice to Guarantor, without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of Guarantor hereunder: (i) change the manner, place or terms of payment of all or any part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or alter all or any part of the Guaranteed Indebtedness; (ii) change the interest rate accruing on any of the Guaranteed Indebtedness (including, without limitation, any periodic change in such interest rate that occurs because such Guaranteed Indebtedness accrues interest at a variable rate which may fluctuate from time to time); (iii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty or setoff against all or any part of the Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Indebtedness or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (v) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (vi) settle or compromise all or any part of the Guaranteed Indebtedness and subordinate the payment of all or any part of the Guaranteed Indebtedness to the payment of any obligations, indebtedness or liabilities which may be due or become due to Schlinger or others; (vii) apply any payment, collections through process of law or otherwise or other collateral of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to Schlinger not guaranteed under this Guaranty; and (viii) apply any sums paid to Schlinger by Guarantor, Borrower or others to the Guaranteed Indebtedness in such order and manner as Schlinger, in its sole discretion, may determine. Specific Guaranty 05/28/99 3 (c) Should Schlinger seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) Schlinger first enforce any rights or remedies against Borrower or any other person or entity liable to Schlinger for all or any part of the Guaranteed Indebtedness, including without limitation that a judgment first be rendered against Borrower or any other person or entity, or that Borrower or any other person or entity should be joined in such cause, or (ii) Schlinger first enforce rights against any collateral which shall ever have been given to secure all or any part of the Guaranteed Indebtedness or this Guaranty. Such waiver shall be without prejudice to Schlinger's right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (d) In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Schlinger, its directors, officers, employees, representatives or agents in connection with Schlinger's administration of the Guaranteed Indebtedness, except for Schlinger's willful misconduct and gross negligence. 5. Obligations Not Impaired. (a) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events: (i) the death, disability or lack of corporate power of Borrower, Guarantor (except as provided in paragraph 8 herein) or any other guarantor of all or any part of the Guaranteed Indebtedness, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other guarantor of all or any part of the Guaranteed Indebtedness, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, whether occurring by reason of law or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking or accepting of any other guaranty for all or any part of the Guaranteed Indebtedness; (vi) any failure by Schlinger to acquire, perfect or continue any lien or security interest on collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (viii) any failure by Schlinger to sell any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; or (x) any other circumstance which might otherwise constitute a defense available to, or discharge of, Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness. Specific Guaranty 05/28/99 4 (b) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Schlinger upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other guarantor of all or any part of the Guaranteed Indebtedness, or otherwise, all as though such payment had not been made. (c) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the existence of any other guaranty or the payment by any other guarantor of all or any part of the Guaranteed Indebtedness. (d) Guarantor's obligations hereunder shall not be released, diminished, impaired, reduced or affected by, nor shall any provision contained herein be deemed to be a limitation upon, the amount of credit which Schlinger may extend to Borrower, the number of transactions between Schlinger and Borrower, payments by Borrower to Schlinger or Schlinger's allocation of payments by Borrower. (e) In the event Borrower is a corporation or partnership, none of the following shall affect Guarantor's liability hereunder: (i) the unenforceability of all or any part of the Guaranteed Indebtedness against Borrower by reason of the fact that the Guaranteed Indebtedness exceeds the amount permitted by law; (ii) the act of creating all or any part of the Guaranteed Indebtedness is ultra vires; or (iii) the officers or partners creating all or any part of the Guaranteed Indebtedness acted in excess of their authority. Guarantor hereby acknowledges that withdrawal from, or termination of, any ownership interest in Borrower now or hereafter owned or held by Guarantor shall not alter, affect or in any way limit the obligations of Guarantor hereunder. 6. Actions against Guarantor. In the event of a default in the payment or performance of all or any part of the Guaranteed Indebtedness when such Guaranteed Indebtedness becomes due,ether by its terms, by acceleration or otherwise, Guarantor shall pay the amount due thereon to Schlinger, in lawful money of the United States, at Schlinger's address setforth above within 5 days after demand thereof by Schlinger. One or more successive or concurrent actions may be brought against Guarantor, either in the same action in which Borrower is sued or in separate actions, as often as Schlinger deems advisable. The exercise by Schlinger of any right or remedy under this Guaranty or under any other agreement or instrument, at law, in equity or otherwise, shall not preclude concurrent or subsequent exercise of any other right or remedy. The books and records of Schlinger shall be admissible in evidence in any action or proceeding involving this Guaranty and shall be prima facie evidence of the payments made on, and the outstanding balance of, the Guaranteed Indebtedness. Specific Guaranty 05/28/99 5 7. Payment by Guarantor. Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Schlinger contemporaneously with such payment. In the absence of such notice to Schlinger by Guarantor in compliance with the provisions hereof, any sums received by Schlinger on account of the Guaranteed Indebtedness shall be conclusively deemed paid by Borrower. 8. Death of Guarantor. In the event of the death of Guarantor, the obligations of the deceased Guarantor under this Guaranty shall continue as an obligation against Guarantor's estate as to (a) all of the Guaranteed Indebtedness that is outstanding on the date of Guarantor's death, and any renewals or extensions thereof, and (b) all loans, advances and other extensions of credit made to or for the account of Borrower on or after the date of Guarantor's death pursuant to an obligation of Schlinger under a commitment or agreement described in paragraph 1 above and made to or with Borrower prior to the date of Guarantor's death. The terms and conditions of this Guaranty, including without limitation the consents and waivers set forth in paragraph 4 hereof, shall remain in effect with respect to the Guaranteed Indebtedness described in the preceding sentence in the same manner as if Guarantor had not died. 9. Notice of Sale. In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice shall be deemed given when such notice is deposited in the United States mail, postage prepaid, at the address for Guarantor set forth on the first page of this Guaranty, five (5) days prior to the date any public sale, or after which any private sale, of any such collateral is to be held; provided, however, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 10. Waiver by Schlinger. No delay on the part of Schlinger in exercising any right hereunder or failure to exercise the same shall operate as a waiver of such right. In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Schlinger, and then only in the specific instance and for the purpose given. 11. Successors and Assigns. This Guaranty is for the benefit of Schlinger, its successors and assigns, and in the event of an assignment by Schlinger of the Guaranteed Indebtedness, or any part thereof, the rights and benefits hereunder shall be transferred with such indebtedness. This Guaranty is binding upon Guarantor and Guarantor's heirs, executors, administrators, personal representatives and successors, including without limitation any person or entity obligated by operation of law upon the reorganization, merger, consolidation or other change in the organizational structure of Guarantor. Specific Guaranty 05/28/99 6 12. Costs and Expenses. Guarantor shall pay on demand by Schlinger all costs and expenses, including without limitation all reasonable attorneys' fees, incurred by Schlinger in connection with the enforcement and/or collection of this Guaranty. This covenant shall survive the payment of the Guaranteed Indebtedness. 13. Severability. If any provision of this Guaranty is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Guaranty and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable. 14. No Obligation. Nothing contained herein shall be construed as an obligation on the part of Schlinger to extend or continue to extend credit to Borrower. 15. Amendment. No modification or amendment of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by an officer of Schlinger, and then shall be effective only in the specific instance and for the purpose for which given. 16. Cumulative Rights. All rights and remedies of Schlinger hereunder are cumulative of each other and of every other right or remedy which Schlinger may otherwise have at law or in equity or under any instrument or agreement, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies. 17. Governing Law; Venue; Submission to Jurisdiction. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS. GUARANTOR AGREES THAT DALLAS COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Specific Guaranty 05/28/99 7 18. Compliance with Applicable Usury Laws. Notwithstanding any other provision of this Guaranty or of any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, Guarantor and Schlinger by its acceptance hereof agree that Guarantor shall never be required or obligated to pay interest in excess of the maximum nonusurious interest rate as may be authorized by applicable law for the written contracts which constitute the Guaranteed Indebtedness. It is the intention of Guarantor and Schlinger to conform strictly to the applicable laws which limit interest rates, and any of the aforesaid contracts for interest, if and to the extent payable by Guarantor, shall be held to be subject to reduction to the maximum nonusurious interest rate allowed under said law. 19. Descriptive Headlines. The headings in this Guaranty are for convenience only and shall not define or limit the provisions hereof. 20. Gender. Within this Guaranty, words of any gender shall be held and construed to include the other gender. 21. Limitation regarding Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this Guaranty, the Guaranteed Indebtedness of Guarantor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; provided, however, that, for purposes of the immediately preceding clause, it shall be presumed that the Guaranteed Indebtedness of Guarantor under this Guaranty do not equal or exceed any aggregate amount which would render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary. Subject to but without limiting the generality of the foregoing sentence, the provisions of this Guaranty are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of Guarantor under this Guaranty would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by Guarantor or Schlinger, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding. 22. Notices. All notices hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, to the address for Schlinger and Guarantor set forth on the first page of this Guaranty. Schlinger and Guarantor may, by proper written notice hereunder, change the address to which notices may be sent thereafter to such party. 23. Entire Agreement. This Guaranty contains the entire agreement between Guarantor and Schlinger regarding the subject matter hereof and supersedes all prior written and oral agreements and understandings, if any, regarding same; provided, however, this Guaranty is in addition to and does not replace, cancel, modify or affect any other guaranty of Guarantor now or hereafter held by Schlinger that relates to Borrower or any other person or entity. Specific Guaranty 05/28/99 8 24. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH. 25. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 26. Amendment and Restatement of Original Guaranty. Effective as of the date hereof, this Agreement shall constitute an amendment and restatement of all, but not an extinguishment, discharge, satisfaction or novation of any, indebtedness liabilities and/or obligations of Borrower under that certain Specific Guaranty dated June 3, 1999 executed by Guarantor to and in favor of Schlinger. EXECUTED AND EFFECTIVE as of the date first set forth above. GUARANTOR: USA INDUSTRIES, INCORPORATED By: _______________________________ Name: _______________________________ Title: _______________________________ Specific Guaranty 05/28/99 9 EX-10.53 13 0013.txt AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.53 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT -------------------------------------------------- (KINT, L.L.C.) THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of May 17, 2000, is by and between KINT, L.L.C., a Louisiana limited liability company ("Debtor"), whose address is 62194 Commercial Street, Roseland, Louisiana 70456 and whose Tax I.D. No. is 72-1423446, and THE SCHLINGER FOUNDATION ("Secured Party") whose address is 1944 Edison Street, Santa Yinez, California 93460. R E C I T A L S: --------------- A. Karts International Incorporated ("Borrower") is, concurrently herewith, entering into that certain Amended and Restated Loan Agreement dated as of May 17, 2000, with the Secured Party (such agreement, as it may be amended, renewed, extended, restated, replaced, substituted, supplemented or otherwise modified from time to time, is referred to herein as the "Loan Agreement"). B. The execution and delivery of this Agreement is required by the terms of the Loan Agreement and is a condition to the availability of the Loan to Borrower pursuant to the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Secured Party to make the Loan under the Loan Agreement, the parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Account" means any "account", as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all rights of Debtor to payment for goods sold or leased, services rendered or the license of Intellectual Property, whether or not earned by performance; (b) all accounts receivable of Debtor; (c) all rights of Debtor to receive any payment of money or other form of consideration; (d) all security pledged, assigned or granted to or held by Debtor to secure any of the foregoing; (e) all guaranties of, or indemnifications with respect to, any of the foregoing; (f) all rights of Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation and resale; and (g) all rights to brokerage commissions. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 1 "Broker" means any "broker," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "Capital Stock" means corporate stock and any and all securities, shares, partnership interests, limited partnership interests, limited liability company interests, membership interests, equity interests, participations, rights or other equivalents (however designated) of corporate stock or any of the foregoing issued by any entity (whether a corporation, a partnership, a limited liability company or another entity) and includes, without limitation, securities convertible into Capital Stock and rights or options to acquire Capital Stock. "Chattel Paper" means any "chattel paper," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor. "Clearing Corporation" means any "clearing corporation," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Person that is registered as a "clearing agency" under the federal securities laws, (b) federal reserve bank, or (c) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including, without limitation, promulgation of rules, are subject to regulation by a federal or state governmental authority. "Collateral" has the meaning specified in Section 2.1. "Commodity Account" means any "commodity account," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all accounts maintained by a Commodity Intermediary in which a Commodity Contract is carried for Debtor. "Commodity Contract" means any "commodity contract," as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, a commodity futures contract, a commodity option, or other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws, or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "Commodity Customer" means any "commodity customer" as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, any Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "Commodity Intermediary" means any "commodity intermediary," as such term is defined in Article or Chapter 9 of the UCC, including, without limitation, (a) a Person who is registered as a futures commission merchant under the federal commodities laws, or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to the federal commodities laws. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 2 "Copyright License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Copyright including, without limitation, the agreements identified on Schedule 1. "Copyright Security Agreement" means a copyright security agreement, executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit A, as such agreement may be amended, supplemented or otherwise modified from time to time. "Copyrights" means all of the following: (a) all copyrights, works protectable by copyright, copyright registrations and copyright applications of Debtor, including, without limitation, those set forth on Schedule 1; (b) all renewals, extensions and modifications thereof; (c) all income, royalties, damages, profits and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present or future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Deposit Accounts" means any and all deposit accounts (including cash collateral accounts), bank accounts or investment accounts now owned or hereafter acquired or opened by Debtor, including, without limitation, those set forth on Schedule 2, and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts and other property deposited therein and all balances therein and all investments made with funds deposited therein or otherwise held in connection therewith, including, without limitation, indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the government of the U.S., certificates of deposit and all contract rights, General Intangibles, contracts, Instruments, Investment Property, Security Entitlements, Financial Assets, Commodity Contracts and other Documents now or hereafter existing with respect thereto, including, but not limited to, any and all renewals, extensions, reissuances and replacements and substitutions therefor with all earnings, profits or other Proceeds therefrom in the form of interest or otherwise, from time to time representing, evidencing, deposited into or held in the Deposit Accounts. "Document" means any "document," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all documents of title and all receipts covering, evidencing or representing goods now owned or hereafter acquired by Debtor. "Entitlement Holder" means any "entitlement holder", as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary, including, without limitation, any Person who acquires a security entitlement under Article or Chapter 8 of the UCC. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 3 "Equipment" means any "equipment," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, all machinery, equipment, furniture, fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft and vehicles now owned or hereafter acquired by Debtor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Financial Asset" means any "financial asset," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Security, (b) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment, and (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article or Chapter 8 of the UCC. "General Intangibles" means any "general intangibles," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all of Debtor's service marks, trade names, trade secrets, registrations, goodwill, franchises, licenses, permits, proprietary information, customer lists, designs and inventions; (b) all of Debtor's books and records, data, plans, manuals, computer software, computer tapes, computer disks, computer programs, source codes, object codes, management information systems and all rights of Debtor to retrieve data and other information from third parties; (c) all of Debtor's contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts and certificates of deposit; (d) all rights of Debtor to payment under letters of credit and similar agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all choses in action and causes of action of Debtor (whether arising in contract, tort or otherwise and whether or not currently in litigation) and all judgments in favor of Debtor; (g) all rights and claims of Debtor under warranties and indemnities; and (h) all rights of Debtor under any insurance, surety or similar contract or arrangement. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" by any Person means any indebtedness, liability or obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any indebtedness, liability or obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other indebtedness, liability or obligation as to the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming such Person is required to perform thereunder). AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 4 "Instrument" means any "instrument," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include all promissory notes, drafts, bills of exchange and trade acceptances of Debtor, whether now owned or hereafter acquired. "Intellectual Property" means the Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. "Inventory" means any "inventory," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all goods and other personal property of Debtor that are held for sale or lease or to be furnished under any contract of service; (b) all raw materials, work-in-process, finished goods, inventory, supplies and materials of Debtor; (c) all wrapping, packaging, advertising and shipping materials of Debtor; (d) all goods that have been returned to, repossessed by or stopped in transit by Debtor; and (e) all Documents evidencing any of the foregoing. "Investment Property" means any "investment property," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) the Securities Accounts and other Investment Property described on Schedule 3; (b) any Security or Capital Stock, whether certificated or uncertificated; (c) any Security Entitlement; (d) any Securities Account; (e) any Commodity Contract; and (f) any Commodity Account. "Issuer" means any "issuer," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (a) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate; (b) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security; (c) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate; or (d) becomes responsible for, or in the place of, another Issuer. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 5 "License" means any permit, certificate, approval, order, license or other authorization. "Obligations" means the "Obligations," as such term is defined in the Loan Agreement, and the obligations, indebtedness and liabilities of Debtor under this Agreement and any other Loan Document to which Debtor may be a party. "Patent License" means any written agreement now or hereafter in existence granting to Debtor any right to use any invention on which a Patent is in existence including, without limitation, the agreements described on Schedule 1. "Patent Security Agreement" means a patent security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit B, as such agreement may be amended, supplemented or otherwise modified from time to time. "Patents" means all of the following: (a) all patents, patent applications and patentable inventions of Debtor, including, without limitation, those set forth on Schedule 1, and all of the inventions and improvements described and claimed therein; (b) all continuations, divisions, renewals, extensions, modifications, substitutions, continuations-in- part or reissues of any of the foregoing; (c) all income, royalties, profits, damages, awards and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Pledged Collateral" has the meaning specified in Section 4.16(b)(i). "Pledged Shares" means all Capital Stock now or hereafter owned by Debtor, including, without limitation, the shares of Capital Stock described on Schedule 4. "Proceeds" means any "proceeds," as such term is defined in Article or Chapter 9 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting, or purporting to act, for or on behalf of any Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Securities Account" means any "securities account," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 6 "Securities Intermediary" means any "securities intermediary," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Clearing Corporation, or (b) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. "Security" means any "security," as such term is defined in Article or Chapter 8 of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer (a) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer, (b) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations, and (c) which (i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or (ii) is a medium for investment and by its terms expressly provides that it is a security governed by Article or Chapter 8 of the UCC. "Security Certificate" means any "security certificate," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any certificate representing a Security. "Security Entitlement" means any "security entitlement," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Trademark License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Trademark, including, without limitation, the agreements identified on Schedule 1. "Trademark Security Agreement" means a trademark security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit C, as such agreement may be amended, supplemented or otherwise modified from time to time. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 7 "Trademarks" means all of the following: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the U.S., any state thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1; (b) all reissues, extensions and renewals thereof; (c) all income, royalties, damages and payments now or hereafter relating to or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (e) the right to sue for past, present and future infringements of any of the foregoing; (f) all rights corresponding to any of the foregoing throughout the world; and (g) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided, that if, by applicable law, the perfection or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection. "Uncertificated Security" means any "uncertificated security," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. "U.S." means the United States of America. Section 1.2 Other Definitional Provisions. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein shall have the meanings therefor specified in the Loan Agreement. References to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. All references to statutes and regulations shall include any amendments of the same and any successor statutes and regulations. References to particular sections of the UCC should be read to refer also to parallel sections of the Uniform Commercial Code as enacted in each state or other jurisdiction where any portion of the Collateral is or may be located. ARTICLE 2 Security Interest Section 2.1 Security Interest. As collateral security for the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as collateral) to Secured Party, and grants to Secured Party a continuing lien on and security interest in, all of Debtor's right, title and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 8 (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; (f) all Equipment (including, without limitation, Equipment at the locations set forth on Schedule 5 hereto); (g) all Inventory (including, without limitation, Inventory at the locations set forth on Schedule 5 hereto); (h) all Intellectual Property; (i) all Investment Property, and the certificates and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Investment Property; (j) all Deposit Accounts; (k) the Pledged Shares and the certificates representing the Pledged Shares, all additional Capital Stock of the Subsidiaries of Debtor and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares or such additional Capital Stock, and all rights, interests and other property, including, without limitation, General Intangibles, relating to any or all of the Pledged Shares, such additional Capital Stock and such dividends, cash, instruments and other property; (l) all indebtedness from time to time owed to Debtor by its Subsidiaries and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such indebtedness; (m) all proceeds, in cash or otherwise, of any of the property described in the foregoing clauses (a) through (l) and all liens, security, rights, remedies and claims of Debtor with respect thereto; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 9 (n) all other goods and personal property of Debtor of any kind or character, whether tangible or intangible, including, without limitation, any and all rights in and claims under insurance policies, judgments and rights thereunder, and tort claims; and (o) all Proceeds and products of any or all of the foregoing. Section 2.2 Debtor Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Debtor shall remain liable under the contracts, agreements, documents and instruments included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights or remedies hereunder shall not release Debtor from any of its duties or obligations under the contracts, agreements, documents and instruments included in the Collateral, and (c) Secured Party shall not have any indebtedness, liability or obligation under any of the contracts, agreements, documents and instruments included in the Collateral by reason of this Agreement, and Secured Party shall not be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 2.3 Delivery of Collateral. All certificates or instruments representing or evidencing the Pledged Shares, any Instruments or Chattel Paper or any other Collateral including, without limitation, any Investment Property, promptly upon Debtor gaining any rights therein, shall be delivered to and held by or on behalf of Secured Party pursuant hereto in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. After the occurrence and during the continuation of an Event of Default, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing any Pledged Collateral in its possession for certificates or instruments of smaller or larger denominations. ARTICLE 3 Representations and Warranties ------------------------------ To induce Secured Party to enter into this Agreement and the other Loan Documents, Debtor represents and warrants that: Section 3.1 Title. Debtor is, and with respect to Collateral acquired after the date hereof Debtor will be, the legal and beneficial owner of the Collateral free and clear of any Lien or other encumbrance, except for Liens otherwise expressly permitted by Secured Party in the Loan Agreement or any other Loan Document (hereinafter "Permitted Liens"). Section 3.2 Accounts. Unless Debtor has given Secured Party written notice to the contrary, whenever the security interest granted hereunder attaches to an Account, Debtor shall be deemed to have represented and warranted to Secured Party as to each of its Accounts at the time of its creation that, to the best of Debtor's knowledge (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor, (c) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, the amount of each Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, no Account is subject to any offset, counterclaim or other defense. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 10 Section 3.3 Financing Statements. No financing statement, security agreement or other Lien instrument covering all or any part of the Collateral is on file in any public office, except as may have been filed in favor of Secured Party pursuant to this Agreement and except for financing statements evidencing Permitted Liens. Except as otherwise disclosed on Schedule 6 hereto, Debtor does not do business and has not done business within the past five (5) years under a trade name or any name other than its legal name set forth at the beginning of this Agreement. Section 3.4 Principal Place of Business. The principal place of business and chief executive office of Debtor, and the office where Debtor keeps its books and records, is located at the address of Debtor shown at the beginning of this Agreement. Section 3.5 Location of Collateral. All Inventory (except Inventory in transit) and Equipment (other than vehicles) of Debtor is located at the places specified on Schedule 5 hereto. If any such location is leased by Debtor, the name and address of the landlord leasing such location is identified on Schedule 5 hereto. All Inventory (except Inventory in transit) and Equipment will be located only at (a) the specific locations which are described as locations for such types of Inventory and Equipment on Schedule 5 hereto or (b) subject to the requirements of this Agreement, such other locations as may be expressly identified by Debtor from time to time as locations for such types of Inventory and Equipment, which identification shall be set forth in a written notice given by Debtor to Secured Party at least 30 days prior to the date upon which any such Inventory or Equipment is located at such location. Debtor has exclusive possession and control of its Inventory and Equipment. None of the Inventory (other than Inventory in transit as to which all Documents evidencing such Inventory have been delivered to Secured Party) or Equipment (other than vehicles) of Debtor is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments, Chattel Paper and Security Certificates of Debtor have been delivered to Secured Party. Section 3.6 Perfection. Upon the filing of Uniform Commercial Code financing statements in the jurisdictions listed on Schedule 7, the filing of a Patent Security Agreement (if any) and a Trademark Security Agreement (if any) with the United States Patent and Trademark Office, the filing of a Copyright Security Agreement (if any) with the United States Copyright Office, and upon Secured Party's obtaining possession of the Pledged Shares and all other Instruments, Chattel Paper and Security Certificates of Debtor, the security interest in favor of Secured Party created herein will constitute a valid and perfected Lien upon and security interest in the Collateral (except for (a) vehicles covered by certificates of title, and (b) other Property excluded from the application of Article or Chapter 9 of the UCC by Section 9-104 of the UCC), subject to no equal or prior Liens except for those Liens (if any) which constitute Permitted Liens and are permitted by the Loan Agreement to have equal or greater priority. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 11 Section 3.7 Inventory. All production (if any) and purchase of Inventory by Debtor has been in compliance with all requirements of the Fair Labor Standards Act. Section 3.8 Intellectual Property. (a) All of the Intellectual Property is subsisting, valid and enforceable. The information contained on Schedule 1 hereto is true, correct and complete. All Intellectual Property existing on the date hereof is identified on Schedule 1 hereto. (b) Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property free and clear of any Liens, including, without limitation, any pledges, assignments, licenses, user agreements and covenants by Debtor not to sue third Persons, other than Permitted Liens. (c) No claim has been made that the use of any of the Intellectual Property violates or may violate the rights of any third Person. (d) Each of the Patents and Trademarks identified on Schedule 1 hereto has been properly registered with the United States Patent and Trademark Office and each of the Copyrights identified on Schedule 1 hereto has been properly registered with the United States Copyright Office. Section 3.9 Pledged Shares and Instruments. (a) The Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable under the laws of the jurisdiction of incorporation or organization of the issuers thereof. To the best knowledge of Debtor, the Instruments have been duly authorized and validly issued and constitute legal and enforceable indebtedness of the makers or issuers thereof. (b) Debtor is the legal and beneficial owner of the Pledged Shares and the Instruments, free and clear of any Lien (other than the Lien created by this Agreement), and Debtor has not sold, granted any option with respect to, assigned, transferred or otherwise disposed of any of its rights or interest in or to the Pledged Shares or the Instruments. (c) On the date hereof, the Pledged Shares constitute the percentage of the issued and outstanding Capital Stock of the issuers thereof indicated on Schedule 4, as such Schedule 4 may from time to time be supplemented, amended or modified. Section 3.10 Investment Property. As of the Closing Date, Schedule 3 contains a complete and accurate description of all Investment Property owned by Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 12 ARTICLE 4 Covenants Debtor covenants and agrees with Secured Party that until the Obligations are paid and performed in full: Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to exist, and shall defend the Collateral against, any Lien or other encumbrance on the Collateral except for those Permitted Liens (if any) which are permitted to attach to the Collateral in accordance with the Loan Agreement, and shall defend Debtor's rights in the Collateral and Secured Party's pledge and collateral assignment of and security interest in the Collateral against the claims and demands of all Persons. Debtor shall do nothing to impair the rights of Secured Party in the Collateral. Section 4.2 Modification of Accounts. Debtor shall, in accordance with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of Secured Party, Debtor shall not, other than in the ordinary course of business and pursuant to customary business practices in Debtor's industry, (a) grant any extension of time for any payment with respect to any of the Accounts, (b) compromise, compound or settle any of the Accounts for less than the full amount thereof, (c) release, in whole or in part, any Person liable for payment of any of the Accounts, (d) allow any credit or discount for payment with respect to any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or Guarantee securing any Account. Section 4.3 Disposition of Collateral. Except as expressly permitted by the terms of the Loan Agreement, Debtor shall not sell, lease, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of Secured Party. Section 4.4 Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Debtor, Debtor shall promptly execute and deliver all such further agreements, documents and instruments and take such further action as Secured Party may reasonably deem necessary or appropriate to preserve and perfect its security interest in and pledge and collateral assignment of the Collateral and carry out the provisions and purposes of this Agreement or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral, and, to the extent any of the Collateral at any time constitutes Investment Property, then Debtor shall cause Secured Party to obtain "control," as defined in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if Secured Party reasonably so requests) of the manners prescribed in Section 8-106 of the UCC. Debtor and Secured Party agree that the grant of the security interest in the Investment Property pursuant to this Agreement shall have the effect of a delivery of such securities to Secured Party pursuant to Section 8-301 of the UCC, and the effect of a taking of delivery by Secured Party of such Collateral in accordance with Section 8- 302 of the UCC. Except as otherwise expressly permitted by the terms of the Loan Agreement relating to disposition of assets and except for Permitted Liens, Debtor agrees to defend the title to the Collateral and the Lien thereon of Secured Party against the claim of any other Person and to maintain and preserve such Lien. Without limiting the generality of the foregoing, Debtor shall (a) execute and deliver to Secured Party such financing statements as Secured Party may from time to time require; (b) deliver and pledge to Secured Party all Documents (including, without limitation, all documents of title) evidencing Inventory or Equipment (except for certificates of title covering vehicles) and cause Secured Party to be named as lienholder on all such Documents; (c) deliver and pledge to Secured Party all Instruments and Chattel Paper of Debtor with any necessary endorsements; and (d) execute and deliver to Secured Party such other agreements, documents and instruments as Secured Party may require to perfect and maintain the validity, effectiveness and priority of the Liens intended to be created by the Loan Documents. Debtor authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of Debtor where permitted by law. A carbon, photographic or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 13 Section 4.5 Insurance. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Secured Party from time to time. If requested by Secured Party, each policy for property damage insurance shall provide for all proceeds thereof to be paid directly to Secured Party. If requested by Secured Party, each policy of insurance maintained by Debtor shall (i) name Debtor and Secured Party as insured parties thereunder (without any representation or warranty by or obligation upon Secured Party) as their interests may appear, (ii) contain the agreement by the insurer that all proceeds of such policy shall be payable to Secured Party notwithstanding any action, inaction or breach of representation or warranty by Debtor, (iii) provide that there shall be no recourse against Secured Party for payment of premiums or other amounts with respect thereto, and (iv) provide that at least ten (10) days prior written notice of cancellation or of lapse shall be given to Secured Party by the insurer. Debtor will, if requested by Secured Party, deliver to Secured Party original or duplicate policies of such insurance and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance. Debtor will also, at the request of Secured Party, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to any Collateral shall be paid to Secured Party, as provided for in this paragraph, and applied as Secured Party in its sole discretion deems appropriate. Section 4.6 Bailees. If any of the Collateral is at any time in the possession or control of any warehouseman, bailee or any of Debtor's agents or processors, Debtor shall, at the request of Secured Party, notify such warehouseman, bailee, agent or processor of the security interest created hereunder and shall instruct such Person to hold such Collateral for Secured Party's account subject to Secured Party's instructions. Section 4.7 Inspection Rights. Debtor shall permit Secured Party and its representatives to examine, inspect and audit the Collateral and to examine, inspect and audit Debtor's books and records at any reasonable time, and as the Secured Party may desire. Secured Party may at any time and from time to time contact account debtors to verify the existence, amounts and terms of the Accounts. Section 4.8 Mortgagee and Landlord Waivers or Subordinations. Subject to the provisions of the Loan Agreement, Debtor shall cause each mortgagee of real property owned by Debtor and each landlord of real property leased by Debtor to execute and deliver instruments satisfactory in form and substance to Secured Party by which such mortgagee or landlord waives or subordinates its rights, if any, in any of the Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 14 Section 4.9 Corporate Changes. Debtor shall not change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless Debtor shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to protect its Liens and the perfection and priority thereof. Debtor shall not change its principal place of business, chief executive office or the place where it keeps its books and records unless it shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.10 Books and Records; Information. Debtor shall keep accurate and complete books and records of the Collateral and Debtor's business and financial condition in accordance with GAAP. Debtor shall from time to time at the request of Secured Party deliver to Secured Party such information regarding the Collateral and Debtor as Secured Party may reasonably request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. To the extent required by Section 4.4 of this Agreement, Debtor shall mark its books and records to reflect the security interest of Secured Party under this Agreement. Section 4.11 Equipment and Inventory. (a) Debtor shall keep the Equipment (other than vehicles) and Inventory (other than Inventory in transit) at the locations specified on Schedule 5 hereto or at such other places within the U.S. where all action required to perfect Secured Party's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken; provided that if any Equipment (other than vehicles) or Inventory (other than Inventory in transit) is being relocated to any jurisdiction where the security interest of Secured Party under this Agreement has not been previously perfected, then in such case Debtor shall deliver prompt (and in any event within not less than thirty (30) days) notice thereof to Secured Party. (b) Debtor shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear of the Equipment excepted). Debtor shall not permit any waste or destruction of the Equipment or Inventory or any part thereof. Debtor shall not permit the Equipment or Inventory to be used in violation of any law, rule or regulation or the terms of any policy of insurance. Debtor shall not use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. (c) Debtor shall comply with all requirements of the Fair Labor Standards Act in producing or purchasing Inventory. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 15 (d) Within forty-five (45) days of the end of each of Debtor's fiscal quarters, Debtor shall provide Secured Party with a report setting forth in reasonable detail any change during such preceding fiscal quarter of the location of any Equipment or Inventory (unless such location is one of the locations already specified on Schedule 5 hereto). Section 4.12 Warehouse Receipts Non-Negotiable. Debtor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the UCC) unless such warehouse receipt or receipt in the nature thereof is delivered to Secured Party. Section 4.13 Notification. Debtor shall promptly notify Secured Party of (a) any Lien, encumbrance or claim (other than Permitted Liens) that has attached to or been made or asserted against any of the Collateral, (b) any material change in any of the Collateral, including, without limitation, any material damage to or loss of Collateral, and (c) the occurrence of any other event or condition (including, without limitation, matters as to Lien priority) that could have a material adverse effect on the Collateral or the security interest created hereunder. Section 4.14 Collection of Accounts. Debtor shall cause all collections of Accounts and sales of Inventory to be conducted in compliance with the terms of the Loan Agreement. In addition all cash proceeds (including, without limitation, all Proceeds of Collateral) shall be deposited directly, as received, into one or more of the Deposit Accounts. Debtor agrees that all Proceeds of Collateral deposited in any collection account or concentration account shall at all times continue to be Collateral under the terms of this Agreement. Debtor shall cause each of the Deposit Accounts to be collaterally assigned, on a first priority basis, to Secured Party as security for the payment and performance of the Obligations pursuant to agreements in form and substance reasonably satisfactory to Secured Party which have been acknowledged and agreed to by the depository banks on or before June 17, 2000. Section 4.15 Intellectual Property. Except with the written consent of Secured Party: (a) Debtor shall prosecute diligently all applications in respect of Intellectual Property, now or hereafter pending; (b) Debtor shall make federal applications on all of its unpatented but patentable inventions and all of its registrable but unregistered Copyrights and Trademarks other than any immaterial Patents, Trademarks and Copyrights which are not useful in Debtor's business; (c) Debtor shall preserve and maintain all of its rights in the Intellectual Property and shall protect the Intellectual Property from infringement, unfair competition, cancellation or dilution by all appropriate action, including, without limitation, the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 16 (d) Debtor shall not abandon any of the Intellectual Property except for any immaterial Intellectual Property which is not useful in Debtor's business; (e) Debtor shall not sell or assign any of its interest in, or grant any license under (except as permitted by Section 5.5), any of the Intellectual Property and shall maintain the quality of any and all products and services with respect to which the Intellectual Property is used. Debtor shall not enter into any agreement regarding Intellectual Property, including, but not limited to, any licensing agreement not permitted by Section 5.5, that is or may be inconsistent with Debtor's obligations under this Agreement or any of the other Loan Documents; (f) If Debtor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 1 hereto, Debtor shall give Secured Party prompt written notice thereof and the provisions of this Agreement shall automatically apply thereto and Debtor hereby authorizes Secured Party to modify or update Schedule 1 hereto to include any such new Intellectual Property; (g) Upon the occurrence of any event that would require any addition to or modification of Schedule 1 hereto or upon the request of Secured Party, Debtor shall furnish to Secured Party statements and schedules further identifying the Intellectual Property and such other items in connection with the Intellectual Property as Secured Party may request. Promptly upon the request of Secured Party, Debtor shall modify this Agreement by amending Schedule 1 hereto to include any Intellectual Property that becomes part of the Collateral; (h) If an Event of Default shall have occurred and be continuing, Debtor shall use its best efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise its rights and remedies with respect to the Intellectual Property; and (i) Debtor shall, at the request of Secured Party, execute and deliver to Secured Party a Copyright Security Agreement, a Patent Security Agreement, a Trademark Security Agreement and all other agreements, documents, instruments and other items as may be necessary for Secured Party to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and any similar domestic or foreign office, department or agency. Debtor will, at any time and from time to time upon the request of Secured Party, execute and deliver to Secured Party all such other agreements, documents, instruments and other items as may be necessary or appropriate for Secured Party to create and perfect its security interest in the Intellectual Property and to make all appropriate filings with respect thereto. Section 4.16 Voting Rights, Distributions, Etc. (a) So long as no Event of Default shall have occurred and be continuing: (i) Debtor shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications in respect of any of the Pledged Collateral) pertaining to any of the Pledged Collateral or any part thereof; provided, however, that without the prior written consent of Secured Party, no vote shall be cast or consent, waiver or ratification given or action taken which would (x) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (y) amend, modify or waive any term, provision or condition of the certificate of incorporation, by-laws, certificate of formation, operating agreement or other charter document or other agreement relating to, evidencing, providing for the issuance of or securing any Collateral; and provided further that Debtor shall give Secured Party at least five (5) Business Days' prior written notice in the form of an officer's certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof; and AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 17 (ii) Unless an Event of Default shall have occurred and be continuing, Debtor shall be entitled to receive and retain any and all dividends and interest paid in respect of any of the Collateral to the extent permitted by the Loan Agreement. During the continuance of any Default, any dividends, interest or other distributions (whether in cash, securities, property or otherwise) received by Debtor with respect to any Pledged Collateral shall be held by Debtor in trust for the benefit of Secured Party and, upon the request of Secured Party, shall be delivered promptly to Secured Party to hold as Collateral or shall be applied by Secured Party toward payment of the Obligations, as Secured Party may in its discretion determine. If such Default is waived or cured to the satisfaction of Secured Party, any such distributions shall be returned promptly to Debtor (provided that no other Default or Event of Default exists). If such Default remains uncured and becomes an Event of Default, any such distributions will be applied by Secured Party as provided in the Loan Agreement. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) Secured Party may, without notice to Debtor, transfer or register in the name of Secured Party or any of its nominees any or all of the Collateral described in Section 2.1(m) or Section 2.1(n), the proceeds thereof (in cash or otherwise) and all liens, security, rights, remedies and claims of Debtor with respect thereto (collectively, the "Pledged Collateral") held by Secured Party hereunder, and Secured Party or its nominee may thereafter, after delivery of notice to Debtor, exercise all voting and corporate rights at any meeting of any corporation, partnership or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of any corporation, partnership or other business entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or Secured Party of any right, privilege or option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options, and Secured Party shall not be responsible for any failure to do so or delay in so doing. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 18 (ii) All rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection 4.16(a)(i) and to receive the dividends, interest and other distributions which it would otherwise be authorized to receive and retain pursuant to subsection 4.16(a)(ii) shall be suspended until such Default or Event of Default shall no longer exist, and all such rights shall, until such Default or Event of Default shall no longer exist, thereupon become vested in Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends, interest and other distributions. (iii) All dividends, interest and other distributions which are received by Debtor contrary to the provisions of this subsection 4.16(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party as Collateral in the same form as so received (with any necessary endorsement). (iv) Debtor shall execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies and other instruments as Secured Party may reasonably request for the purpose of enabling Secured Party to exercise the voting and other rights which it is entitled to exercise pursuant to this subsection 4.16(b) and to receive the dividends, interest and other distributions which it is entitled to receive and retain pursuant to this subsection 4.16(b). The foregoing shall not in any way limit Secured Party's power and authority granted pursuant to Section 5.1. Section 4.17 Transfers and Other Liens; Additional Investments. (a) Except as may be expressly permitted by the terms of the Loan Agreement, Debtor shall not grant any option with respect to, exchange, sell or otherwise dispose of any of the Collateral or create or permit to exist any Lien upon or with respect to any of the Collateral except for the Liens created hereby. (b) Debtor agrees that it will (i) cause each issuer of any of the Pledged Collateral not to issue any Capital Stock, notes or other securities or instruments in addition to or in substitution for any of the Pledged Collateral, except, with the written consent of Secured Party, to Debtor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all such Capital Stock, notes or other securities or instruments, and (iii) promptly (and in any event within three Business Days) deliver to Secured Party an Amendment, duly executed by Debtor, in substantially the form of Exhibit D (an "Amendment"), in respect of such Capital Stock, notes or other securities or instruments, together with all certificates, notes or other securities or instruments representing or evidencing the same. Debtor hereby (i) authorizes Secured Party to attach each Amendment to this Agreement, (ii) agrees that all such Capital Stock, notes or other securities or instruments listed on any Amendment delivered to Secured Party shall for all purposes hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Article III with respect to such Pledged Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 19 Section 4.18 Possession; Reasonable Care. Regardless of whether a Default or an Event of Default has occurred or is continuing, Secured Party shall have the right to hold in its possession all Instruments, Chattel Paper and Pledged Collateral pledged, assigned or transferred hereunder and from time to time constituting a portion of the Collateral. Secured Party may, from time to time, in its sole discretion, appoint one or more agents (which in no case shall be Debtor or an Affiliate of Debtor) to hold physical custody, for the account of Secured Party, of any or all of the Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Following the occurrence and during the continuation of an Event of Default, Secured Party shall be entitled to take possession of the Collateral. Section 4.19 Acknowledgment of Collateral Assignment of Deposit Accounts. Debtor shall deliver to Secured Party, on or before June 17, 2000, and at any time as Secured Party may request hereafter, acknowledgment by each financial institution in which any Deposit Account is held or maintained that the collateral assignment of such Deposit Account has been recorded in the books and records of such financial institution, and that Secured Party shall have dominion and control over such Deposit Account, such acknowledgment to be in form and substance satisfactory to Secured Party. Section 4.20 Statement of Account for Deposit Accounts. Debtor shall, from time to time upon written request of Secured Party, provide to Secured Party a copy of each statement of account for any Deposit Account received by Debtor from the financial institution in which a Deposit Account is held or maintained. At Secured Party's request, Debtor will use its reasonable efforts to make such arrangements as are reasonably necessary in order to enable Secured Party to access such information by inquiry of an officer or other representative of any such financial institution or via any automated information system which may be maintained by such financial institution. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 20 ARTICLE 5 Rights of Secured Party Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of Debtor or in its own name, to take after the occurrence and during the continuance of an Event of Default, any and all action and to execute any and all documents and instruments which Secured Party at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, Debtor hereby gives Secured Party the power and right on behalf of Debtor and in its own name to do any of the following after the occurrence and during the continuance of an Event of Default, without notice to or the consent of Debtor: (a) to demand, sue for, collect or receive, in the name of Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title or any other instruments for the payment of money under the Collateral or any policy of insurance; (b) to pay or discharge taxes, Liens or other encumbrances levied or placed on or threatened against the Collateral; (c) to notify post office authorities to change the address for delivery of mail of Debtor to an address designated by Secured Party and to receive, open and dispose of mail addressed to Debtor; (d) (i) to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to Secured Party or as Secured Party shall direct; (ii) to receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (iii) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought against Debtor with respect to any Collateral; (vi) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Secured Party may deem appropriate; (vii) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms as Secured Party may determine; (viii) to add or release any guarantor, indorser, surety or other party to any of the Collateral; (ix) to renew, extend or otherwise change the terms and conditions of any of the Collateral; (x) to grant or issue any exclusive or nonexclusive license under or with respect to any of the Intellectual Property; (xi) to endorse Debtor's name on all applications, documents, papers and instruments necessary or desirable in order for Secured Party to use any of the Intellectual Property; (xii) to make, settle, compromise or adjust any claims under or pertaining to any of the Collateral (including, without limitation, claims under any policy of insurance); and (xiii) to sell, transfer, pledge, convey, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time, or from time to time, all acts and things which Secured Party deems necessary to protect, preserve, maintain or realize upon the Collateral and Secured Party's security interest therein. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 21 This power of attorney is a power coupled with an interest and shall be irrevocable until this Agreement is terminated in accordance with its terms. Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. Neither Secured Party nor any Person designated by Secured Party shall be liable for any act or omission or for any error of judgment or any mistake of fact or law. This power of attorney is conferred on Secured Party solely to protect, preserve, maintain and realize upon its security interest in the Collateral. Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve or maintain any Lien given to secure the Collateral. Section 5.2 Set-off. If an Event of Default shall have occurred and be continuing, Secured Party shall have the right to set-off and apply against the Obligations, at any time and without notice to Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Secured Party to Debtor and although such Obligations may be unmatured. The rights and remedies of Secured Party hereunder are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Secured Party may have. Section 5.3 Assignment by Secured Party. In accordance with the provisions of the Loan Agreement, Secured Party may at any time assign or otherwise transfer all or any portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, the Obligations), in connection with an assignment of the Obligations, to any other Person, and such other Person shall thereupon become vested with all the benefits thereof granted to Secured Party herein or otherwise. Section 5.4 Performance by Secured Party. If Debtor shall fail to perform any covenant or agreement contained in this Agreement, Secured Party may perform or attempt to perform such covenant or agreement on behalf of Debtor. In such event, Debtor shall, at the request of Secured Party, promptly pay any amount expended by Secured Party in connection with such performance or attempted performance to Secured Party, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that Secured Party shall not have any liability or responsibility for the performance of any obligation of Debtor under this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 22 Section 5.5 License. If no Event of Default shall have occurred and be continuing, Debtor shall have the exclusive, non-transferrable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other Persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration. Debtor agrees not to sell or assign its interest in, or grant any sublicense under, the license granted under this Section 5.5 without the prior written consent of Secured Party. Section 5.6 Change of Depository. In the event of the termination by any financial institution in which any Deposit Account is maintained of any agreement with or for the benefit of Secured Party, or if any such financial institution shall fail to comply with any provisions of any such agreement or any instructions of Secured Party in accordance with any such agreement or this Agreement, or if Secured Party determines in its sole discretion that the financial condition of any such financial institution has materially deteriorated, Debtor agrees to transfer the affected Deposit Account(s) to another financial institution acceptable to Secured Party and cause such substitute financial institution to execute such agreements as Secured Party may require, in form and substance acceptable to Secured Party, to ensure that Secured Party has a perfected, first priority collateral assignment of or security interest in the Deposit Account(s) held with such substitute financial institution. If any affected Deposit Account is a lockbox account, Debtor agrees to notify its account debtors promptly to remit all payments which were being sent to the terminated Deposit Account directly to the substitute Deposit Account. Section 5.7 Collection of Deposit Accounts. After the occurrence and during the continuation of an Event of Default, upon written demand from Secured Party to any financial institution in which any of the Deposit Accounts are maintained, each such financial institution is hereby authorized and directed by Debtor to make payment directly to Secured Party of the funds in or credited to the Deposit Accounts, or such part thereof as Secured Party may request, and each such financial institution shall be fully protected in relying upon the written statement of Secured Party that an Event of Default has occurred and is continuing and that the Deposit Accounts are at the time of such demand assigned hereunder and that Secured Party is entitled to payment of the Obligations therefrom. Secured Party's receipt for sums paid it pursuant to such demand shall be a full and complete release, discharge and acquittance to the depository or other financial institution making such payment to the extent of the amount so paid. Debtor hereby authorizes Secured Party, upon (a) Debtor's failure to make payment of any of the Obligations, or any part thereof, or (b) any acceleration of the maturity of the Obligations upon the occurrence of any Event of Default, each as provided in the Loan Agreement, (i) to withdraw, collect and receipt for any and all funds, securities or other investments on deposit in or payable on the Deposit Accounts, (ii) on behalf of Debtor to endorse the name of Debtor upon any checks, drafts or other instruments payable to Debtor evidencing payment on the Deposit Accounts, and (iii) to surrender or present for notation of withdrawal the passbook, certificate or other documents issued to Debtor in connection with the Deposit Accounts. No power granted herein to Secured Party by Debtor shall terminate upon any disability of Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 23 ARTICLE 6 Default Section 6.1 Rights and Remedies. If an Event of Default shall have occurred and be continuing, Secured Party shall have the following rights and remedies (subject to Section 6.3): (a) In addition to all other rights and remedies granted to Secured Party in this Agreement or in any other Loan Document or by applicable law, Secured Party shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) and Secured Party may also, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Without limiting the generality of the foregoing, Secured Party may (i) without demand or notice to Debtor, collect, receive or take possession of the Collateral or any part thereof and for that purpose Secured Party may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Secured Party shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of Debtor, which right or equity of redemption is hereby expressly waived and released by Debtor. Upon the request of Secured Party, Debtor shall assemble the Collateral and make it available to Secured Party at any place designated by Secured Party that is reasonably convenient to Debtor and Secured Party. Debtor agrees that Secured Party shall not be obligated to give more than five (5) days prior written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Debtor shall be liable for all expenses of retaking, holding, preparing for sale or the like, and all attorneys' fees, legal expenses and other costs and expenses incurred by Secured Party in connection with the collection of the Obligations and the enforcement of Secured Party's rights under this Agreement. Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral applied to the Obligations are insufficient to pay the Obligations in full. Secured Party may apply the Collateral against the Obligations in such order and manner as Secured Party may elect in its sole discretion. Debtor waives all rights of marshaling, valuation and appraisal in respect of the Collateral. Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and then or at any time thereafter applied in whole or in part by Secured Party against, the Obligations in such order as Secured Party shall select. Any surplus of such cash or cash proceeds and interest accrued thereon, if any, held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus; provided that Secured Party shall have no obligation to invest or otherwise pay interest on any amounts held by it in connection with or pursuant to this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 24 (b) Secured Party may cause any or all of the Collateral held by it to be transferred into the name of Secured Party or the name or names of Secured Party's nominee or nominees. (c) Secured Party may exercise any and all rights and remedies of Debtor under or in respect of the Collateral, including, without limitation, any and all rights of Debtor to demand or otherwise require payment of any amount under, or performance of any provision of, any of the Collateral and any and all voting rights and corporate powers in respect of the Collateral. (d) Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (e) On any sale of the Collateral, Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. (f) For purposes of enabling Secured Party to exercise its rights and remedies under this Section 6.1 and enabling Secured Party and its successors and assigns to enjoy the full benefits of the Collateral, Debtor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Debtor) to use, assign, license or sublicense any of the Intellectual Property, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and all computer programs used for the completion or printout thereof. This license shall also inure to the benefit of all successors, assigns and transferees of Secured Party. (g) Secured Party may require that Debtor assign all of its right, title and interest in and to the Intellectual Property or any part thereof to Secured Party or such other Person as Secured Party may designate pursuant to documents satisfactory to Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 25 Section 6.2 Registration Rights, Private Sales, Etc. (a) If Secured Party shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the request of Secured Party (which request may be made by Secured Party in its sole discretion), Debtor will, at its own expense: (i) execute and deliver, and cause each issuer of any of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such agreements, documents and instruments, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Collateral under the provisions of the Securities Act (as hereinafter defined) and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Collateral, as requested by Secured Party; (iii) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (iv) do or cause to be done all such other acts and things as may be reasonably necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law; and (v) bear all reasonable costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 6.2. (b) Debtor recognizes that Secured Party may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended from time to time (the "Securities Act") and applicable state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account for investment and not with a view to the distribution or resale thereof. Debtor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Secured Party shall not be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer of such securities to register such securities under the Securities Act or under any applicable state securities laws, even if such issuer would agree to do so. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 26 (c) Debtor further agrees to do or cause to be done, to the extent that Debtor may do so under applicable law, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at Debtor's expense. Debtor further agrees that a breach of any of the covenants contained in this Section 6.2 will cause irreparable injury to Secured Party and that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) Debtor's failure to perform such covenants will not cause irreparable injury to Secured Party or (ii) Secured Party has an adequate remedy at law in respect of such breach. Debtor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Secured Party by reason of a breach of any of the covenants contained in this Section 6.2 and, consequently, agrees that, if Debtor shall breach any of such covenants and Secured Party shall sue for damages for such breach, Debtor shall pay to Secured Party, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral on the date Secured Party shall demand compliance with this Section 6.2. (d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH CONTROLLING PERSON. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 27 ARTICLE 7 Miscellaneous Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective heirs, successors and permitted assigns, except that Debtor may not assign any of its rights, indebtedness, liabilities or obligations under this Agreement without the prior written consent of Secured Party. Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto, except as provided in Section 4.15(g). Section 7.4 Notices. All notices and other communications provided for in this Agreement shall be given or made by telecopy or in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section 7.4. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy or when personally delivered or, in the case of a mailed notice, three (3) Business Days after deposit in the mails, in each case given or addressed as aforesaid; provided, however, that notices to Secured Party shall be deemed given when received by Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 28 Section 7.5 Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED PARTY EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR AND SECURED PARTY EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 7.6 Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.7 Survival of Representations and Warranties. All representations and warranties made in this Agreement or in any certificate delivered pursuant hereto shall survive the execution and delivery of this Agreement, and no investigation by Secured Party shall affect the representations and warranties or the right of Secured Party to rely upon them. Section 7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.9 Waiver of Bond. In the event Secured Party seeks to take possession of any or all of the Collateral by judicial process, Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.10 Severability. Any provision of this Agreement which is determined by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 29 Section 7.11 Construction. Debtor and Secured Party acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Debtor and Secured Party. Section 7.12 Termination. If all of the Obligations shall have been paid and performed in full and all Commitments of Secured Party shall have expired or terminated, Secured Party shall, upon the written request of Debtor, execute and deliver to Debtor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of Secured Party and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF. Section 7.14 Consigned Inventory. Notwithstanding anything to the contrary contained herein or in any other Loan Document, Debtor (a) may maintain Inventory at locations other than those set forth in Schedule 5 (the "Offsite Inventory") and (b) shall not be required to execute UCC-1 Financing Statements for the jurisdictions in which the Offsite Inventory are located, provided, that, the book value of all Offsite Inventory (as defined in each of the respective Amended and Restated Pledge and Security Agreements dated the date hereof executed by Karts International Incorporated and each of its Subsidiaries in favor of Secured Party) of Karts International Incorporated and each of its Subsidiaries does not exceed $50,000 in the aggregate. [The remainder of this page has been intentionally left blank] AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 30 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTOR: KINT, L.L.C. By: ____________________________________ Name: ____________________________________ Title: ____________________________________ Address for Notices: ------------------- P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telecopy No.: 504-747-2700 Attention: President AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 31 SECURED PARTY: ------------- THE SCHLINGER FOUNDATION By: ____________________________________ Name: ____________________________________ Title: ____________________________________ AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (KINT, L.L.C.) - Page 32 EX-10.54 14 0014.txt AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.54 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT -------------------------------------------------- (Brister's Thunder Karts, Inc.) THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of May 17, 2000, is by and between BRISTER'S THUNDER KARTS, INC., a Louisiana corporation ("Debtor"), whose address is 62194 Commercial Street, Roseland, Louisiana 70456 and whose Tax I.D. No. is 72-0797922, and THE SCHLINGER FOUNDATION ("Secured Party") whose address is 1944 Edison Street, Santa Yinez, California 93460. R E C I T A L S: --------------- A. Karts International Incorporated ("Borrower") is, concurrently herewith, entering into that certain Amended and Restated Loan Agreement dated as of May 17, 2000, with the Secured Party (such agreement, as it may be amended, renewed, extended, restated, replaced, substituted, supplemented or otherwise modified from time to time, is referred to herein as the "Loan Agreement"). B. The execution and delivery of this Agreement is required by the terms of the Loan Agreement and is a condition to the availability of the Loan to Borrower pursuant to the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Secured Party to make the Loan under the Loan Agreement, the parties hereto hereby agree as follows: ARTICLE 1 Definitions ----------- Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Account" means any "account", as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all rights of Debtor to payment for goods sold or leased, services rendered or the license of Intellectual Property, whether or not earned by performance; (b) all accounts receivable of Debtor; (c) all rights of Debtor to receive any payment of money or other form of consideration; (d) all security pledged, assigned or granted to or held by Debtor to secure any of the foregoing; (e) all guaranties of, or indemnifications with respect to, any of the foregoing; (f) all rights of Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation and resale; and (g) all rights to brokerage commissions. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 1 "Broker" means any "broker," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "Capital Stock" means corporate stock and any and all securities, shares, partnership interests, limited partnership interests, limited liability company interests, membership interests, equity interests, participations, rights or other equivalents (however designated) of corporate stock or any of the foregoing issued by any entity (whether a corporation, a partnership, a limited liability company or another entity) and includes, without limitation, securities convertible into Capital Stock and rights or options to acquire Capital Stock. "Chattel Paper" means any "chattel paper," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor. "Clearing Corporation" means any "clearing corporation," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Person that is registered as a "clearing agency" under the federal securities laws, (b) federal reserve bank, or (c) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including, without limitation, promulgation of rules, are subject to regulation by a federal or state governmental authority. "Collateral" has the meaning specified in Section 2.1. "Commodity Account" means any "commodity account," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all accounts maintained by a Commodity Intermediary in which a Commodity Contract is carried for Debtor. "Commodity Contract" means any "commodity contract," as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, a commodity futures contract, a commodity option, or other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws, or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "Commodity Customer" means any "commodity customer" as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, any Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "Commodity Intermediary" means any "commodity intermediary," as such term is defined in Article or Chapter 9 of the UCC, including, without limitation, (a) a Person who is registered as a futures commission merchant under the federal commodities laws, or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to the federal commodities laws. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 2 "Copyright License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Copyright including, without limitation, the agreements identified on Schedule 1. "Copyright Security Agreement" means a copyright security agreement, executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit A, as such agreement may be amended, supplemented or otherwise modified from time to time. "Copyrights" means all of the following: (a) all copyrights, works protectable by copyright, copyright registrations and copyright applications of Debtor, including, without limitation, those set forth on Schedule 1; (b) all renewals, extensions and modifications thereof; (c) all income, royalties, damages, profits and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present or future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Deposit Accounts" means any and all deposit accounts (including cash collateral accounts), bank accounts or investment accounts now owned or hereafter acquired or opened by Debtor, including, without limitation, those set forth on Schedule 2, and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts and other property deposited therein and all balances therein and all investments made with funds deposited therein or otherwise held in connection therewith, including, without limitation, indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the government of the U.S., certificates of deposit and all contract rights, General Intangibles, contracts, Instruments, Investment Property, Security Entitlements, Financial Assets, Commodity Contracts and other Documents now or hereafter existing with respect thereto, including, but not limited to, any and all renewals, extensions, reissuances and replacements and substitutions therefor with all earnings, profits or other Proceeds therefrom in the form of interest or otherwise, from time to time representing, evidencing, deposited into or held in the Deposit Accounts. "Document" means any "document," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all documents of title and all receipts covering, evidencing or representing goods now owned or hereafter acquired by Debtor. "Entitlement Holder" means any "entitlement holder", as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary, including, without limitation, any Person who acquires a security entitlement under Article or Chapter 8 of the UCC. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 3 "Equipment" means any "equipment," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, all machinery, equipment, furniture, fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft and vehicles now owned or hereafter acquired by Debtor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Financial Asset" means any "financial asset," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Security, (b) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment, and (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article or Chapter 8 of the UCC. "General Intangibles" means any "general intangibles," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all of Debtor's service marks, trade names, trade secrets, registrations, goodwill, franchises, licenses, permits, proprietary information, customer lists, designs and inventions; (b) all of Debtor's books and records, data, plans, manuals, computer software, computer tapes, computer disks, computer programs, source codes, object codes, management information systems and all rights of Debtor to retrieve data and other information from third parties; (c) all of Debtor's contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts and certificates of deposit; (d) all rights of Debtor to payment under letters of credit and similar agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all choses in action and causes of action of Debtor (whether arising in contract, tort or otherwise and whether or not currently in litigation) and all judgments in favor of Debtor; (g) all rights and claims of Debtor under warranties and indemnities; and (h) all rights of Debtor under any insurance, surety or similar contract or arrangement. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" by any Person means any indebtedness, liability or obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any indebtedness, liability or obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other indebtedness, liability or obligation as to the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming such Person is required to perform thereunder). AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 4 "Instrument" means any "instrument," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include all promissory notes, drafts, bills of exchange and trade acceptances of Debtor, whether now owned or hereafter acquired. "Intellectual Property" means the Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. "Inventory" means any "inventory," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all goods and other personal property of Debtor that are held for sale or lease or to be furnished under any contract of service; (b) all raw materials, work-in-process, finished goods, inventory, supplies and materials of Debtor; (c) all wrapping, packaging, advertising and shipping materials of Debtor; (d) all goods that have been returned to, repossessed by or stopped in transit by Debtor; and (e) all Documents evidencing any of the foregoing. "Investment Property" means any "investment property," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) the Securities Accounts and other Investment Property described on Schedule 3; (b) any Security or Capital Stock, whether certificated or uncertificated; (c) any Security Entitlement; (d) any Securities Account; (e) any Commodity Contract; and (f) any Commodity Account. "Issuer" means any "issuer," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (a) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate; (b) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security; (c) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate; or (d) becomes responsible for, or in the place of, another Issuer. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 5 "License" means any permit, certificate, approval, order, license or other authorization. "Obligations" means the "Obligations," as such term is defined in the Loan Agreement, and the obligations, indebtedness and liabilities of Debtor under this Agreement and any other Loan Document to which Debtor may be a party. "Patent License" means any written agreement now or hereafter in existence granting to Debtor any right to use any invention on which a Patent is in existence including, without limitation, the agreements described on Schedule 1. "Patent Security Agreement" means a patent security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit B, as such agreement may be amended, supplemented or otherwise modified from time to time. "Patents" means all of the following: (a) all patents, patent applications and patentable inventions of Debtor, including, without limitation, those set forth on Schedule 1, and all of the inventions and improvements described and claimed therein; (b) all continuations, divisions, renewals, extensions, modifications, substitutions, continuations-in- part or reissues of any of the foregoing; (c) all income, royalties, profits, damages, awards and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Pledged Collateral" has the meaning specified in Section 4.16(b)(i). "Pledged Shares" means all Capital Stock now or hereafter owned by Debtor, including, without limitation, the shares of Capital Stock described on Schedule 4. "Proceeds" means any "proceeds," as such term is defined in Article or Chapter 9 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting, or purporting to act, for or on behalf of any Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Securities Account" means any "securities account," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 6 "Securities Intermediary" means any "securities intermediary," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Clearing Corporation, or (b) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. "Security" means any "security," as such term is defined in Article or Chapter 8 of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer (a) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer, (b) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations, and (c) which (i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or (ii) is a medium for investment and by its terms expressly provides that it is a security governed by Article or Chapter 8 of the UCC. "Security Certificate" means any "security certificate," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any certificate representing a Security. "Security Entitlement" means any "security entitlement," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Trademark License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Trademark, including, without limitation, the agreements identified on Schedule 1. "Trademark Security Agreement" means a trademark security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit C, as such agreement may be amended, supplemented or otherwise modified from time to time. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 7 "Trademarks" means all of the following: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the U.S., any state thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1; (b) all reissues, extensions and renewals thereof; (c) all income, royalties, damages and payments now or hereafter relating to or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (e) the right to sue for past, present and future infringements of any of the foregoing; (f) all rights corresponding to any of the foregoing throughout the world; and (g) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided, that if, by applicable law, the perfection or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection. "Uncertificated Security" means any "uncertificated security," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. "U.S." means the United States of America. Section 1.2 Other Definitional Provisions. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein shall have the meanings therefor specified in the Loan Agreement. References to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. All references to statutes and regulations shall include any amendments of the same and any successor statutes and regulations. References to particular sections of the UCC should be read to refer also to parallel sections of the Uniform Commercial Code as enacted in each state or other jurisdiction where any portion of the Collateral is or may be located. ARTICLE 2 Security Interest ----------------- Section 2.1 Security Interest. As collateral security for the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as collateral) to Secured Party, and grants to Secured Party a continuing lien on and security interest in, all of Debtor's right, title and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 8 (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; (f) all Equipment (including, without limitation, Equipment at the locations set forth on Schedule 5 hereto); (g) all Inventory (including, without limitation, Inventory at the locations set forth on Schedule 5 hereto); (h) all Intellectual Property; (i) all Investment Property, and the certificates and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Investment Property; (j) all Deposit Accounts; (k) the Pledged Shares and the certificates representing the Pledged Shares, all additional Capital Stock of the Subsidiaries of Debtor and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares or such additional Capital Stock, and all rights, interests and other property, including, without limitation, General Intangibles, relating to any or all of the Pledged Shares, such additional Capital Stock and such dividends, cash, instruments and other property; (l) all indebtedness from time to time owed to Debtor by its Subsidiaries and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such indebtedness; (m) all proceeds, in cash or otherwise, of any of the property described in the foregoing clauses (a) through (l) and all liens, security, rights, remedies and claims of Debtor with respect thereto; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 9 (n) all other goods and personal property of Debtor of any kind or character, whether tangible or intangible, including, without limitation, any and all rights in and claims under insurance policies, judgments and rights thereunder, and tort claims; and (o) all Proceeds and products of any or all of the foregoing. Section 2.2 Debtor Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Debtor shall remain liable under the contracts, agreements, documents and instruments included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights or remedies hereunder shall not release Debtor from any of its duties or obligations under the contracts, agreements, documents and instruments included in the Collateral, and (c) Secured Party shall not have any indebtedness, liability or obligation under any of the contracts, agreements, documents and instruments included in the Collateral by reason of this Agreement, and Secured Party shall not be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 2.3 Delivery of Collateral. All certificates or instruments representing or evidencing the Pledged Shares, any Instruments or Chattel Paper or any other Collateral including, without limitation, any Investment Property, promptly upon Debtor gaining any rights therein, shall be delivered to and held by or on behalf of Secured Party pursuant hereto in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. After the occurrence and during the continuation of an Event of Default, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing any Pledged Collateral in its possession for certificates or instruments of smaller or larger denominations. ARTICLE 3 Representations and Warranties ------------------------------ To induce Secured Party to enter into this Agreement and the other Loan Documents, Debtor represents and warrants that: Section 3.1 Title. Debtor is, and with respect to Collateral acquired after the date hereof Debtor will be, the legal and beneficial owner of the Collateral free and clear of any Lien or other encumbrance, except for Liens otherwise expressly permitted by Secured Party in the Loan Agreement or any other Loan Document (hereinafter "Permitted Liens"). Section 3.2 Accounts. Unless Debtor has given Secured Party written notice to the contrary, whenever the security interest granted hereunder attaches to an Account, Debtor shall be deemed to have represented and warranted to Secured Party as to each of its Accounts at the time of its creation that, to the best of Debtor's knowledge (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor, (c) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, the amount of each Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, no Account is subject to any offset, counterclaim or other defense. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 10 Section 3.3 Financing Statements. No financing statement, security agreement or other Lien instrument covering all or any part of the Collateral is on file in any public office, except as may have been filed in favor of Secured Party pursuant to this Agreement and except for financing statements evidencing Permitted Liens. Except as otherwise disclosed on Schedule 6 hereto, Debtor does not do business and has not done business within the past five (5) years under a trade name or any name other than its legal name set forth at the beginning of this Agreement. Section 3.4 Principal Place of Business. The principal place of business and chief executive office of Debtor, and the office where Debtor keeps its books and records, is located at the address of Debtor shown at the beginning of this Agreement. Section 3.5 Location of Collateral. All Inventory (except Inventory in transit) and Equipment (other than vehicles) of Debtor is located at the places specified on Schedule 5 hereto. If any such location is leased by Debtor, the name and address of the landlord leasing such location is identified on Schedule 5 hereto. All Inventory (except Inventory in transit) and Equipment will be located only at (a) the specific locations which are described as locations for such types of Inventory and Equipment on Schedule 5 hereto or (b) subject to the requirements of this Agreement, such other locations as may be expressly identified by Debtor from time to time as locations for such types of Inventory and Equipment, which identification shall be set forth in a written notice given by Debtor to Secured Party at least 30 days prior to the date upon which any such Inventory or Equipment is located at such location. Debtor has exclusive possession and control of its Inventory and Equipment. None of the Inventory (other than Inventory in transit as to which all Documents evidencing such Inventory have been delivered to Secured Party) or Equipment (other than vehicles) of Debtor is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments, Chattel Paper and Security Certificates of Debtor have been delivered to Secured Party. Section 3.6 Perfection. Upon the filing of Uniform Commercial Code financing statements in the jurisdictions listed on Schedule 7, the filing of a Patent Security Agreement (if any) and a Trademark Security Agreement (if any) with the United States Patent and Trademark Office, the filing of a Copyright Security Agreement (if any) with the United States Copyright Office, and upon Secured Party's obtaining possession of the Pledged Shares and all other Instruments, Chattel Paper and Security Certificates of Debtor, the security interest in favor of Secured Party created herein will constitute a valid and perfected Lien upon and security interest in the Collateral (except for (a) vehicles covered by certificates of title, and (b) other Property excluded from the application of Article or Chapter 9 of the UCC by Section 9-104 of the UCC), subject to no equal or prior Liens except for those Liens (if any) which constitute Permitted Liens and are permitted by the Loan Agreement to have equal or greater priority. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 11 Section 3.7 Inventory. All production (if any) and purchase of Inventory by Debtor has been in compliance with all requirements of the Fair Labor Standards Act. Section 3.8 Intellectual Property. (a) All of the Intellectual Property is subsisting, valid and enforceable. The information contained on Schedule 1 hereto is true, correct and complete. All Intellectual Property existing on the date hereof is identified on Schedule 1 hereto. (b) Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property free and clear of any Liens, including, without limitation, any pledges, assignments, licenses, user agreements and covenants by Debtor not to sue third Persons, other than Permitted Liens. (c) No claim has been made that the use of any of the Intellectual Property violates or may violate the rights of any third Person. (d) Each of the Patents and Trademarks identified on Schedule 1 hereto has been properly registered with the United States Patent and Trademark Office and each of the Copyrights identified on Schedule 1 hereto has been properly registered with the United States Copyright Office. Section 3.9 Pledged Shares and Instruments. (a) The Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable under the laws of the jurisdiction of incorporation or organization of the issuers thereof. To the best knowledge of Debtor, the Instruments have been duly authorized and validly issued and constitute legal and enforceable indebtedness of the makers or issuers thereof. (b) Debtor is the legal and beneficial owner of the Pledged Shares and the Instruments, free and clear of any Lien (other than the Lien created by this Agreement), and Debtor has not sold, granted any option with respect to, assigned, transferred or otherwise disposed of any of its rights or interest in or to the Pledged Shares or the Instruments. (c) On the date hereof, the Pledged Shares constitute the percentage of the issued and outstanding Capital Stock of the issuers thereof indicated on Schedule 4, as such Schedule 4 may from time to time be supplemented, amended or modified. Section 3.10 Investment Property. As of the Closing Date, Schedule 3 contains a complete and accurate description of all Investment Property owned by Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 12 ARTICLE 4 Covenants Debtor covenants and agrees with Secured Party that until the Obligations are paid and performed in full: Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to exist, and shall defend the Collateral against, any Lien or other encumbrance on the Collateral except for those Permitted Liens (if any) which are permitted to attach to the Collateral in accordance with the Loan Agreement, and shall defend Debtor's rights in the Collateral and Secured Party's pledge and collateral assignment of and security interest in the Collateral against the claims and demands of all Persons. Debtor shall do nothing to impair the rights of Secured Party in the Collateral. Section 4.2 Modification of Accounts. Debtor shall, in accordance with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of Secured Party, Debtor shall not, other than in the ordinary course of business and pursuant to customary business practices in Debtor's industry, (a) grant any extension of time for any payment with respect to any of the Accounts, (b) compromise, compound or settle any of the Accounts for less than the full amount thereof, (c) release, in whole or in part, any Person liable for payment of any of the Accounts, (d) allow any credit or discount for payment with respect to any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or Guarantee securing any Account. Section 4.3 Disposition of Collateral. Except as expressly permitted by the terms of the Loan Agreement, Debtor shall not sell, lease, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of Secured Party. Section 4.4 Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Debtor, Debtor shall promptly execute and deliver all such further agreements, documents and instruments and take such further action as Secured Party may reasonably deem necessary or appropriate to preserve and perfect its security interest in and pledge and collateral assignment of the Collateral and carry out the provisions and purposes of this Agreement or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral, and, to the extent any of the Collateral at any time constitutes Investment Property, then Debtor shall cause Secured Party to obtain "control," as defined in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if Secured Party reasonably so requests) of the manners prescribed in Section 8-106 of the UCC. Debtor and Secured Party agree that the grant of the security interest in the Investment Property pursuant to this Agreement shall have the effect of a delivery of such securities to Secured Party pursuant to Section 8-301 of the UCC, and the effect of a taking of delivery by Secured Party of such Collateral in accordance with Section 8- 302 of the UCC. Except as otherwise expressly permitted by the terms of the Loan Agreement relating to disposition of assets and except for Permitted Liens, Debtor agrees to defend the title to the Collateral and the Lien thereon of Secured Party against the claim of any other Person and to maintain and preserve such Lien. Without limiting the generality of the foregoing, Debtor shall (a) execute and deliver to Secured Party such financing statements as Secured Party may from time to time require; (b) deliver and pledge to Secured Party all Documents (including, without limitation, all documents of title) evidencing Inventory or Equipment (except for certificates of title covering vehicles) and cause Secured Party to be named as lienholder on all such Documents; (c) deliver and pledge to Secured Party all Instruments and Chattel Paper of Debtor with any necessary endorsements; and (d) execute and deliver to Secured Party such other agreements, documents and instruments as Secured Party may require to perfect and maintain the validity, effectiveness and priority of the Liens intended to be created by the Loan Documents. Debtor authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of Debtor where permitted by law. A carbon, photographic or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 13 Section 4.5 Insurance. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Secured Party from time to time. If requested by Secured Party, each policy for property damage insurance shall provide for all proceeds thereof to be paid directly to Secured Party. If requested by Secured Party, each policy of insurance maintained by Debtor shall (i) name Debtor and Secured Party as insured parties thereunder (without any representation or warranty by or obligation upon Secured Party) as their interests may appear, (ii) contain the agreement by the insurer that all proceeds of such policy shall be payable to Secured Party notwithstanding any action, inaction or breach of representation or warranty by Debtor, (iii) provide that there shall be no recourse against Secured Party for payment of premiums or other amounts with respect thereto, and (iv) provide that at least ten (10) days prior written notice of cancellation or of lapse shall be given to Secured Party by the insurer. Debtor will, if requested by Secured Party, deliver to Secured Party original or duplicate policies of such insurance and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance. Debtor will also, at the request of Secured Party, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to any Collateral shall be paid to Secured Party, as provided for in this paragraph, and applied as Secured Party in its sole discretion deems appropriate. Section 4.6 Bailees. If any of the Collateral is at any time in the possession or control of any warehouseman, bailee or any of Debtor's agents or processors, Debtor shall, at the request of Secured Party, notify such warehouseman, bailee, agent or processor of the security interest created hereunder and shall instruct such Person to hold such Collateral for Secured Party's account subject to Secured Party's instructions. Section 4.7 Inspection Rights. Debtor shall permit Secured Party and its representatives to examine, inspect and audit the Collateral and to examine, inspect and audit Debtor's books and records at any reasonable time, and as the Secured Party may desire. Secured Party may at any time and from time to time contact account debtors to verify the existence, amounts and terms of the Accounts. Section 4.8 Mortgagee and Landlord Waivers or Subordinations. Subject to the provisions of the Loan Agreement, Debtor shall cause each mortgagee of real property owned by Debtor and each landlord of real property leased by Debtor to execute and deliver instruments satisfactory in form and substance to Secured Party by which such mortgagee or landlord waives or subordinates its rights, if any, in any of the Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 14 Section 4.9 Corporate Changes. Debtor shall not change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless Debtor shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to protect its Liens and the perfection and priority thereof. Debtor shall not change its principal place of business, chief executive office or the place where it keeps its books and records unless it shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.10 Books and Records; Information. Debtor shall keep accurate and complete books and records of the Collateral and Debtor's business and financial condition in accordance with GAAP. Debtor shall from time to time at the request of Secured Party deliver to Secured Party such information regarding the Collateral and Debtor as Secured Party may reasonably request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. To the extent required by Section 4.4 of this Agreement, Debtor shall mark its books and records to reflect the security interest of Secured Party under this Agreement. Section 4.11 Equipment and Inventory. (a) Debtor shall keep the Equipment (other than vehicles) and Inventory (other than Inventory in transit) at the locations specified on Schedule 5 hereto or at such other places within the U.S. where all action required to perfect Secured Party's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken; provided that if any Equipment (other than vehicles) or Inventory (other than Inventory in transit) is being relocated to any jurisdiction where the security interest of Secured Party under this Agreement has not been previously perfected, then in such case Debtor shall deliver prompt (and in any event within not less than thirty (30) days) notice thereof to Secured Party. (b) Debtor shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear of the Equipment excepted). Debtor shall not permit any waste or destruction of the Equipment or Inventory or any part thereof. Debtor shall not permit the Equipment or Inventory to be used in violation of any law, rule or regulation or the terms of any policy of insurance. Debtor shall not use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. (c) Debtor shall comply with all requirements of the Fair Labor Standards Act in producing or purchasing Inventory. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 15 (d) Within forty-five (45) days of the end of each of Debtor's fiscal quarters, Debtor shall provide Secured Party with a report setting forth in reasonable detail any change during such preceding fiscal quarter of the location of any Equipment or Inventory (unless such location is one of the locations already specified on Schedule 5 hereto). Section 4.12 Warehouse Receipts Non-Negotiable. Debtor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the UCC) unless such warehouse receipt or receipt in the nature thereof is delivered to Secured Party. Section 4.13 Notification. Debtor shall promptly notify Secured Party of (a) any Lien, encumbrance or claim (other than Permitted Liens) that has attached to or been made or asserted against any of the Collateral, (b) any material change in any of the Collateral, including, without limitation, any material damage to or loss of Collateral, and (c) the occurrence of any other event or condition (including, without limitation, matters as to Lien priority) that could have a material adverse effect on the Collateral or the security interest created hereunder. Section 4.14 Collection of Accounts. Debtor shall cause all collections of Accounts and sales of Inventory to be conducted in compliance with the terms of the Loan Agreement. In addition all cash proceeds (including, without limitation, all Proceeds of Collateral) shall be deposited directly, as received, into one or more of the Deposit Accounts. Debtor agrees that all Proceeds of Collateral deposited in any collection account or concentration account shall at all times continue to be Collateral under the terms of this Agreement. Debtor shall cause each of the Deposit Accounts to be collaterally assigned, on a first priority basis, to Secured Party as security for the payment and performance of the Obligations pursuant to agreements in form and substance reasonably satisfactory to Secured Party which have been acknowledged and agreed to by the depository banks on or before June 17, 2000. Section 4.15 Intellectual Property. Except with the written consent of Secured Party: (a) Debtor shall prosecute diligently all applications in respect of Intellectual Property, now or hereafter pending; (b) Debtor shall make federal applications on all of its unpatented but patentable inventions and all of its registrable but unregistered Copyrights and Trademarks other than any immaterial Patents, Trademarks and Copyrights which are not useful in Debtor's business; (c) Debtor shall preserve and maintain all of its rights in the Intellectual Property and shall protect the Intellectual Property from infringement, unfair competition, cancellation or dilution by all appropriate action, including, without limitation, the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 16 (d) Debtor shall not abandon any of the Intellectual Property except for any immaterial Intellectual Property which is not useful in Debtor's business; (e) Debtor shall not sell or assign any of its interest in, or grant any license under (except as permitted by Section 5.5), any of the Intellectual Property and shall maintain the quality of any and all products and services with respect to which the Intellectual Property is used. Debtor shall not enter into any agreement regarding Intellectual Property, including, but not limited to, any licensing agreement not permitted by Section 5.5, that is or may be inconsistent with Debtor's obligations under this Agreement or any of the other Loan Documents; (f) If Debtor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 1 hereto, Debtor shall give Secured Party prompt written notice thereof and the provisions of this Agreement shall automatically apply thereto and Debtor hereby authorizes Secured Party to modify or update Schedule 1 hereto to include any such new Intellectual Property; (g) Upon the occurrence of any event that would require any addition to or modification of Schedule 1 hereto or upon the request of Secured Party, Debtor shall furnish to Secured Party statements and schedules further identifying the Intellectual Property and such other items in connection with the Intellectual Property as Secured Party may request. Promptly upon the request of Secured Party, Debtor shall modify this Agreement by amending Schedule 1 hereto to include any Intellectual Property that becomes part of the Collateral; (h) If an Event of Default shall have occurred and be continuing, Debtor shall use its best efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise its rights and remedies with respect to the Intellectual Property; and (i) Debtor shall, at the request of Secured Party, execute and deliver to Secured Party a Copyright Security Agreement, a Patent Security Agreement, a Trademark Security Agreement and all other agreements, documents, instruments and other items as may be necessary for Secured Party to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and any similar domestic or foreign office, department or agency. Debtor will, at any time and from time to time upon the request of Secured Party, execute and deliver to Secured Party all such other agreements, documents, instruments and other items as may be necessary or appropriate for Secured Party to create and perfect its security interest in the Intellectual Property and to make all appropriate filings with respect thereto. Section 4.16 Voting Rights, Distributions, Etc. (a) So long as no Event of Default shall have occurred and be continuing: (i) Debtor shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications in respect of any of the Pledged Collateral) pertaining to any of the Pledged Collateral or any part thereof; provided, however, that without the prior written consent of Secured Party, no vote shall be cast or consent, waiver or ratification given or action taken which would (x) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (y) amend, modify or waive any term, provision or condition of the certificate of incorporation, by-laws, certificate of formation, operating agreement or other charter document or other agreement relating to, evidencing, providing for the issuance of or securing any Collateral; and provided further that Debtor shall give Secured Party at least five (5) Business Days' prior written notice in the form of an officer's certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof; and AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 17 (ii) Unless an Event of Default shall have occurred and be continuing, Debtor shall be entitled to receive and retain any and all dividends and interest paid in respect of any of the Collateral to the extent permitted by the Loan Agreement. During the continuance of any Default, any dividends, interest or other distributions (whether in cash, securities, property or otherwise) received by Debtor with respect to any Pledged Collateral shall be held by Debtor in trust for the benefit of Secured Party and, upon the request of Secured Party, shall be delivered promptly to Secured Party to hold as Collateral or shall be applied by Secured Party toward payment of the Obligations, as Secured Party may in its discretion determine. If such Default is waived or cured to the satisfaction of Secured Party, any such distributions shall be returned promptly to Debtor (provided that no other Default or Event of Default exists). If such Default remains uncured and becomes an Event of Default, any such distributions will be applied by Secured Party as provided in the Loan Agreement. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) Secured Party may, without notice to Debtor, transfer or register in the name of Secured Party or any of its nominees any or all of the Collateral described in Section 2.1(m) or Section 2.1(n), the proceeds thereof (in cash or otherwise) and all liens, security, rights, remedies and claims of Debtor with respect thereto (collectively, the "Pledged Collateral") held by Secured Party hereunder, and Secured Party or its nominee may thereafter, after delivery of notice to Debtor, exercise all voting and corporate rights at any meeting of any corporation, partnership or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of any corporation, partnership or other business entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or Secured Party of any right, privilege or option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options, and Secured Party shall not be responsible for any failure to do so or delay in so doing. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 18 (ii) All rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection 4.16(a)(i) and to receive the dividends, interest and other distributions which it would otherwise be authorized to receive and retain pursuant to subsection 4.16(a)(ii) shall be suspended until such Default or Event of Default shall no longer exist, and all such rights shall, until such Default or Event of Default shall no longer exist, thereupon become vested in Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends, interest and other distributions. (iii) All dividends, interest and other distributions which are received by Debtor contrary to the provisions of this subsection 4.16(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party as Collateral in the same form as so received (with any necessary endorsement). (iv) Debtor shall execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies and other instruments as Secured Party may reasonably request for the purpose of enabling Secured Party to exercise the voting and other rights which it is entitled to exercise pursuant to this subsection 4.16(b) and to receive the dividends, interest and other distributions which it is entitled to receive and retain pursuant to this subsection 4.16(b). The foregoing shall not in any way limit Secured Party's power and authority granted pursuant to Section 5.1. Section 4.17 Transfers and Other Liens; Additional Investments. (a) Except as may be expressly permitted by the terms of the Loan Agreement, Debtor shall not grant any option with respect to, exchange, sell or otherwise dispose of any of the Collateral or create or permit to exist any Lien upon or with respect to any of the Collateral except for the Liens created hereby. (b) Debtor agrees that it will (i) cause each issuer of any of the Pledged Collateral not to issue any Capital Stock, notes or other securities or instruments in addition to or in substitution for any of the Pledged Collateral, except, with the written consent of Secured Party, to Debtor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all such Capital Stock, notes or other securities or instruments, and (iii) promptly (and in any event within three Business Days) deliver to Secured Party an Amendment, duly executed by Debtor, in substantially the form of Exhibit D (an "Amendment"), in respect of such Capital Stock, notes or other securities or instruments, together with all certificates, notes or other securities or instruments representing or evidencing the same. Debtor hereby (i) authorizes Secured Party to attach each Amendment to this Agreement, (ii) agrees that all such Capital Stock, notes or other securities or instruments listed on any Amendment delivered to Secured Party shall for all purposes hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Article III with respect to such Pledged Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 19 Section 4.18 Possession; Reasonable Care. Regardless of whether a Default or an Event of Default has occurred or is continuing, Secured Party shall have the right to hold in its possession all Instruments, Chattel Paper and Pledged Collateral pledged, assigned or transferred hereunder and from time to time constituting a portion of the Collateral. Secured Party may, from time to time, in its sole discretion, appoint one or more agents (which in no case shall be Debtor or an Affiliate of Debtor) to hold physical custody, for the account of Secured Party, of any or all of the Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Following the occurrence and during the continuation of an Event of Default, Secured Party shall be entitled to take possession of the Collateral. Section 4.19 Acknowledgment of Collateral Assignment of Deposit Accounts. Debtor shall deliver to Secured Party, on or before June 17, 2000, and at any time as Secured Party may request hereafter, acknowledgment by each financial institution in which any Deposit Account is held or maintained that the collateral assignment of such Deposit Account has been recorded in the books and records of such financial institution, and that Secured Party shall have dominion and control over such Deposit Account, such acknowledgment to be in form and substance satisfactory to Secured Party. Section 4.20 Statement of Account for Deposit Accounts. Debtor shall, from time to time upon written request of Secured Party, provide to Secured Party a copy of each statement of account for any Deposit Account received by Debtor from the financial institution in which a Deposit Account is held or maintained. At Secured Party's request, Debtor will use its reasonable efforts to make such arrangements as are reasonably necessary in order to enable Secured Party to access such information by inquiry of an officer or other representative of any such financial institution or via any automated information system which may be maintained by such financial institution. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 20 ARTICLE 5 Rights of Secured Party Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of Debtor or in its own name, to take after the occurrence and during the continuance of an Event of Default, any and all action and to execute any and all documents and instruments which Secured Party at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, Debtor hereby gives Secured Party the power and right on behalf of Debtor and in its own name to do any of the following after the occurrence and during the continuance of an Event of Default, without notice to or the consent of Debtor: (a) to demand, sue for, collect or receive, in the name of Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title or any other instruments for the payment of money under the Collateral or any policy of insurance; (b) to pay or discharge taxes, Liens or other encumbrances levied or placed on or threatened against the Collateral; (c) to notify post office authorities to change the address for delivery of mail of Debtor to an address designated by Secured Party and to receive, open and dispose of mail addressed to Debtor; (d) (i) to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to Secured Party or as Secured Party shall direct; (ii) to receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (iii) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought against Debtor with respect to any Collateral; (vi) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Secured Party may deem appropriate; (vii) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms as Secured Party may determine; (viii) to add or release any guarantor, indorser, surety or other party to any of the Collateral; (ix) to renew, extend or otherwise change the terms and conditions of any of the Collateral; (x) to grant or issue any exclusive or nonexclusive license under or with respect to any of the Intellectual Property; (xi) to endorse Debtor's name on all applications, documents, papers and instruments necessary or desirable in order for Secured Party to use any of the Intellectual Property; (xii) to make, settle, compromise or adjust any claims under or pertaining to any of the Collateral (including, without limitation, claims under any policy of insurance); and (xiii) to sell, transfer, pledge, convey, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time, or from time to time, all acts and things which Secured Party deems necessary to protect, preserve, maintain or realize upon the Collateral and Secured Party's security interest therein. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 21 This power of attorney is a power coupled with an interest and shall be irrevocable until this Agreement is terminated in accordance with its terms. Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. Neither Secured Party nor any Person designated by Secured Party shall be liable for any act or omission or for any error of judgment or any mistake of fact or law. This power of attorney is conferred on Secured Party solely to protect, preserve, maintain and realize upon its security interest in the Collateral. Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve or maintain any Lien given to secure the Collateral. Section 5.2 Set-off. If an Event of Default shall have occurred and be continuing, Secured Party shall have the right to set-off and apply against the Obligations, at any time and without notice to Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Secured Party to Debtor and although such Obligations may be unmatured. The rights and remedies of Secured Party hereunder are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Secured Party may have. Section 5.3 Assignment by Secured Party. In accordance with the provisions of the Loan Agreement, Secured Party may at any time assign or otherwise transfer all or any portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, the Obligations), in connection with an assignment of the Obligations, to any other Person, and such other Person shall thereupon become vested with all the benefits thereof granted to Secured Party herein or otherwise. Section 5.4 Performance by Secured Party. If Debtor shall fail to perform any covenant or agreement contained in this Agreement, Secured Party may perform or attempt to perform such covenant or agreement on behalf of Debtor. In such event, Debtor shall, at the request of Secured Party, promptly pay any amount expended by Secured Party in connection with such performance or attempted performance to Secured Party, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that Secured Party shall not have any liability or responsibility for the performance of any obligation of Debtor under this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 22 Section 5.5 License. If no Event of Default shall have occurred and be continuing, Debtor shall have the exclusive, non-transferrable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other Persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration. Debtor agrees not to sell or assign its interest in, or grant any sublicense under, the license granted under this Section 5.5 without the prior written consent of Secured Party. Section 5.6 Change of Depository. In the event of the termination by any financial institution in which any Deposit Account is maintained of any agreement with or for the benefit of Secured Party, or if any such financial institution shall fail to comply with any provisions of any such agreement or any instructions of Secured Party in accordance with any such agreement or this Agreement, or if Secured Party determines in its sole discretion that the financial condition of any such financial institution has materially deteriorated, Debtor agrees to transfer the affected Deposit Account(s) to another financial institution acceptable to Secured Party and cause such substitute financial institution to execute such agreements as Secured Party may require, in form and substance acceptable to Secured Party, to ensure that Secured Party has a perfected, first priority collateral assignment of or security interest in the Deposit Account(s) held with such substitute financial institution. If any affected Deposit Account is a lockbox account, Debtor agrees to notify its account debtors promptly to remit all payments which were being sent to the terminated Deposit Account directly to the substitute Deposit Account. Section 5.7 Collection of Deposit Accounts. After the occurrence and during the continuation of an Event of Default, upon written demand from Secured Party to any financial institution in which any of the Deposit Accounts are maintained, each such financial institution is hereby authorized and directed by Debtor to make payment directly to Secured Party of the funds in or credited to the Deposit Accounts, or such part thereof as Secured Party may request, and each such financial institution shall be fully protected in relying upon the written statement of Secured Party that an Event of Default has occurred and is continuing and that the Deposit Accounts are at the time of such demand assigned hereunder and that Secured Party is entitled to payment of the Obligations therefrom. Secured Party's receipt for sums paid it pursuant to such demand shall be a full and complete release, discharge and acquittance to the depository or other financial institution making such payment to the extent of the amount so paid. Debtor hereby authorizes Secured Party, upon (a) Debtor's failure to make payment of any of the Obligations, or any part thereof, or (b) any acceleration of the maturity of the Obligations upon the occurrence of any Event of Default, each as provided in the Loan Agreement, (i) to withdraw, collect and receipt for any and all funds, securities or other investments on deposit in or payable on the Deposit Accounts, (ii) on behalf of Debtor to endorse the name of Debtor upon any checks, drafts or other instruments payable to Debtor evidencing payment on the Deposit Accounts, and (iii) to surrender or present for notation of withdrawal the passbook, certificate or other documents issued to Debtor in connection with the Deposit Accounts. No power granted herein to Secured Party by Debtor shall terminate upon any disability of Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 23 ARTICLE 6 Default Section 6.1 Rights and Remedies. If an Event of Default shall have occurred and be continuing, Secured Party shall have the following rights and remedies (subject to Section 6.3): (a) In addition to all other rights and remedies granted to Secured Party in this Agreement or in any other Loan Document or by applicable law, Secured Party shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) and Secured Party may also, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Without limiting the generality of the foregoing, Secured Party may (i) without demand or notice to Debtor, collect, receive or take possession of the Collateral or any part thereof and for that purpose Secured Party may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Secured Party shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of Debtor, which right or equity of redemption is hereby expressly waived and released by Debtor. Upon the request of Secured Party, Debtor shall assemble the Collateral and make it available to Secured Party at any place designated by Secured Party that is reasonably convenient to Debtor and Secured Party. Debtor agrees that Secured Party shall not be obligated to give more than five (5) days prior written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Debtor shall be liable for all expenses of retaking, holding, preparing for sale or the like, and all attorneys' fees, legal expenses and other costs and expenses incurred by Secured Party in connection with the collection of the Obligations and the enforcement of Secured Party's rights under this Agreement. Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral applied to the Obligations are insufficient to pay the Obligations in full. Secured Party may apply the Collateral against the Obligations in such order and manner as Secured Party may elect in its sole discretion. Debtor waives all rights of marshaling, valuation and appraisal in respect of the Collateral. Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and then or at any time thereafter applied in whole or in part by Secured Party against, the Obligations in such order as Secured Party shall select. Any surplus of such cash or cash proceeds and interest accrued thereon, if any, held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus; provided that Secured Party shall have no obligation to invest or otherwise pay interest on any amounts held by it in connection with or pursuant to this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 24 (b) Secured Party may cause any or all of the Collateral held by it to be transferred into the name of Secured Party or the name or names of Secured Party's nominee or nominees. (c) Secured Party may exercise any and all rights and remedies of Debtor under or in respect of the Collateral, including, without limitation, any and all rights of Debtor to demand or otherwise require payment of any amount under, or performance of any provision of, any of the Collateral and any and all voting rights and corporate powers in respect of the Collateral. (d) Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (e) On any sale of the Collateral, Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. (f) For purposes of enabling Secured Party to exercise its rights and remedies under this Section 6.1 and enabling Secured Party and its successors and assigns to enjoy the full benefits of the Collateral, Debtor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Debtor) to use, assign, license or sublicense any of the Intellectual Property, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and all computer programs used for the completion or printout thereof. This license shall also inure to the benefit of all successors, assigns and transferees of Secured Party. (g) Secured Party may require that Debtor assign all of its right, title and interest in and to the Intellectual Property or any part thereof to Secured Party or such other Person as Secured Party may designate pursuant to documents satisfactory to Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 25 Section 6.2 Registration Rights, Private Sales, Etc. (a) If Secured Party shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the request of Secured Party (which request may be made by Secured Party in its sole discretion), Debtor will, at its own expense: (i) execute and deliver, and cause each issuer of any of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such agreements, documents and instruments, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Collateral under the provisions of the Securities Act (as hereinafter defined) and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Collateral, as requested by Secured Party; (iii) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (iv) do or cause to be done all such other acts and things as may be reasonably necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law; and (v) bear all reasonable costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 6.2. (b) Debtor recognizes that Secured Party may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended from time to time (the "Securities Act") and applicable state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account for investment and not with a view to the distribution or resale thereof. Debtor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Secured Party shall not be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer of such securities to register such securities under the Securities Act or under any applicable state securities laws, even if such issuer would agree to do so. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 26 (c) Debtor further agrees to do or cause to be done, to the extent that Debtor may do so under applicable law, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at Debtor's expense. Debtor further agrees that a breach of any of the covenants contained in this Section 6.2 will cause irreparable injury to Secured Party and that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) Debtor's failure to perform such covenants will not cause irreparable injury to Secured Party or (ii) Secured Party has an adequate remedy at law in respect of such breach. Debtor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Secured Party by reason of a breach of any of the covenants contained in this Section 6.2 and, consequently, agrees that, if Debtor shall breach any of such covenants and Secured Party shall sue for damages for such breach, Debtor shall pay to Secured Party, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral on the date Secured Party shall demand compliance with this Section 6.2. (d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH CONTROLLING PERSON. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 27 ARTICLE 7 Miscellaneous Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective heirs, successors and permitted assigns, except that Debtor may not assign any of its rights, indebtedness, liabilities or obligations under this Agreement without the prior written consent of Secured Party. Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto, except as provided in Section 4.15(g). Section 7.4 Notices. All notices and other communications provided for in this Agreement shall be given or made by telecopy or in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section 7.4. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy or when personally delivered or, in the case of a mailed notice, three (3) Business Days after deposit in the mails, in each case given or addressed as aforesaid; provided, however, that notices to Secured Party shall be deemed given when received by Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 28 Section 7.5 Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED PARTY EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR AND SECURED PARTY EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 7.6 Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.7 Survival of Representations and Warranties. All representations and warranties made in this Agreement or in any certificate delivered pursuant hereto shall survive the execution and delivery of this Agreement, and no investigation by Secured Party shall affect the representations and warranties or the right of Secured Party to rely upon them. Section 7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.9 Waiver of Bond. In the event Secured Party seeks to take possession of any or all of the Collateral by judicial process, Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.10 Severability. Any provision of this Agreement which is determined by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 29 Section 7.11 Construction. Debtor and Secured Party acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Debtor and Secured Party. Section 7.12 Termination. If all of the Obligations shall have been paid and performed in full and all Commitments of Secured Party shall have expired or terminated, Secured Party shall, upon the written request of Debtor, execute and deliver to Debtor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of Secured Party and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF. Section 7.14 Consigned Inventory. Notwithstanding anything to the contrary contained herein or in any other Loan Document, Debtor (a) may maintain Inventory at locations other than those set forth in Schedule 5 (the "Offsite Inventory") and (b) shall not be required to execute UCC-1 Financing Statements for the jurisdictions in which the Offsite Inventory are located, provided, that, the book value of all Offsite Inventory (as defined in each of the respective Amended and Restated Pledge and Security Agreements dated the date hereof executed by Karts International Incorporated and each of its Subsidiaries in favor of Secured Party) of Karts International Incorporated and each of its Subsidiaries does not exceed $50,000 in the aggregate. [The remainder of this page has been intentionally left blank] AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 30 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTOR: BRISTER'S THUNDER KARTS, INC. By: ______________________________________ Name: ______________________________________ Title: ______________________________________ Address for Notices: ------------------- P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telecopy No.: 504-747-2700 Attention: President AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 31 SECURED PARTY: ------------- THE SCHLINGER FOUNDATION By: ______________________________________ Name: ______________________________________ Title: ______________________________________ AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Brister's Thunder Karts, Inc.) - Page 32 EX-10.55 15 0015.txt AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.55 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT -------------------------------------------------- (Karts International Incorporated) THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of May 17, 2000, is by and between KARTS INTERNATIONAL INCORPORATED, a Nevada corporation ("Debtor"), whose address is 62204 Commercial Street, Roseland, Louisiana 70456 and whose Tax I.D. No. is 75-2639196, and THE SCHLINGER FOUNDATION ("Secured Party") whose address is 1944 Edison Street, Santa Yinez, California 93460. R E C I T A L S: --------------- A. Debtor is, concurrently herewith, entering into that certain Amended and Restated Loan Agreement dated as of May 17, 2000, with the Secured Party (such agreement, as it may be amended, renewed, extended, restated, replaced, substituted, supplemented or otherwise modified from time to time, is referred to herein as the "Loan Agreement"). B. The execution and delivery of this Agreement is required by the terms of the Loan Agreement and is a condition to the availability of the Loan to Debtor pursuant to the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Secured Party to make the Loan under the Loan Agreement, the parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Account" means any "account", as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all rights of Debtor to payment for goods sold or leased, services rendered or the license of Intellectual Property, whether or not earned by performance; (b) all accounts receivable of Debtor; (c) all rights of Debtor to receive any payment of money or other form of consideration; (d) all security pledged, assigned or granted to or held by Debtor to secure any of the foregoing; (e) all guaranties of, or indemnifications with respect to, any of the foregoing; (f) all rights of Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation and resale; and (g) all rights to brokerage commissions. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 1 1 "Broker" means any "broker," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "Capital Stock" means corporate stock and any and all securities, shares, partnership interests, limited partnership interests, limited liability company interests, membership interests, equity interests, participations, rights or other equivalents (however designated) of corporate stock or any of the foregoing issued by any entity (whether a corporation, a partnership, a limited liability company or another entity) and includes, without limitation, securities convertible into Capital Stock and rights or options to acquire Capital Stock. "Chattel Paper" means any "chattel paper," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor. "Clearing Corporation" means any "clearing corporation," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Person that is registered as a "clearing agency" under the federal securities laws, (b) federal reserve bank, or (c) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including, without limitation, promulgation of rules, are subject to regulation by a federal or state governmental authority. "Collateral" has the meaning specified in Section 2.1. "Commodity Account" means any "commodity account," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all accounts maintained by a Commodity Intermediary in which a Commodity Contract is carried for Debtor. "Commodity Contract" means any "commodity contract," as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, a commodity futures contract, a commodity option, or other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws, or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "Commodity Customer" means any "commodity customer" as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, any Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "Commodity Intermediary" means any "commodity intermediary," as such term is defined in Article or Chapter 9 of the UCC, including, without limitation, (a) a Person who is registered as a futures commission merchant under the federal commodities laws, or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to the federal commodities laws. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 2 2 "Copyright License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Copyright including, without limitation, the agreements identified on Schedule 1. "Copyright Security Agreement" means a copyright security agreement, executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit A, as such agreement may be amended, supplemented or otherwise modified from time to time. "Copyrights" means all of the following: (a) all copyrights, works protectable by copyright, copyright registrations and copyright applications of Debtor, including, without limitation, those set forth on Schedule 1; (b) all renewals, extensions and modifications thereof; (c) all income, royalties, damages, profits and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present or future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Deposit Accounts" means any and all deposit accounts (including cash collateral accounts), bank accounts or investment accounts now owned or hereafter acquired or opened by Debtor, including, without limitation, those set forth on Schedule 2, and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts and other property deposited therein and all balances therein and all investments made with funds deposited therein or otherwise held in connection therewith, including, without limitation, indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the government of the U.S., certificates of deposit and all contract rights, General Intangibles, contracts, Instruments, Investment Property, Security Entitlements, Financial Assets, Commodity Contracts and other Documents now or hereafter existing with respect thereto, including, but not limited to, any and all renewals, extensions, reissuances and replacements and substitutions therefor with all earnings, profits or other Proceeds therefrom in the form of interest or otherwise, from time to time representing, evidencing, deposited into or held in the Deposit Accounts. "Document" means any "document," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all documents of title and all receipts covering, evidencing or representing goods now owned or hereafter acquired by Debtor. "Entitlement Holder" means any "entitlement holder", as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary, including, without limitation, any Person who acquires a security entitlement under Article or Chapter 8 of the UCC. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 3 3 "Equipment" means any "equipment," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, all machinery, equipment, furniture, fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft and vehicles now owned or hereafter acquired by Debtor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Financial Asset" means any "financial asset," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Security, (b) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment, and (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article or Chapter 8 of the UCC. "General Intangibles" means any "general intangibles," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all of Debtor's service marks, trade names, trade secrets, registrations, goodwill, franchises, licenses, permits, proprietary information, customer lists, designs and inventions; (b) all of Debtor's books and records, data, plans, manuals, computer software, computer tapes, computer disks, computer programs, source codes, object codes, management information systems and all rights of Debtor to retrieve data and other information from third parties; (c) all of Debtor's contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts and certificates of deposit; (d) all rights of Debtor to payment under letters of credit and similar agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all choses in action and causes of action of Debtor (whether arising in contract, tort or otherwise and whether or not currently in litigation) and all judgments in favor of Debtor; (g) all rights and claims of Debtor under warranties and indemnities; and (h) all rights of Debtor under any insurance, surety or similar contract or arrangement. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" by any Person means any indebtedness, liability or obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any indebtedness, liability or obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other indebtedness, liability or obligation as to the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming such Person is required to perform thereunder). AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 4 4 "Instrument" means any "instrument," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include all promissory notes, drafts, bills of exchange and trade acceptances of Debtor, whether now owned or hereafter acquired. "Intellectual Property" means the Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. "Inventory" means any "inventory," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all goods and other personal property of Debtor that are held for sale or lease or to be furnished under any contract of service; (b) all raw materials, work-in-process, finished goods, inventory, supplies and materials of Debtor; (c) all wrapping, packaging, advertising and shipping materials of Debtor; (d) all goods that have been returned to, repossessed by or stopped in transit by Debtor; and (e) all Documents evidencing any of the foregoing. "Investment Property" means any "investment property," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) the Securities Accounts and other Investment Property described on Schedule 3; (b) any Security or Capital Stock, whether certificated or uncertificated; (c) any Security Entitlement; (d) any Securities Account; (e) any Commodity Contract; and (f) any Commodity Account. "Issuer" means any "issuer," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (a) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate; (b) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security; (c) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate; or (d) becomes responsible for, or in the place of, another Issuer. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 5 5 "License" means any permit, certificate, approval, order, license or other authorization. "Obligations" means the "Obligations," as such term is defined in the Loan Agreement, and the obligations, indebtedness and liabilities of Debtor under this Agreement and any other Loan Document to which Debtor may be a party. "Patent License" means any written agreement now or hereafter in existence granting to Debtor any right to use any invention on which a Patent is in existence including, without limitation, the agreements described on Schedule 1. "Patent Security Agreement" means a patent security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit B, as such agreement may be amended, supplemented or otherwise modified from time to time. "Patents" means all of the following: (a) all patents, patent applications and patentable inventions of Debtor, including, without limitation, those set forth on Schedule 1, and all of the inventions and improvements described and claimed therein; (b) all continuations, divisions, renewals, extensions, modifications, substitutions, continuations-in- part or reissues of any of the foregoing; (c) all income, royalties, profits, damages, awards and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Pledged Collateral" has the meaning specified in Section 4.16(b)(i). "Pledged Shares" means all Capital Stock now or hereafter owned by Debtor, including, without limitation, the shares of Capital Stock described on Schedule 4. "Proceeds" means any "proceeds," as such term is defined in Article or Chapter 9 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting, or purporting to act, for or on behalf of any Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Securities Account" means any "securities account," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 6 6 "Securities Intermediary" means any "securities intermediary," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Clearing Corporation, or (b) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. "Security" means any "security," as such term is defined in Article or Chapter 8 of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer (a) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer, (b) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations, and (c) which (i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or (ii) is a medium for investment and by its terms expressly provides that it is a security governed by Article or Chapter 8 of the UCC. "Security Certificate" means any "security certificate," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any certificate representing a Security. "Security Entitlement" means any "security entitlement," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Trademark License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Trademark, including, without limitation, the agreements identified on Schedule 1. "Trademark Security Agreement" means a trademark security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit C, as such agreement may be amended, supplemented or otherwise modified from time to time. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 7 7 "Trademarks" means all of the following: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the U.S., any state thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1; (b) all reissues, extensions and renewals thereof; (c) all income, royalties, damages and payments now or hereafter relating to or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (e) the right to sue for past, present and future infringements of any of the foregoing; (f) all rights corresponding to any of the foregoing throughout the world; and (g) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided, that if, by applicable law, the perfection or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection. "Uncertificated Security" means any "uncertificated security," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. "U.S." means the United States of America. Section 1.2 Other Definitional Provisions. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein shall have the meanings therefor specified in the Loan Agreement. References to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. All references to statutes and regulations shall include any amendments of the same and any successor statutes and regulations. References to particular sections of the UCC should be read to refer also to parallel sections of the Uniform Commercial Code as enacted in each state or other jurisdiction where any portion of the Collateral is or may be located. ARTICLE 2 Security Interest Section 2.1 Security Interest. As collateral security for the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as collateral) to Secured Party, and grants to Secured Party a continuing lien on and security interest in, all of Debtor's right, title and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 8 8 (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; (f) all Equipment (including, without limitation, Equipment at the locations set forth on Schedule 5 hereto); (g) all Inventory (including, without limitation, Inventory at the locations set forth on Schedule 5 hereto); (h) all Intellectual Property; (i) all Investment Property, and the certificates and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Investment Property; (j) all Deposit Accounts; (k) the Pledged Shares and the certificates representing the Pledged Shares, all additional Capital Stock of the Subsidiaries of Debtor and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares or such additional Capital Stock, and all rights, interests and other property, including, without limitation, General Intangibles, relating to any or all of the Pledged Shares, such additional Capital Stock and such dividends, cash, instruments and other property; (l) all indebtedness from time to time owed to Debtor by its Subsidiaries and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such indebtedness; (m) all proceeds, in cash or otherwise, of any of the property described in the foregoing clauses (a) through (l) and all liens, security, rights, remedies and claims of Debtor with respect thereto; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 9 9 (n) all other goods and personal property of Debtor of any kind or character, whether tangible or intangible, including, without limitation, any and all rights in and claims under insurance policies, judgments and rights thereunder, and tort claims; and (o) all Proceeds and products of any or all of the foregoing. Section 2.2 Debtor Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Debtor shall remain liable under the contracts, agreements, documents and instruments included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights or remedies hereunder shall not release Debtor from any of its duties or obligations under the contracts, agreements, documents and instruments included in the Collateral, and (c) Secured Party shall not have any indebtedness, liability or obligation under any of the contracts, agreements, documents and instruments included in the Collateral by reason of this Agreement, and Secured Party shall not be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 2.3 Delivery of Collateral. All certificates or instruments representing or evidencing the Pledged Shares, any Instruments or Chattel Paper or any other Collateral including, without limitation, any Investment Property, promptly upon Debtor gaining any rights therein, shall be delivered to and held by or on behalf of Secured Party pursuant hereto in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. After the occurrence and during the continuation of an Event of Default, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing any Pledged Collateral in its possession for certificates or instruments of smaller or larger denominations. ARTICLE 3 Representations and Warranties To induce Secured Party to enter into this Agreement and the other Loan Documents, Debtor represents and warrants that: Section 3.1 Title. Debtor is, and with respect to Collateral acquired after the date hereof Debtor will be, the legal and beneficial owner of the Collateral free and clear of any Lien or other encumbrance, except for Liens otherwise expressly permitted by Secured Party in the Loan Agreement or any other Loan Document (hereinafter "Permitted Liens"). Section 3.2 Accounts. Unless Debtor has given Secured Party written notice to the contrary, whenever the security interest granted hereunder attaches to an Account, Debtor shall be deemed to have represented and warranted to Secured Party as to each of its Accounts at the time of its creation that, to the best of Debtor's knowledge (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor, (c) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, the amount of each Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, no Account is subject to any offset, counterclaim or other defense. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 10 10 Section 3.3 Financing Statements. No financing statement, security agreement or other Lien instrument covering all or any part of the Collateral is on file in any public office, except as may have been filed in favor of Secured Party pursuant to this Agreement and except for financing statements evidencing Permitted Liens. Except as otherwise disclosed on Schedule 6 hereto, Debtor does not do business and has not done business within the past five (5) years under a trade name or any name other than its legal name set forth at the beginning of this Agreement. Section 3.4 Principal Place of Business. The principal place of business and chief executive office of Debtor, and the office where Debtor keeps its books and records, is located at the address of Debtor shown at the beginning of this Agreement. Section 3.5 Location of Collateral. All Inventory (except Inventory in transit) and Equipment (other than vehicles) of Debtor is located at the places specified on Schedule 5 hereto. If any such location is leased by Debtor, the name and address of the landlord leasing such location is identified on Schedule 5 hereto. All Inventory (except Inventory in transit) and Equipment will be located only at (a) the specific locations which are described as locations for such types of Inventory and Equipment on Schedule 5 hereto or (b) subject to the requirements of this Agreement, such other locations as may be expressly identified by Debtor from time to time as locations for such types of Inventory and Equipment, which identification shall be set forth in a written notice given by Debtor to Secured Party at least 30 days prior to the date upon which any such Inventory or Equipment is located at such location. Debtor has exclusive possession and control of its Inventory and Equipment. None of the Inventory (other than Inventory in transit as to which all Documents evidencing such Inventory have been delivered to Secured Party) or Equipment (other than vehicles) of Debtor is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments, Chattel Paper and Security Certificates of Debtor have been delivered to Secured Party. Section 3.6 Perfection. Upon the filing of Uniform Commercial Code financing statements in the jurisdictions listed on Schedule 7, the filing of a Patent Security Agreement (if any) and a Trademark Security Agreement (if any) with the United States Patent and Trademark Office, the filing of a Copyright Security Agreement (if any) with the United States Copyright Office, and upon Secured Party's obtaining possession of the Pledged Shares and all other Instruments, Chattel Paper and Security Certificates of Debtor, the security interest in favor of Secured Party created herein will constitute a valid and perfected Lien upon and security interest in the Collateral (except for (a) vehicles covered by certificates of title, and (b) other Property excluded from the application of Article or Chapter 9 of the UCC by Section 9-104 of the UCC), subject to no equal or prior Liens except for those Liens (if any) which constitute Permitted Liens and are permitted by the Loan Agreement to have equal or greater priority. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 11 11 Section 3.7 Inventory. All production (if any) and purchase of Inventory by Debtor has been in compliance with all requirements of the Fair Labor Standards Act. Section 3.8 Intellectual Property. (a) All of the Intellectual Property is subsisting, valid and enforceable. The information contained on Schedule 1 hereto is true, correct and complete. All Intellectual Property existing on the date hereof is identified on Schedule 1 hereto. (b) Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property free and clear of any Liens, including, without limitation, any pledges, assignments, licenses, user agreements and covenants by Debtor not to sue third Persons, other than Permitted Liens. (c) No claim has been made that the use of any of the Intellectual Property violates or may violate the rights of any third Person. (d) Each of the Patents and Trademarks identified on Schedule 1 hereto has been properly registered with the United States Patent and Trademark Office and each of the Copyrights identified on Schedule 1 hereto has been properly registered with the United States Copyright Office. Section 3.9 Pledged Shares and Instruments. (a) The Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable under the laws of the jurisdiction of incorporation or organization of the issuers thereof. To the best knowledge of Debtor, the Instruments have been duly authorized and validly issued and constitute legal and enforceable indebtedness of the makers or issuers thereof. (b) Debtor is the legal and beneficial owner of the Pledged Shares and the Instruments, free and clear of any Lien (other than the Lien created by this Agreement), and Debtor has not sold, granted any option with respect to, assigned, transferred or otherwise disposed of any of its rights or interest in or to the Pledged Shares or the Instruments. (c) On the date hereof, the Pledged Shares constitute the percentage of the issued and outstanding Capital Stock of the issuers thereof indicated on Schedule 4, as such Schedule 4 may from time to time be supplemented, amended or modified. Section 3.10 Investment Property. As of the Closing Date, Schedule 3 contains a complete and accurate description of all Investment Property owned by Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 12 12 ARTICLE 4 Covenants Debtor covenants and agrees with Secured Party that until the Obligations are paid and performed in full: Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to exist, and shall defend the Collateral against, any Lien or other encumbrance on the Collateral except for those Permitted Liens (if any) which are permitted to attach to the Collateral in accordance with the Loan Agreement, and shall defend Debtor's rights in the Collateral and Secured Party's pledge and collateral assignment of and security interest in the Collateral against the claims and demands of all Persons. Debtor shall do nothing to impair the rights of Secured Party in the Collateral. Section 4.2 Modification of Accounts. Debtor shall, in accordance with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of Secured Party, Debtor shall not, other than in the ordinary course of business and pursuant to customary business practices in Debtor's industry, (a) grant any extension of time for any payment with respect to any of the Accounts, (b) compromise, compound or settle any of the Accounts for less than the full amount thereof, (c) release, in whole or in part, any Person liable for payment of any of the Accounts, (d) allow any credit or discount for payment with respect to any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or Guarantee securing any Account. Section 4.3 Disposition of Collateral. Except as expressly permitted by the terms of the Loan Agreement, Debtor shall not sell, lease, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of Secured Party. Section 4.4 Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Debtor, Debtor shall promptly execute and deliver all such further agreements, documents and instruments and take such further action as Secured Party may reasonably deem necessary or appropriate to preserve and perfect its security interest in and pledge and collateral assignment of the Collateral and carry out the provisions and purposes of this Agreement or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral, and, to the extent any of the Collateral at any time constitutes Investment Property, then Debtor shall cause Secured Party to obtain "control," as defined in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if Secured Party reasonably so requests) of the manners prescribed in Section 8-106 of the UCC. Debtor and Secured Party agree that the grant of the security interest in the Investment Property pursuant to this Agreement shall have the effect of a delivery of such securities to Secured Party pursuant to Section 8-301 of the UCC, and the effect of a taking of delivery by Secured Party of such Collateral in accordance with Section 8- 302 of the UCC. Except as otherwise expressly permitted by the terms of the Loan Agreement relating to disposition of assets and except for Permitted Liens, Debtor agrees to defend the title to the Collateral and the Lien thereon of Secured Party against the claim of any other Person and to maintain and preserve such Lien. Without limiting the generality of the foregoing, Debtor shall (a) execute and deliver to Secured Party such financing statements as Secured Party may from time to time require; (b) deliver and pledge to Secured Party all Documents (including, without limitation, all documents of title) evidencing Inventory or Equipment (except for certificates of title covering vehicles) and cause Secured Party to be named as lienholder on all such Documents; (c) deliver and pledge to Secured Party all Instruments and Chattel Paper of Debtor with any necessary endorsements; and (d) execute and deliver to Secured Party such other agreements, documents and instruments as Secured Party may require to perfect and maintain the validity, effectiveness and priority of the Liens intended to be created by the Loan Documents. Debtor authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of Debtor where permitted by law. A carbon, photographic or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 13 13 Section 4.5 Insurance. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Secured Party from time to time. If requested by Secured Party, each policy for property damage insurance shall provide for all proceeds thereof to be paid directly to Secured Party. If requested by Secured Party, each policy of insurance maintained by Debtor shall (i) name Debtor and Secured Party as insured parties thereunder (without any representation or warranty by or obligation upon Secured Party) as their interests may appear, (ii) contain the agreement by the insurer that all proceeds of such policy shall be payable to Secured Party notwithstanding any action, inaction or breach of representation or warranty by Debtor, (iii) provide that there shall be no recourse against Secured Party for payment of premiums or other amounts with respect thereto, and (iv) provide that at least ten (10) days prior written notice of cancellation or of lapse shall be given to Secured Party by the insurer. Debtor will, if requested by Secured Party, deliver to Secured Party original or duplicate policies of such insurance and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance. Debtor will also, at the request of Secured Party, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to any Collateral shall be paid to Secured Party, as provided for in this paragraph, and applied as Secured Party in its sole discretion deems appropriate. Section 4.6 Bailees. If any of the Collateral is at any time in the possession or control of any warehouseman, bailee or any of Debtor's agents or processors, Debtor shall, at the request of Secured Party, notify such warehouseman, bailee, agent or processor of the security interest created hereunder and shall instruct such Person to hold such Collateral for Secured Party's account subject to Secured Party's instructions. Section 4.7 Inspection Rights. Debtor shall permit Secured Party and its representatives to examine, inspect and audit the Collateral and to examine, inspect and audit Debtor's books and records at any reasonable time, and as the Secured Party may desire. Secured Party may at any time and from time to time contact account debtors to verify the existence, amounts and terms of the Accounts. Section 4.8 Mortgagee and Landlord Waivers or Subordinations. Subject to the provisions of the Loan Agreement, Debtor shall cause each mortgagee of real property owned by Debtor and each landlord of real property leased by Debtor to execute and deliver instruments satisfactory in form and substance to Secured Party by which such mortgagee or landlord waives or subordinates its rights, if any, in any of the Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 14 14 Section 4.9 Corporate Changes. Debtor shall not change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless Debtor shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to protect its Liens and the perfection and priority thereof. Debtor shall not change its principal place of business, chief executive office or the place where it keeps its books and records unless it shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.10 Books and Records; Information. Debtor shall keep accurate and complete books and records of the Collateral and Debtor's business and financial condition in accordance with GAAP. Debtor shall from time to time at the request of Secured Party deliver to Secured Party such information regarding the Collateral and Debtor as Secured Party may reasonably request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. To the extent required by Section 4.4 of this Agreement, Debtor shall mark its books and records to reflect the security interest of Secured Party under this Agreement. Section 4.11 Equipment and Inventory. (a) Debtor shall keep the Equipment (other than vehicles) and Inventory (other than Inventory in transit) at the locations specified on Schedule 5 hereto or at such other places within the U.S. where all action required to perfect Secured Party's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken; provided that if any Equipment (other than vehicles) or Inventory (other than Inventory in transit) is being relocated to any jurisdiction where the security interest of Secured Party under this Agreement has not been previously perfected, then in such case Debtor shall deliver prompt (and in any event within not less than thirty (30) days) notice thereof to Secured Party. (b) Debtor shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear of the Equipment excepted). Debtor shall not permit any waste or destruction of the Equipment or Inventory or any part thereof. Debtor shall not permit the Equipment or Inventory to be used in violation of any law, rule or regulation or the terms of any policy of insurance. Debtor shall not use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. (c) Debtor shall comply with all requirements of the Fair Labor Standards Act in producing or purchasing Inventory. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 15 15 (d) Within forty-five (45) days of the end of each of Debtor's fiscal quarters, Debtor shall provide Secured Party with a report setting forth in reasonable detail any change during such preceding fiscal quarter of the location of any Equipment or Inventory (unless such location is one of the locations already specified on Schedule 5 hereto). Section 4.12 Warehouse Receipts Non-Negotiable. Debtor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the UCC) unless such warehouse receipt or receipt in the nature thereof is delivered to Secured Party. Section 4.13 Notification. Debtor shall promptly notify Secured Party of (a) any Lien, encumbrance or claim (other than Permitted Liens) that has attached to or been made or asserted against any of the Collateral, (b) any material change in any of the Collateral, including, without limitation, any material damage to or loss of Collateral, and (c) the occurrence of any other event or condition (including, without limitation, matters as to Lien priority) that could have a material adverse effect on the Collateral or the security interest created hereunder. Section 4.14 Collection of Accounts. Debtor shall cause all collections of Accounts and sales of Inventory to be conducted in compliance with the terms of the Loan Agreement. In addition all cash proceeds (including, without limitation, all Proceeds of Collateral) shall be deposited directly, as received, into one or more of the Deposit Accounts. Debtor agrees that all Proceeds of Collateral deposited in any collection account or concentration account shall at all times continue to be Collateral under the terms of this Agreement. Debtor shall cause each of the Deposit Accounts to be collaterally assigned, on a first priority basis, to Secured Party as security for the payment and performance of the Obligations pursuant to agreements in form and substance reasonably satisfactory to Secured Party which have been acknowledged and agreed to by the depository banks on or before June 17, 2000. Section 4.15 Intellectual Property. Except with the written consent of Secured Party: (a) Debtor shall prosecute diligently all applications in respect of Intellectual Property, now or hereafter pending; (b) Debtor shall make federal applications on all of its unpatented but patentable inventions and all of its registrable but unregistered Copyrights and Trademarks other than any immaterial Patents, Trademarks and Copyrights which are not useful in Debtor's business; (c) Debtor shall preserve and maintain all of its rights in the Intellectual Property and shall protect the Intellectual Property from infringement, unfair competition, cancellation or dilution by all appropriate action, including, without limitation, the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 16 16 (d) Debtor shall not abandon any of the Intellectual Property except for any immaterial Intellectual Property which is not useful in Debtor's business; (e) Debtor shall not sell or assign any of its interest in, or grant any license under (except as permitted by Section 5.5), any of the Intellectual Property and shall maintain the quality of any and all products and services with respect to which the Intellectual Property is used. Debtor shall not enter into any agreement regarding Intellectual Property, including, but not limited to, any licensing agreement not permitted by Section 5.5, that is or may be inconsistent with Debtor's obligations under this Agreement or any of the other Loan Documents; (f) If Debtor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 1 hereto, Debtor shall give Secured Party prompt written notice thereof and the provisions of this Agreement shall automatically apply thereto and Debtor hereby authorizes Secured Party to modify or update Schedule 1 hereto to include any such new Intellectual Property; (g) Upon the occurrence of any event that would require any addition to or modification of Schedule 1 hereto or upon the request of Secured Party, Debtor shall furnish to Secured Party statements and schedules further identifying the Intellectual Property and such other items in connection with the Intellectual Property as Secured Party may request. Promptly upon the request of Secured Party, Debtor shall modify this Agreement by amending Schedule 1 hereto to include any Intellectual Property that becomes part of the Collateral; (h) If an Event of Default shall have occurred and be continuing, Debtor shall use its best efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise its rights and remedies with respect to the Intellectual Property; and (i) Debtor shall, at the request of Secured Party, execute and deliver to Secured Party a Copyright Security Agreement, a Patent Security Agreement, a Trademark Security Agreement and all other agreements, documents, instruments and other items as may be necessary for Secured Party to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and any similar domestic or foreign office, department or agency. Debtor will, at any time and from time to time upon the request of Secured Party, execute and deliver to Secured Party all such other agreements, documents, instruments and other items as may be necessary or appropriate for Secured Party to create and perfect its security interest in the Intellectual Property and to make all appropriate filings with respect thereto. Section 4.16 Voting Rights, Distributions, Etc. (a) So long as no Event of Default shall have occurred and be continuing: (i) Debtor shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications in respect of any of the Pledged Collateral) pertaining to any of the Pledged Collateral or any part thereof; provided, however, that without the prior written consent of Secured Party, no vote shall be cast or consent, waiver or ratification given or action taken which would (x) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (y) amend, modify or waive any term, provision or condition of the certificate of incorporation, by-laws, certificate of formation, operating agreement or other charter document or other agreement relating to, evidencing, providing for the issuance of or securing any Collateral; and provided further that Debtor shall give Secured Party at least five (5) Business Days' prior written notice in the form of an officer's certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof; and AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 17 17 (ii) Unless an Event of Default shall have occurred and be continuing, Debtor shall be entitled to receive and retain any and all dividends and interest paid in respect of any of the Collateral to the extent permitted by the Loan Agreement. During the continuance of any Default, any dividends, interest or other distributions (whether in cash, securities, property or otherwise) received by Debtor with respect to any Pledged Collateral shall be held by Debtor in trust for the benefit of Secured Party and, upon the request of Secured Party, shall be delivered promptly to Secured Party to hold as Collateral or shall be applied by Secured Party toward payment of the Obligations, as Secured Party may in its discretion determine. If such Default is waived or cured to the satisfaction of Secured Party, any such distributions shall be returned promptly to Debtor (provided that no other Default or Event of Default exists). If such Default remains uncured and becomes an Event of Default, any such distributions will be applied by Secured Party as provided in the Loan Agreement. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) Secured Party may, without notice to Debtor, transfer or register in the name of Secured Party or any of its nominees any or all of the Collateral described in Section 2.1(m) or Section 2.1(n), the proceeds thereof (in cash or otherwise) and all liens, security, rights, remedies and claims of Debtor with respect thereto (collectively, the "Pledged Collateral") held by Secured Party hereunder, and Secured Party or its nominee may thereafter, after delivery of notice to Debtor, exercise all voting and corporate rights at any meeting of any corporation, partnership or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of any corporation, partnership or other business entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or Secured Party of any right, privilege or option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options, and Secured Party shall not be responsible for any failure to do so or delay in so doing. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 18 18 (ii) All rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection 4.16(a)(i) and to receive the dividends, interest and other distributions which it would otherwise be authorized to receive and retain pursuant to subsection 4.16(a)(ii) shall be suspended until such Default or Event of Default shall no longer exist, and all such rights shall, until such Default or Event of Default shall no longer exist, thereupon become vested in Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends, interest and other distributions. (iii) All dividends, interest and other distributions which are received by Debtor contrary to the provisions of this subsection 4.16(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party as Collateral in the same form as so received (with any necessary endorsement). (iv) Debtor shall execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies and other instruments as Secured Party may reasonably request for the purpose of enabling Secured Party to exercise the voting and other rights which it is entitled to exercise pursuant to this subsection 4.16(b) and to receive the dividends, interest and other distributions which it is entitled to receive and retain pursuant to this subsection 4.16(b). The foregoing shall not in any way limit Secured Party's power and authority granted pursuant to Section 5.1. Section 4.17 Transfers and Other Liens; Additional Investments. (a) Except as may be expressly permitted by the terms of the Loan Agreement, Debtor shall not grant any option with respect to, exchange, sell or otherwise dispose of any of the Collateral or create or permit to exist any Lien upon or with respect to any of the Collateral except for the Liens created hereby. (b) Debtor agrees that it will (i) cause each issuer of any of the Pledged Collateral not to issue any Capital Stock, notes or other securities or instruments in addition to or in substitution for any of the Pledged Collateral, except, with the written consent of Secured Party, to Debtor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all such Capital Stock, notes or other securities or instruments, and (iii) promptly (and in any event within three Business Days) deliver to Secured Party an Amendment, duly executed by Debtor, in substantially the form of Exhibit D (an "Amendment"), in respect of such Capital Stock, notes or other securities or instruments, together with all certificates, notes or other securities or instruments representing or evidencing the same. Debtor hereby (i) authorizes Secured Party to attach each Amendment to this Agreement, (ii) agrees that all such Capital Stock, notes or other securities or instruments listed on any Amendment delivered to Secured Party shall for all purposes hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Article III with respect to such Pledged Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 19 19 Section 4.18 Possession; Reasonable Care. Regardless of whether a Default or an Event of Default has occurred or is continuing, Secured Party shall have the right to hold in its possession all Instruments, Chattel Paper and Pledged Collateral pledged, assigned or transferred hereunder and from time to time constituting a portion of the Collateral. Secured Party may, from time to time, in its sole discretion, appoint one or more agents (which in no case shall be Debtor or an Affiliate of Debtor) to hold physical custody, for the account of Secured Party, of any or all of the Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Following the occurrence and during the continuation of an Event of Default, Secured Party shall be entitled to take possession of the Collateral. Section 4.19 Acknowledgment of Collateral Assignment of Deposit Accounts. Debtor shall deliver to Secured Party, on or before June 17, 2000, and at any time as Secured Party may request hereafter, acknowledgment by each financial institution in which any Deposit Account is held or maintained that the collateral assignment of such Deposit Account has been recorded in the books and records of such financial institution, and that Secured Party shall have dominion and control over such Deposit Account, such acknowledgment to be in form and substance satisfactory to Secured Party. Section 4.20 Statement of Account for Deposit Accounts. Debtor shall, from time to time upon written request of Secured Party, provide to Secured Party a copy of each statement of account for any Deposit Account received by Debtor from the financial institution in which a Deposit Account is held or maintained. At Secured Party's request, Debtor will use its reasonable efforts to make such arrangements as are reasonably necessary in order to enable Secured Party to access such information by inquiry of an officer or other representative of any such financial institution or via any automated information system which may be maintained by such financial institution. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 20 20 ARTICLE 5 Rights of Secured Party Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of Debtor or in its own name, to take after the occurrence and during the continuance of an Event of Default, any and all action and to execute any and all documents and instruments which Secured Party at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, Debtor hereby gives Secured Party the power and right on behalf of Debtor and in its own name to do any of the following after the occurrence and during the continuance of an Event of Default, without notice to or the consent of Debtor: (a) to demand, sue for, collect or receive, in the name of Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title or any other instruments for the payment of money under the Collateral or any policy of insurance; (b) to pay or discharge taxes, Liens or other encumbrances levied or placed on or threatened against the Collateral; (c) to notify post office authorities to change the address for delivery of mail of Debtor to an address designated by Secured Party and to receive, open and dispose of mail addressed to Debtor; (d) (i) to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to Secured Party or as Secured Party shall direct; (ii) to receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (iii) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought against Debtor with respect to any Collateral; (vi) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Secured Party may deem appropriate; (vii) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms as Secured Party may determine; (viii) to add or release any guarantor, indorser, surety or other party to any of the Collateral; (ix) to renew, extend or otherwise change the terms and conditions of any of the Collateral; (x) to grant or issue any exclusive or nonexclusive license under or with respect to any of the Intellectual Property; (xi) to endorse Debtor's name on all applications, documents, papers and instruments necessary or desirable in order for Secured Party to use any of the Intellectual Property; (xii) to make, settle, compromise or adjust any claims under or pertaining to any of the Collateral (including, without limitation, claims under any policy of insurance); and (xiii) to sell, transfer, pledge, convey, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time, or from time to time, all acts and things which Secured Party deems necessary to protect, preserve, maintain or realize upon the Collateral and Secured Party's security interest therein. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 21 21 This power of attorney is a power coupled with an interest and shall be irrevocable until this Agreement is terminated in accordance with its terms. Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. Neither Secured Party nor any Person designated by Secured Party shall be liable for any act or omission or for any error of judgment or any mistake of fact or law. This power of attorney is conferred on Secured Party solely to protect, preserve, maintain and realize upon its security interest in the Collateral. Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve or maintain any Lien given to secure the Collateral. Section 5.2 Set-off. If an Event of Default shall have occurred and be continuing, Secured Party shall have the right to set-off and apply against the Obligations, at any time and without notice to Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Secured Party to Debtor and although such Obligations may be unmatured. The rights and remedies of Secured Party hereunder are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Secured Party may have. Section 5.3 Assignment by Secured Party. In accordance with the provisions of the Loan Agreement, Secured Party may at any time assign or otherwise transfer all or any portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, the Obligations), in connection with an assignment of the Obligations, to any other Person, and such other Person shall thereupon become vested with all the benefits thereof granted to Secured Party herein or otherwise. Section 5.4 Performance by Secured Party. If Debtor shall fail to perform any covenant or agreement contained in this Agreement, Secured Party may perform or attempt to perform such covenant or agreement on behalf of Debtor. In such event, Debtor shall, at the request of Secured Party, promptly pay any amount expended by Secured Party in connection with such performance or attempted performance to Secured Party, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that Secured Party shall not have any liability or responsibility for the performance of any obligation of Debtor under this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 22 22 Section 5.5 License. If no Event of Default shall have occurred and be continuing, Debtor shall have the exclusive, non-transferrable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other Persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration. Debtor agrees not to sell or assign its interest in, or grant any sublicense under, the license granted under this Section 5.5 without the prior written consent of Secured Party. Section 5.6 Change of Depository. In the event of the termination by any financial institution in which any Deposit Account is maintained of any agreement with or for the benefit of Secured Party, or if any such financial institution shall fail to comply with any provisions of any such agreement or any instructions of Secured Party in accordance with any such agreement or this Agreement, or if Secured Party determines in its sole discretion that the financial condition of any such financial institution has materially deteriorated, Debtor agrees to transfer the affected Deposit Account(s) to another financial institution acceptable to Secured Party and cause such substitute financial institution to execute such agreements as Secured Party may require, in form and substance acceptable to Secured Party, to ensure that Secured Party has a perfected, first priority collateral assignment of or security interest in the Deposit Account(s) held with such substitute financial institution. If any affected Deposit Account is a lockbox account, Debtor agrees to notify its account debtors promptly to remit all payments which were being sent to the terminated Deposit Account directly to the substitute Deposit Account. Section 5.7 Collection of Deposit Accounts. After the occurrence and during the continuation of an Event of Default, upon written demand from Secured Party to any financial institution in which any of the Deposit Accounts are maintained, each such financial institution is hereby authorized and directed by Debtor to make payment directly to Secured Party of the funds in or credited to the Deposit Accounts, or such part thereof as Secured Party may request, and each such financial institution shall be fully protected in relying upon the written statement of Secured Party that an Event of Default has occurred and is continuing and that the Deposit Accounts are at the time of such demand assigned hereunder and that Secured Party is entitled to payment of the Obligations therefrom. Secured Party's receipt for sums paid it pursuant to such demand shall be a full and complete release, discharge and acquittance to the depository or other financial institution making such payment to the extent of the amount so paid. Debtor hereby authorizes Secured Party, upon (a) Debtor's failure to make payment of any of the Obligations, or any part thereof, or (b) any acceleration of the maturity of the Obligations upon the occurrence of any Event of Default, each as provided in the Loan Agreement, (i) to withdraw, collect and receipt for any and all funds, securities or other investments on deposit in or payable on the Deposit Accounts, (ii) on behalf of Debtor to endorse the name of Debtor upon any checks, drafts or other instruments payable to Debtor evidencing payment on the Deposit Accounts, and (iii) to surrender or present for notation of withdrawal the passbook, certificate or other documents issued to Debtor in connection with the Deposit Accounts. No power granted herein to Secured Party by Debtor shall terminate upon any disability of Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 23 23 ARTICLE 6 Default Section 6.1 Rights and Remedies. If an Event of Default shall have occurred and be continuing, Secured Party shall have the following rights and remedies (subject to Section 6.3): (a) In addition to all other rights and remedies granted to Secured Party in this Agreement or in any other Loan Document or by applicable law, Secured Party shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) and Secured Party may also, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Without limiting the generality of the foregoing, Secured Party may (i) without demand or notice to Debtor, collect, receive or take possession of the Collateral or any part thereof and for that purpose Secured Party may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Secured Party shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of Debtor, which right or equity of redemption is hereby expressly waived and released by Debtor. Upon the request of Secured Party, Debtor shall assemble the Collateral and make it available to Secured Party at any place designated by Secured Party that is reasonably convenient to Debtor and Secured Party. Debtor agrees that Secured Party shall not be obligated to give more than five (5) days prior written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Debtor shall be liable for all expenses of retaking, holding, preparing for sale or the like, and all attorneys' fees, legal expenses and other costs and expenses incurred by Secured Party in connection with the collection of the Obligations and the enforcement of Secured Party's rights under this Agreement. Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral applied to the Obligations are insufficient to pay the Obligations in full. Secured Party may apply the Collateral against the Obligations in such order and manner as Secured Party may elect in its sole discretion. Debtor waives all rights of marshaling, valuation and appraisal in respect of the Collateral. Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and then or at any time thereafter applied in whole or in part by Secured Party against, the Obligations in such order as Secured Party shall select. Any surplus of such cash or cash proceeds and interest accrued thereon, if any, held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus; provided that Secured Party shall have no obligation to invest or otherwise pay interest on any amounts held by it in connection with or pursuant to this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 24 24 (b) Secured Party may cause any or all of the Collateral held by it to be transferred into the name of Secured Party or the name or names of Secured Party's nominee or nominees. (c) Secured Party may exercise any and all rights and remedies of Debtor under or in respect of the Collateral, including, without limitation, any and all rights of Debtor to demand or otherwise require payment of any amount under, or performance of any provision of, any of the Collateral and any and all voting rights and corporate powers in respect of the Collateral. (d) Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (e) On any sale of the Collateral, Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. (f) For purposes of enabling Secured Party to exercise its rights and remedies under this Section 6.1 and enabling Secured Party and its successors and assigns to enjoy the full benefits of the Collateral, Debtor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Debtor) to use, assign, license or sublicense any of the Intellectual Property, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and all computer programs used for the completion or printout thereof. This license shall also inure to the benefit of all successors, assigns and transferees of Secured Party. (g) Secured Party may require that Debtor assign all of its right, title and interest in and to the Intellectual Property or any part thereof to Secured Party or such other Person as Secured Party may designate pursuant to documents satisfactory to Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 25 25 Section 6.2 Registration Rights, Private Sales, Etc. (a) If Secured Party shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the request of Secured Party (which request may be made by Secured Party in its sole discretion), Debtor will, at its own expense: (i) execute and deliver, and cause each issuer of any of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such agreements, documents and instruments, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Collateral under the provisions of the Securities Act (as hereinafter defined) and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Collateral, as requested by Secured Party; (iii) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (iv) do or cause to be done all such other acts and things as may be reasonably necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law; and (v) bear all reasonable costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 6.2. (b) Debtor recognizes that Secured Party may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended from time to time (the "Securities Act") and applicable state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account for investment and not with a view to the distribution or resale thereof. Debtor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Secured Party shall not be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer of such securities to register such securities under the Securities Act or under any applicable state securities laws, even if such issuer would agree to do so. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 26 26 (c) Debtor further agrees to do or cause to be done, to the extent that Debtor may do so under applicable law, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at Debtor's expense. Debtor further agrees that a breach of any of the covenants contained in this Section 6.2 will cause irreparable injury to Secured Party and that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) Debtor's failure to perform such covenants will not cause irreparable injury to Secured Party or (ii) Secured Party has an adequate remedy at law in respect of such breach. Debtor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Secured Party by reason of a breach of any of the covenants contained in this Section 6.2 and, consequently, agrees that, if Debtor shall breach any of such covenants and Secured Party shall sue for damages for such breach, Debtor shall pay to Secured Party, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral on the date Secured Party shall demand compliance with this Section 6.2. (d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH CONTROLLING PERSON. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 27 27 ARTICLE 7 Miscellaneous Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective heirs, successors and permitted assigns, except that Debtor may not assign any of its rights, indebtedness, liabilities or obligations under this Agreement without the prior written consent of Secured Party. Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto, except as provided in Section 4.15(g). Section 7.4 Notices. All notices and other communications provided for in this Agreement shall be given or made by telecopy or in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section 7.4. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy or when personally delivered or, in the case of a mailed notice, three (3) Business Days after deposit in the mails, in each case given or addressed as aforesaid; provided, however, that notices to Secured Party shall be deemed given when received by Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 28 28 Section 7.5 Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED PARTY EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR AND SECURED PARTY EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 7.6 Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.7 Survival of Representations and Warranties. All representations and warranties made in this Agreement or in any certificate delivered pursuant hereto shall survive the execution and delivery of this Agreement, and no investigation by Secured Party shall affect the representations and warranties or the right of Secured Party to rely upon them. Section 7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.9 Waiver of Bond. In the event Secured Party seeks to take possession of any or all of the Collateral by judicial process, Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.10 Severability. Any provision of this Agreement which is determined by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 29 29 Section 7.11 Construction. Debtor and Secured Party acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Debtor and Secured Party. Section 7.12 Termination. If all of the Obligations shall have been paid and performed in full and all Commitments of Secured Party shall have expired or terminated, Secured Party shall, upon the written request of Debtor, execute and deliver to Debtor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of Secured Party and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF. Section 7.14 Consigned Inventory. Notwithstanding anything to the contrary contained herein or in any other Loan Document, Debtor (a) may maintain Inventory at locations other than those set forth in Schedule 5 (the "Offsite Inventory") and (b) shall not be required to execute UCC-1 Financing Statements for the jurisdictions in which the Offsite Inventory are located, provided, that, the book value of all Offsite Inventory (as defined in each of the respective Amended and Restated Pledge and Security Agreements dated the date hereof executed by Karts International Incorporated and each of its Subsidiaries in favor of Secured Party) of Karts International Incorporated and each of its Subsidiaries does not exceed $50,000 in the aggregate. [The remainder of this page has been intentionally left blank] AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 30 30 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTOR: ------ KARTS INTERNATIONAL INCORPORATED By: _____________________________ Name: _____________________________ Title: _____________________________ Address for Notices: ------------------- P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telecopy No.: 504-747-2700 Attention: President AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 31 31 SECURED PARTY: ------------- THE SCHLINGER FOUNDATION By: _____________________________ Name: _____________________________ Title: _____________________________ AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Karts International Incorporated) - Page 32 32 EX-10.56 16 0016.txt AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.56 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT -------------------------------------------------- (Straight Line Manufacturing, Inc.) THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of May 17, 2000, is by and between STRAIGHT LINE MANUFACTURING, INC., a Michigan corporation ("Debtor"), whose address is 62194 Commercial Street, Roseland, Louisiana 70456 and whose Tax I.D. No. is 38-3371963, and THE SCHLINGER FOUNDATION ("Secured Party") whose address is 1944 Edison Street, Santa Yinez, California 93460. R E C I T A L S: --------------- A. Karts International Incorporated ("Borrower") is, concurrently herewith, entering into that certain Amended and Restated Loan Agreement dated as of May 17, 2000, with the Secured Party (such agreement, as it may be amended, renewed, extended, restated, replaced, substituted, supplemented or otherwise modified from time to time, is referred to herein as the "Loan Agreement"). B. The execution and delivery of this Agreement is required by the terms of the Loan Agreement and is a condition to the availability of the Loan to Borrower pursuant to the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Secured Party to make the Loan under the Loan Agreement, the parties hereto hereby agree as follows: ARTICLE 1 Definitions Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Account" means any "account", as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all rights of Debtor to payment for goods sold or leased, services rendered or the license of Intellectual Property, whether or not earned by performance; (b) all accounts receivable of Debtor; (c) all rights of Debtor to receive any payment of money or other form of consideration; (d) all security pledged, assigned or granted to or held by Debtor to secure any of the foregoing; (e) all guaranties of, or indemnifications with respect to, any of the foregoing; (f) all rights of Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation and resale; and (g) all rights to brokerage commissions. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 1 1 "Broker" means any "broker," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "Capital Stock" means corporate stock and any and all securities, shares, partnership interests, limited partnership interests, limited liability company interests, membership interests, equity interests, participations, rights or other equivalents (however designated) of corporate stock or any of the foregoing issued by any entity (whether a corporation, a partnership, a limited liability company or another entity) and includes, without limitation, securities convertible into Capital Stock and rights or options to acquire Capital Stock. "Chattel Paper" means any "chattel paper," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor. "Clearing Corporation" means any "clearing corporation," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Person that is registered as a "clearing agency" under the federal securities laws, (b) federal reserve bank, or (c) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including, without limitation, promulgation of rules, are subject to regulation by a federal or state governmental authority. "Collateral" has the meaning specified in Section 2.1. "Commodity Account" means any "commodity account," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all accounts maintained by a Commodity Intermediary in which a Commodity Contract is carried for Debtor. "Commodity Contract" means any "commodity contract," as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, a commodity futures contract, a commodity option, or other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws, or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "Commodity Customer" means any "commodity customer" as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, any Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "Commodity Intermediary" means any "commodity intermediary," as such term is defined in Article or Chapter 9 of the UCC, including, without limitation, (a) a Person who is registered as a futures commission merchant under the federal commodities laws, or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to the federal commodities laws. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 2 2 "Copyright License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Copyright including, without limitation, the agreements identified on Schedule 1. "Copyright Security Agreement" means a copyright security agreement, executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit A, as such agreement may be amended, supplemented or otherwise modified from time to time. "Copyrights" means all of the following: (a) all copyrights, works protectable by copyright, copyright registrations and copyright applications of Debtor, including, without limitation, those set forth on Schedule 1; (b) all renewals, extensions and modifications thereof; (c) all income, royalties, damages, profits and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present or future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Deposit Accounts" means any and all deposit accounts (including cash collateral accounts), bank accounts or investment accounts now owned or hereafter acquired or opened by Debtor, including, without limitation, those set forth on Schedule 2, and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts and other property deposited therein and all balances therein and all investments made with funds deposited therein or otherwise held in connection therewith, including, without limitation, indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the government of the U.S., certificates of deposit and all contract rights, General Intangibles, contracts, Instruments, Investment Property, Security Entitlements, Financial Assets, Commodity Contracts and other Documents now or hereafter existing with respect thereto, including, but not limited to, any and all renewals, extensions, reissuances and replacements and substitutions therefor with all earnings, profits or other Proceeds therefrom in the form of interest or otherwise, from time to time representing, evidencing, deposited into or held in the Deposit Accounts. "Document" means any "document," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all documents of title and all receipts covering, evidencing or representing goods now owned or hereafter acquired by Debtor. "Entitlement Holder" means any "entitlement holder", as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary, including, without limitation, any Person who acquires a security entitlement under Article or Chapter 8 of the UCC. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 3 3 "Equipment" means any "equipment," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, all machinery, equipment, furniture, fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft and vehicles now owned or hereafter acquired by Debtor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Financial Asset" means any "financial asset," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Security, (b) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment, and (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article or Chapter 8 of the UCC. "General Intangibles" means any "general intangibles," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all of Debtor's service marks, trade names, trade secrets, registrations, goodwill, franchises, licenses, permits, proprietary information, customer lists, designs and inventions; (b) all of Debtor's books and records, data, plans, manuals, computer software, computer tapes, computer disks, computer programs, source codes, object codes, management information systems and all rights of Debtor to retrieve data and other information from third parties; (c) all of Debtor's contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts and certificates of deposit; (d) all rights of Debtor to payment under letters of credit and similar agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all choses in action and causes of action of Debtor (whether arising in contract, tort or otherwise and whether or not currently in litigation) and all judgments in favor of Debtor; (g) all rights and claims of Debtor under warranties and indemnities; and (h) all rights of Debtor under any insurance, surety or similar contract or arrangement. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" by any Person means any indebtedness, liability or obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any indebtedness, liability or obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other indebtedness, liability or obligation as to the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming such Person is required to perform thereunder). AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 4 4 "Instrument" means any "instrument," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include all promissory notes, drafts, bills of exchange and trade acceptances of Debtor, whether now owned or hereafter acquired. "Intellectual Property" means the Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. "Inventory" means any "inventory," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all goods and other personal property of Debtor that are held for sale or lease or to be furnished under any contract of service; (b) all raw materials, work-in-process, finished goods, inventory, supplies and materials of Debtor; (c) all wrapping, packaging, advertising and shipping materials of Debtor; (d) all goods that have been returned to, repossessed by or stopped in transit by Debtor; and (e) all Documents evidencing any of the foregoing. "Investment Property" means any "investment property," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) the Securities Accounts and other Investment Property described on Schedule 3; (b) any Security or Capital Stock, whether certificated or uncertificated; (c) any Security Entitlement; (d) any Securities Account; (e) any Commodity Contract; and (f) any Commodity Account. "Issuer" means any "issuer," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (a) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate; (b) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security; (c) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate; or (d) becomes responsible for, or in the place of, another Issuer. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 5 5 "License" means any permit, certificate, approval, order, license or other authorization. "Obligations" means the "Obligations," as such term is defined in the Loan Agreement, and the obligations, indebtedness and liabilities of Debtor under this Agreement and any other Loan Document to which Debtor may be a party. "Patent License" means any written agreement now or hereafter in existence granting to Debtor any right to use any invention on which a Patent is in existence including, without limitation, the agreements described on Schedule 1. "Patent Security Agreement" means a patent security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit B, as such agreement may be amended, supplemented or otherwise modified from time to time. "Patents" means all of the following: (a) all patents, patent applications and patentable inventions of Debtor, including, without limitation, those set forth on Schedule 1, and all of the inventions and improvements described and claimed therein; (b) all continuations, divisions, renewals, extensions, modifications, substitutions, continuations-in- part or reissues of any of the foregoing; (c) all income, royalties, profits, damages, awards and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Pledged Collateral" has the meaning specified in Section 4.16(b)(i). "Pledged Shares" means all Capital Stock now or hereafter owned by Debtor, including, without limitation, the shares of Capital Stock described on Schedule 4. "Proceeds" means any "proceeds," as such term is defined in Article or Chapter 9 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting, or purporting to act, for or on behalf of any Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Securities Account" means any "securities account," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 6 6 "Securities Intermediary" means any "securities intermediary," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Clearing Corporation, or (b) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. "Security" means any "security," as such term is defined in Article or Chapter 8 of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer (a) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer, (b) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations, and (c) which (i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or (ii) is a medium for investment and by its terms expressly provides that it is a security governed by Article or Chapter 8 of the UCC. "Security Certificate" means any "security certificate," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any certificate representing a Security. "Security Entitlement" means any "security entitlement," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Trademark License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Trademark, including, without limitation, the agreements identified on Schedule 1. "Trademark Security Agreement" means a trademark security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit C, as such agreement may be amended, supplemented or otherwise modified from time to time. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 7 7 "Trademarks" means all of the following: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the U.S., any state thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1; (b) all reissues, extensions and renewals thereof; (c) all income, royalties, damages and payments now or hereafter relating to or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (e) the right to sue for past, present and future infringements of any of the foregoing; (f) all rights corresponding to any of the foregoing throughout the world; and (g) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided, that if, by applicable law, the perfection or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection. "Uncertificated Security" means any "uncertificated security," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. "U.S." means the United States of America. Section 1.2 Other Definitional Provisions. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein shall have the meanings therefor specified in the Loan Agreement. References to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. All references to statutes and regulations shall include any amendments of the same and any successor statutes and regulations. References to particular sections of the UCC should be read to refer also to parallel sections of the Uniform Commercial Code as enacted in each state or other jurisdiction where any portion of the Collateral is or may be located. ARTICLE 2 Security Interest Section 2.1 Security Interest. As collateral security for the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as collateral) to Secured Party, and grants to Secured Party a continuing lien on and security interest in, all of Debtor's right, title and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 8 8 (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; (f) all Equipment (including, without limitation, Equipment at the locations set forth on Schedule 5 hereto); (g) all Inventory (including, without limitation, Inventory at the locations set forth on Schedule 5 hereto); (h) all Intellectual Property; (i) all Investment Property, and the certificates and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Investment Property; (j) all Deposit Accounts; (k) the Pledged Shares and the certificates representing the Pledged Shares, all additional Capital Stock of the Subsidiaries of Debtor and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares or such additional Capital Stock, and all rights, interests and other property, including, without limitation, General Intangibles, relating to any or all of the Pledged Shares, such additional Capital Stock and such dividends, cash, instruments and other property; (l) all indebtedness from time to time owed to Debtor by its Subsidiaries and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such indebtedness; (m) all proceeds, in cash or otherwise, of any of the property described in the foregoing clauses (a) through (l) and all liens, security, rights, remedies and claims of Debtor with respect thereto; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 9 9 (n) all other goods and personal property of Debtor of any kind or character, whether tangible or intangible, including, without limitation, any and all rights in and claims under insurance policies, judgments and rights thereunder, and tort claims; and (o) all Proceeds and products of any or all of the foregoing. Section 2.2 Debtor Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Debtor shall remain liable under the contracts, agreements, documents and instruments included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights or remedies hereunder shall not release Debtor from any of its duties or obligations under the contracts, agreements, documents and instruments included in the Collateral, and (c) Secured Party shall not have any indebtedness, liability or obligation under any of the contracts, agreements, documents and instruments included in the Collateral by reason of this Agreement, and Secured Party shall not be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 2.3 Delivery of Collateral. All certificates or instruments representing or evidencing the Pledged Shares, any Instruments or Chattel Paper or any other Collateral including, without limitation, any Investment Property, promptly upon Debtor gaining any rights therein, shall be delivered to and held by or on behalf of Secured Party pursuant hereto in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. After the occurrence and during the continuation of an Event of Default, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing any Pledged Collateral in its possession for certificates or instruments of smaller or larger denominations. ARTICLE 3 Representations and Warranties To induce Secured Party to enter into this Agreement and the other Loan Documents, Debtor represents and warrants that: Section 3.1 Title. Debtor is, and with respect to Collateral acquired after the date hereof Debtor will be, the legal and beneficial owner of the Collateral free and clear of any Lien or other encumbrance, except for Liens otherwise expressly permitted by Secured Party in the Loan Agreement or any other Loan Document (hereinafter "Permitted Liens"). Section 3.2 Accounts. Unless Debtor has given Secured Party written notice to the contrary, whenever the security interest granted hereunder attaches to an Account, Debtor shall be deemed to have represented and warranted to Secured Party as to each of its Accounts at the time of its creation that, to the best of Debtor's knowledge (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor, (c) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, the amount of each Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, no Account is subject to any offset, counterclaim or other defense. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 10 10 Section 3.3 Financing Statements. No financing statement, security agreement or other Lien instrument covering all or any part of the Collateral is on file in any public office, except as may have been filed in favor of Secured Party pursuant to this Agreement and except for financing statements evidencing Permitted Liens. Except as otherwise disclosed on Schedule 6 hereto, Debtor does not do business and has not done business within the past five (5) years under a trade name or any name other than its legal name set forth at the beginning of this Agreement. Section 3.4 Principal Place of Business. The principal place of business and chief executive office of Debtor, and the office where Debtor keeps its books and records, is located at the address of Debtor shown at the beginning of this Agreement. Section 3.5 Location of Collateral. All Inventory (except Inventory in transit) and Equipment (other than vehicles) of Debtor is located at the places specified on Schedule 5 hereto. If any such location is leased by Debtor, the name and address of the landlord leasing such location is identified on Schedule 5 hereto. All Inventory (except Inventory in transit) and Equipment will be located only at (a) the specific locations which are described as locations for such types of Inventory and Equipment on Schedule 5 hereto or (b) subject to the requirements of this Agreement, such other locations as may be expressly identified by Debtor from time to time as locations for such types of Inventory and Equipment, which identification shall be set forth in a written notice given by Debtor to Secured Party at least 30 days prior to the date upon which any such Inventory or Equipment is located at such location. Debtor has exclusive possession and control of its Inventory and Equipment. None of the Inventory (other than Inventory in transit as to which all Documents evidencing such Inventory have been delivered to Secured Party) or Equipment (other than vehicles) of Debtor is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments, Chattel Paper and Security Certificates of Debtor have been delivered to Secured Party. Section 3.6 Perfection. Upon the filing of Uniform Commercial Code financing statements in the jurisdictions listed on Schedule 7, the filing of a Patent Security Agreement (if any) and a Trademark Security Agreement (if any) with the United States Patent and Trademark Office, the filing of a Copyright Security Agreement (if any) with the United States Copyright Office, and upon Secured Party's obtaining possession of the Pledged Shares and all other Instruments, Chattel Paper and Security Certificates of Debtor, the security interest in favor of Secured Party created herein will constitute a valid and perfected Lien upon and security interest in the Collateral (except for (a) vehicles covered by certificates of title, and (b) other Property excluded from the application of Article or Chapter 9 of the UCC by Section 9-104 of the UCC), subject to no equal or prior Liens except for those Liens (if any) which constitute Permitted Liens and are permitted by the Loan Agreement to have equal or greater priority. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 11 11 Section 3.7 Inventory. All production (if any) and purchase of Inventory by Debtor has been in compliance with all requirements of the Fair Labor Standards Act. Section 3.8 Intellectual Property. (a) All of the Intellectual Property is subsisting, valid and enforceable. The information contained on Schedule 1 hereto is true, correct and complete. All Intellectual Property existing on the date hereof is identified on Schedule 1 hereto. (b) Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property free and clear of any Liens, including, without limitation, any pledges, assignments, licenses, user agreements and covenants by Debtor not to sue third Persons, other than Permitted Liens. (c) No claim has been made that the use of any of the Intellectual Property violates or may violate the rights of any third Person. (d) Each of the Patents and Trademarks identified on Schedule 1 hereto has been properly registered with the United States Patent and Trademark Office and each of the Copyrights identified on Schedule 1 hereto has been properly registered with the United States Copyright Office. Section 3.9 Pledged Shares and Instruments. (a) The Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable under the laws of the jurisdiction of incorporation or organization of the issuers thereof. To the best knowledge of Debtor, the Instruments have been duly authorized and validly issued and constitute legal and enforceable indebtedness of the makers or issuers thereof. (b) Debtor is the legal and beneficial owner of the Pledged Shares and the Instruments, free and clear of any Lien (other than the Lien created by this Agreement), and Debtor has not sold, granted any option with respect to, assigned, transferred or otherwise disposed of any of its rights or interest in or to the Pledged Shares or the Instruments. (c) On the date hereof, the Pledged Shares constitute the percentage of the issued and outstanding Capital Stock of the issuers thereof indicated on Schedule 4, as such Schedule 4 may from time to time be supplemented, amended or modified. Section 3.10 Investment Property. As of the Closing Date, Schedule 3 contains a complete and accurate description of all Investment Property owned by Debtor. Debtor covenants and agrees with Secured Party that until the Obligations are paid and performed in full: AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 12 12 ARTICLE 4 Covenants Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to exist, and shall defend the Collateral against, any Lien or other encumbrance on the Collateral except for those Permitted Liens (if any) which are permitted to attach to the Collateral in accordance with the Loan Agreement, and shall defend Debtor's rights in the Collateral and Secured Party's pledge and collateral assignment of and security interest in the Collateral against the claims and demands of all Persons. Debtor shall do nothing to impair the rights of Secured Party in the Collateral. Section 4.2 Modification of Accounts. Debtor shall, in accordance with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of Secured Party, Debtor shall not, other than in the ordinary course of business and pursuant to customary business practices in Debtor's industry, (a) grant any extension of time for any payment with respect to any of the Accounts, (b) compromise, compound or settle any of the Accounts for less than the full amount thereof, (c) release, in whole or in part, any Person liable for payment of any of the Accounts, (d) allow any credit or discount for payment with respect to any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or Guarantee securing any Account. Section 4.3 Disposition of Collateral. Except as expressly permitted by the terms of the Loan Agreement, Debtor shall not sell, lease, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of Secured Party. Section 4.4 Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Debtor, Debtor shall promptly execute and deliver all such further agreements, documents and instruments and take such further action as Secured Party may reasonably deem necessary or appropriate to preserve and perfect its security interest in and pledge and collateral assignment of the Collateral and carry out the provisions and purposes of this Agreement or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral, and, to the extent any of the Collateral at any time constitutes Investment Property, then Debtor shall cause Secured Party to obtain "control," as defined in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if Secured Party reasonably so requests) of the manners prescribed in Section 8-106 of the UCC. Debtor and Secured Party agree that the grant of the security interest in the Investment Property pursuant to this Agreement shall have the effect of a delivery of such securities to Secured Party pursuant to Section 8-301 of the UCC, and the effect of a taking of delivery by Secured Party of such Collateral in accordance with Section 8- 302 of the UCC. Except as otherwise expressly permitted by the terms of the Loan Agreement relating to disposition of assets and except for Permitted Liens, Debtor agrees to defend the title to the Collateral and the Lien thereon of Secured Party against the claim of any other Person and to maintain and preserve such Lien. Without limiting the generality of the foregoing, Debtor shall (a) execute and deliver to Secured Party such financing statements as Secured Party may from time to time require; (b) deliver and pledge to Secured Party all Documents (including, without limitation, all documents of title) evidencing Inventory or Equipment (except for certificates of title covering vehicles) and cause Secured Party to be named as lienholder on all such Documents; (c) deliver and pledge to Secured Party all Instruments and Chattel Paper of Debtor with any necessary endorsements; and (d) execute and deliver to Secured Party such other agreements, documents and instruments as Secured Party may require to perfect and maintain the validity, effectiveness and priority of the Liens intended to be created by the Loan Documents. Debtor authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of Debtor where permitted by law. A carbon, photographic or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 13 13 Section 4.5 Insurance. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Secured Party from time to time. If requested by Secured Party, each policy for property damage insurance shall provide for all proceeds thereof to be paid directly to Secured Party. If requested by Secured Party, each policy of insurance maintained by Debtor shall (i) name Debtor and Secured Party as insured parties thereunder (without any representation or warranty by or obligation upon Secured Party) as their interests may appear, (ii) contain the agreement by the insurer that all proceeds of such policy shall be payable to Secured Party notwithstanding any action, inaction or breach of representation or warranty by Debtor, (iii) provide that there shall be no recourse against Secured Party for payment of premiums or other amounts with respect thereto, and (iv) provide that at least ten (10) days prior written notice of cancellation or of lapse shall be given to Secured Party by the insurer. Debtor will, if requested by Secured Party, deliver to Secured Party original or duplicate policies of such insurance and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance. Debtor will also, at the request of Secured Party, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to any Collateral shall be paid to Secured Party, as provided for in this paragraph, and applied as Secured Party in its sole discretion deems appropriate. Section 4.6 Bailees. If any of the Collateral is at any time in the possession or control of any warehouseman, bailee or any of Debtor's agents or processors, Debtor shall, at the request of Secured Party, notify such warehouseman, bailee, agent or processor of the security interest created hereunder and shall instruct such Person to hold such Collateral for Secured Party's account subject to Secured Party's instructions. Section 4.7 Inspection Rights. Debtor shall permit Secured Party and its representatives to examine, inspect and audit the Collateral and to examine, inspect and audit Debtor's books and records at any reasonable time, and as the Secured Party may desire. Secured Party may at any time and from time to time contact account debtors to verify the existence, amounts and terms of the Accounts. Section 4.8 Mortgagee and Landlord Waivers or Subordinations. Subject to the provisions of the Loan Agreement, Debtor shall cause each mortgagee of real property owned by Debtor and each landlord of real property leased by Debtor to execute and deliver instruments satisfactory in form and substance to Secured Party by which such mortgagee or landlord waives or subordinates its rights, if any, in any of the Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 14 14 Section 4.9 Corporate Changes. Debtor shall not change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless Debtor shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to protect its Liens and the perfection and priority thereof. Debtor shall not change its principal place of business, chief executive office or the place where it keeps its books and records unless it shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.10 Books and Records; Information. Debtor shall keep accurate and complete books and records of the Collateral and Debtor's business and financial condition in accordance with GAAP. Debtor shall from time to time at the request of Secured Party deliver to Secured Party such information regarding the Collateral and Debtor as Secured Party may reasonably request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. To the extent required by Section 4.4 of this Agreement, Debtor shall mark its books and records to reflect the security interest of Secured Party under this Agreement. Section 4.11 Equipment and Inventory. (a) Debtor shall keep the Equipment (other than vehicles) and Inventory (other than Inventory in transit) at the locations specified on Schedule 5 hereto or at such other places within the U.S. where all action required to perfect Secured Party's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken; provided that if any Equipment (other than vehicles) or Inventory (other than Inventory in transit) is being relocated to any jurisdiction where the security interest of Secured Party under this Agreement has not been previously perfected, then in such case Debtor shall deliver prompt (and in any event within not less than thirty (30) days) notice thereof to Secured Party. (b) Debtor shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear of the Equipment excepted). Debtor shall not permit any waste or destruction of the Equipment or Inventory or any part thereof. Debtor shall not permit the Equipment or Inventory to be used in violation of any law, rule or regulation or the terms of any policy of insurance. Debtor shall not use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. (c) Debtor shall comply with all requirements of the Fair Labor Standards Act in producing or purchasing Inventory. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 15 15 (d) Within forty-five (45) days of the end of each of Debtor's fiscal quarters, Debtor shall provide Secured Party with a report setting forth in reasonable detail any change during such preceding fiscal quarter of the location of any Equipment or Inventory (unless such location is one of the locations already specified on Schedule 5 hereto). Section 4.12 Warehouse Receipts Non-Negotiable. Debtor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the UCC) unless such warehouse receipt or receipt in the nature thereof is delivered to Secured Party. Section 4.13 Notification. Debtor shall promptly notify Secured Party of (a) any Lien, encumbrance or claim (other than Permitted Liens) that has attached to or been made or asserted against any of the Collateral, (b) any material change in any of the Collateral, including, without limitation, any material damage to or loss of Collateral, and (c) the occurrence of any other event or condition (including, without limitation, matters as to Lien priority) that could have a material adverse effect on the Collateral or the security interest created hereunder. Section 4.14 Collection of Accounts. Debtor shall cause all collections of Accounts and sales of Inventory to be conducted in compliance with the terms of the Loan Agreement. In addition all cash proceeds (including, without limitation, all Proceeds of Collateral) shall be deposited directly, as received, into one or more of the Deposit Accounts. Debtor agrees that all Proceeds of Collateral deposited in any collection account or concentration account shall at all times continue to be Collateral under the terms of this Agreement. Debtor shall cause each of the Deposit Accounts to be collaterally assigned, on a first priority basis, to Secured Party as security for the payment and performance of the Obligations pursuant to agreements in form and substance reasonably satisfactory to Secured Party which have been acknowledged and agreed to by the depository banks on or before June 17, 2000. Section 4.15 Intellectual Property. Except with the written consent of Secured Party: (a) Debtor shall prosecute diligently all applications in respect of Intellectual Property, now or hereafter pending; (b) Debtor shall make federal applications on all of its unpatented but patentable inventions and all of its registrable but unregistered Copyrights and Trademarks other than any immaterial Patents, Trademarks and Copyrights which are not useful in Debtor's business; (c) Debtor shall preserve and maintain all of its rights in the Intellectual Property and shall protect the Intellectual Property from infringement, unfair competition, cancellation or dilution by all appropriate action, including, without limitation, the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 16 16 (d) Debtor shall not abandon any of the Intellectual Property except for any immaterial Intellectual Property which is not useful in Debtor's business; (e) Debtor shall not sell or assign any of its interest in, or grant any license under (except as permitted by Section 5.5), any of the Intellectual Property and shall maintain the quality of any and all products and services with respect to which the Intellectual Property is used. Debtor shall not enter into any agreement regarding Intellectual Property, including, but not limited to, any licensing agreement not permitted by Section 5.5, that is or may be inconsistent with Debtor's obligations under this Agreement or any of the other Loan Documents; (f) If Debtor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 1 hereto, Debtor shall give Secured Party prompt written notice thereof and the provisions of this Agreement shall automatically apply thereto and Debtor hereby authorizes Secured Party to modify or update Schedule 1 hereto to include any such new Intellectual Property; (g) Upon the occurrence of any event that would require any addition to or modification of Schedule 1 hereto or upon the request of Secured Party, Debtor shall furnish to Secured Party statements and schedules further identifying the Intellectual Property and such other items in connection with the Intellectual Property as Secured Party may request. Promptly upon the request of Secured Party, Debtor shall modify this Agreement by amending Schedule 1 hereto to include any Intellectual Property that becomes part of the Collateral; (h) If an Event of Default shall have occurred and be continuing, Debtor shall use its best efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise its rights and remedies with respect to the Intellectual Property; and (i) Debtor shall, at the request of Secured Party, execute and deliver to Secured Party a Copyright Security Agreement, a Patent Security Agreement, a Trademark Security Agreement and all other agreements, documents, instruments and other items as may be necessary for Secured Party to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and any similar domestic or foreign office, department or agency. Debtor will, at any time and from time to time upon the request of Secured Party, execute and deliver to Secured Party all such other agreements, documents, instruments and other items as may be necessary or appropriate for Secured Party to create and perfect its security interest in the Intellectual Property and to make all appropriate filings with respect thereto. Section 4.16 Voting Rights, Distributions, Etc. (a) So long as no Event of Default shall have occurred and be continuing: (i) Debtor shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications in respect of any of the Pledged Collateral) pertaining to any of the Pledged Collateral or any part thereof; provided, however, that without the prior written consent of Secured Party, no vote shall be cast or consent, waiver or ratification given or action taken which would (x) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (y) amend, modify or waive any term, provision or condition of the certificate of incorporation, by-laws, certificate of formation, operating agreement or other charter document or other agreement relating to, evidencing, providing for the issuance of or securing any Collateral; and provided further that Debtor shall give Secured Party at least five (5) Business Days' prior written notice in the form of an officer's certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof; and AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 17 17 (ii) Unless an Event of Default shall have occurred and be continuing, Debtor shall be entitled to receive and retain any and all dividends and interest paid in respect of any of the Collateral to the extent permitted by the Loan Agreement. During the continuance of any Default, any dividends, interest or other distributions (whether in cash, securities, property or otherwise) received by Debtor with respect to any Pledged Collateral shall be held by Debtor in trust for the benefit of Secured Party and, upon the request of Secured Party, shall be delivered promptly to Secured Party to hold as Collateral or shall be applied by Secured Party toward payment of the Obligations, as Secured Party may in its discretion determine. If such Default is waived or cured to the satisfaction of Secured Party, any such distributions shall be returned promptly to Debtor (provided that no other Default or Event of Default exists). If such Default remains uncured and becomes an Event of Default, any such distributions will be applied by Secured Party as provided in the Loan Agreement. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) Secured Party may, without notice to Debtor, transfer or register in the name of Secured Party or any of its nominees any or all of the Collateral described in Section 2.1(m) or Section 2.1(n), the proceeds thereof (in cash or otherwise) and all liens, security, rights, remedies and claims of Debtor with respect thereto (collectively, the "Pledged Collateral") held by Secured Party hereunder, and Secured Party or its nominee may thereafter, after delivery of notice to Debtor, exercise all voting and corporate rights at any meeting of any corporation, partnership or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of any corporation, partnership or other business entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or Secured Party of any right, privilege or option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options, and Secured Party shall not be responsible for any failure to do so or delay in so doing. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 18 18 (ii) All rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection 4.16(a)(i) and to receive the dividends, interest and other distributions which it would otherwise be authorized to receive and retain pursuant to subsection 4.16(a)(ii) shall be suspended until such Default or Event of Default shall no longer exist, and all such rights shall, until such Default or Event of Default shall no longer exist, thereupon become vested in Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends, interest and other distributions. (iii) All dividends, interest and other distributions which are received by Debtor contrary to the provisions of this subsection 4.16(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party as Collateral in the same form as so received (with any necessary endorsement). (iv) Debtor shall execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies and other instruments as Secured Party may reasonably request for the purpose of enabling Secured Party to exercise the voting and other rights which it is entitled to exercise pursuant to this subsection 4.16(b) and to receive the dividends, interest and other distributions which it is entitled to receive and retain pursuant to this subsection 4.16(b). The foregoing shall not in any way limit Secured Party's power and authority granted pursuant to Section 5.1. Section 4.17 Transfers and Other Liens; Additional Investments. (a) Except as may be expressly permitted by the terms of the Loan Agreement, Debtor shall not grant any option with respect to, exchange, sell or otherwise dispose of any of the Collateral or create or permit to exist any Lien upon or with respect to any of the Collateral except for the Liens created hereby. (b) Debtor agrees that it will (i) cause each issuer of any of the Pledged Collateral not to issue any Capital Stock, notes or other securities or instruments in addition to or in substitution for any of the Pledged Collateral, except, with the written consent of Secured Party, to Debtor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all such Capital Stock, notes or other securities or instruments, and (iii) promptly (and in any event within three Business Days) deliver to Secured Party an Amendment, duly executed by Debtor, in substantially the form of Exhibit D (an "Amendment"), in respect of such Capital Stock, notes or other securities or instruments, together with all certificates, notes or other securities or instruments representing or evidencing the same. Debtor hereby (i) authorizes Secured Party to attach each Amendment to this Agreement, (ii) agrees that all such Capital Stock, notes or other securities or instruments listed on any Amendment delivered to Secured Party shall for all purposes hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Article III with respect to such Pledged Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 19 19 Section 4.18 Possession; Reasonable Care. Regardless of whether a Default or an Event of Default has occurred or is continuing, Secured Party shall have the right to hold in its possession all Instruments, Chattel Paper and Pledged Collateral pledged, assigned or transferred hereunder and from time to time constituting a portion of the Collateral. Secured Party may, from time to time, in its sole discretion, appoint one or more agents (which in no case shall be Debtor or an Affiliate of Debtor) to hold physical custody, for the account of Secured Party, of any or all of the Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Following the occurrence and during the continuation of an Event of Default, Secured Party shall be entitled to take possession of the Collateral. Section 4.19 Acknowledgment of Collateral Assignment of Deposit Accounts. Debtor shall deliver to Secured Party, on or before June 17, 2000, and at any time as Secured Party may request hereafter, acknowledgment by each financial institution in which any Deposit Account is held or maintained that the collateral assignment of such Deposit Account has been recorded in the books and records of such financial institution, and that Secured Party shall have dominion and control over such Deposit Account, such acknowledgment to be in form and substance satisfactory to Secured Party. Section 4.20 Statement of Account for Deposit Accounts. Debtor shall, from time to time upon written request of Secured Party, provide to Secured Party a copy of each statement of account for any Deposit Account received by Debtor from the financial institution in which a Deposit Account is held or maintained. At Secured Party's request, Debtor will use its reasonable efforts to make such arrangements as are reasonably necessary in order to enable Secured Party to access such information by inquiry of an officer or other representative of any such financial institution or via any automated information system which may be maintained by such financial institution. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 20 20 ARTICLE 5 Rights of Secured Party Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of Debtor or in its own name, to take after the occurrence and during the continuance of an Event of Default, any and all action and to execute any and all documents and instruments which Secured Party at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, Debtor hereby gives Secured Party the power and right on behalf of Debtor and in its own name to do any of the following after the occurrence and during the continuance of an Event of Default, without notice to or the consent of Debtor: (a) to demand, sue for, collect or receive, in the name of Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title or any other instruments for the payment of money under the Collateral or any policy of insurance; (b) to pay or discharge taxes, Liens or other encumbrances levied or placed on or threatened against the Collateral; (c) to notify post office authorities to change the address for delivery of mail of Debtor to an address designated by Secured Party and to receive, open and dispose of mail addressed to Debtor; (d) (i) to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to Secured Party or as Secured Party shall direct; (ii) to receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (iii) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought against Debtor with respect to any Collateral; (vi) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Secured Party may deem appropriate; (vii) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms as Secured Party may determine; (viii) to add or release any guarantor, indorser, surety or other party to any of the Collateral; (ix) to renew, extend or otherwise change the terms and conditions of any of the Collateral; (x) to grant or issue any exclusive or nonexclusive license under or with respect to any of the Intellectual Property; (xi) to endorse Debtor's name on all applications, documents, papers and instruments necessary or desirable in order for Secured Party to use any of the Intellectual Property; (xii) to make, settle, compromise or adjust any claims under or pertaining to any of the Collateral (including, without limitation, claims under any policy of insurance); and (xiii) to sell, transfer, pledge, convey, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time, or from time to time, all acts and things which Secured Party deems necessary to protect, preserve, maintain or realize upon the Collateral and Secured Party's security interest therein. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 21 21 This power of attorney is a power coupled with an interest and shall be irrevocable until this Agreement is terminated in accordance with its terms. Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. Neither Secured Party nor any Person designated by Secured Party shall be liable for any act or omission or for any error of judgment or any mistake of fact or law. This power of attorney is conferred on Secured Party solely to protect, preserve, maintain and realize upon its security interest in the Collateral. Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve or maintain any Lien given to secure the Collateral. Section 5.2 Set-off. If an Event of Default shall have occurred and be continuing, Secured Party shall have the right to set-off and apply against the Obligations, at any time and without notice to Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Secured Party to Debtor and although such Obligations may be unmatured. The rights and remedies of Secured Party hereunder are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Secured Party may have. Section 5.3 Assignment by Secured Party. In accordance with the provisions of the Loan Agreement, Secured Party may at any time assign or otherwise transfer all or any portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, the Obligations), in connection with an assignment of the Obligations, to any other Person, and such other Person shall thereupon become vested with all the benefits thereof granted to Secured Party herein or otherwise. Section 5.4 Performance by Secured Party. If Debtor shall fail to perform any covenant or agreement contained in this Agreement, Secured Party may perform or attempt to perform such covenant or agreement on behalf of Debtor. In such event, Debtor shall, at the request of Secured Party, promptly pay any amount expended by Secured Party in connection with such performance or attempted performance to Secured Party, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that Secured Party shall not have any liability or responsibility for the performance of any obligation of Debtor under this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 22 22 Section 5.5 License. If no Event of Default shall have occurred and be continuing, Debtor shall have the exclusive, non-transferrable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other Persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration. Debtor agrees not to sell or assign its interest in, or grant any sublicense under, the license granted under this Section 5.5 without the prior written consent of Secured Party. Section 5.6 Change of Depository. In the event of the termination by any financial institution in which any Deposit Account is maintained of any agreement with or for the benefit of Secured Party, or if any such financial institution shall fail to comply with any provisions of any such agreement or any instructions of Secured Party in accordance with any such agreement or this Agreement, or if Secured Party determines in its sole discretion that the financial condition of any such financial institution has materially deteriorated, Debtor agrees to transfer the affected Deposit Account(s) to another financial institution acceptable to Secured Party and cause such substitute financial institution to execute such agreements as Secured Party may require, in form and substance acceptable to Secured Party, to ensure that Secured Party has a perfected, first priority collateral assignment of or security interest in the Deposit Account(s) held with such substitute financial institution. If any affected Deposit Account is a lockbox account, Debtor agrees to notify its account debtors promptly to remit all payments which were being sent to the terminated Deposit Account directly to the substitute Deposit Account. Section 5.7 Collection of Deposit Accounts. After the occurrence and during the continuation of an Event of Default, upon written demand from Secured Party to any financial institution in which any of the Deposit Accounts are maintained, each such financial institution is hereby authorized and directed by Debtor to make payment directly to Secured Party of the funds in or credited to the Deposit Accounts, or such part thereof as Secured Party may request, and each such financial institution shall be fully protected in relying upon the written statement of Secured Party that an Event of Default has occurred and is continuing and that the Deposit Accounts are at the time of such demand assigned hereunder and that Secured Party is entitled to payment of the Obligations therefrom. Secured Party's receipt for sums paid it pursuant to such demand shall be a full and complete release, discharge and acquittance to the depository or other financial institution making such payment to the extent of the amount so paid. Debtor hereby authorizes Secured Party, upon (a) Debtor's failure to make payment of any of the Obligations, or any part thereof, or (b) any acceleration of the maturity of the Obligations upon the occurrence of any Event of Default, each as provided in the Loan Agreement, (i) to withdraw, collect and receipt for any and all funds, securities or other investments on deposit in or payable on the Deposit Accounts, (ii) on behalf of Debtor to endorse the name of Debtor upon any checks, drafts or other instruments payable to Debtor evidencing payment on the Deposit Accounts, and (iii) to surrender or present for notation of withdrawal the passbook, certificate or other documents issued to Debtor in connection with the Deposit Accounts. No power granted herein to Secured Party by Debtor shall terminate upon any disability of Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 23 23 ARTICLE 6 Default Section 6.1 Rights and Remedies. If an Event of Default shall have occurred and be continuing, Secured Party shall have the following rights and remedies (subject to Section 6.3): (a) In addition to all other rights and remedies granted to Secured Party in this Agreement or in any other Loan Document or by applicable law, Secured Party shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) and Secured Party may also, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Without limiting the generality of the foregoing, Secured Party may (i) without demand or notice to Debtor, collect, receive or take possession of the Collateral or any part thereof and for that purpose Secured Party may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Secured Party shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of Debtor, which right or equity of redemption is hereby expressly waived and released by Debtor. Upon the request of Secured Party, Debtor shall assemble the Collateral and make it available to Secured Party at any place designated by Secured Party that is reasonably convenient to Debtor and Secured Party. Debtor agrees that Secured Party shall not be obligated to give more than five (5) days prior written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Debtor shall be liable for all expenses of retaking, holding, preparing for sale or the like, and all attorneys' fees, legal expenses and other costs and expenses incurred by Secured Party in connection with the collection of the Obligations and the enforcement of Secured Party's rights under this Agreement. Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral applied to the Obligations are insufficient to pay the Obligations in full. Secured Party may apply the Collateral against the Obligations in such order and manner as Secured Party may elect in its sole discretion. Debtor waives all rights of marshaling, valuation and appraisal in respect of the Collateral. Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and then or at any time thereafter applied in whole or in part by Secured Party against, the Obligations in such order as Secured Party shall select. Any surplus of such cash or cash proceeds and interest accrued thereon, if any, held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus; provided that Secured Party shall have no obligation to invest or otherwise pay interest on any amounts held by it in connection with or pursuant to this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 24 24 (b) Secured Party may cause any or all of the Collateral held by it to be transferred into the name of Secured Party or the name or names of Secured Party's nominee or nominees. (c) Secured Party may exercise any and all rights and remedies of Debtor under or in respect of the Collateral, including, without limitation, any and all rights of Debtor to demand or otherwise require payment of any amount under, or performance of any provision of, any of the Collateral and any and all voting rights and corporate powers in respect of the Collateral. (d) Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (e) On any sale of the Collateral, Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. (f) For purposes of enabling Secured Party to exercise its rights and remedies under this Section 6.1 and enabling Secured Party and its successors and assigns to enjoy the full benefits of the Collateral, Debtor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Debtor) to use, assign, license or sublicense any of the Intellectual Property, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and all computer programs used for the completion or printout thereof. This license shall also inure to the benefit of all successors, assigns and transferees of Secured Party. (g) Secured Party may require that Debtor assign all of its right, title and interest in and to the Intellectual Property or any part thereof to Secured Party or such other Person as Secured Party may designate pursuant to documents satisfactory to Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 25 25 Section 6.2 Registration Rights, Private Sales, Etc. (a) If Secured Party shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the request of Secured Party (which request may be made by Secured Party in its sole discretion), Debtor will, at its own expense: (i) execute and deliver, and cause each issuer of any of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such agreements, documents and instruments, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Collateral under the provisions of the Securities Act (as hereinafter defined) and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Collateral, as requested by Secured Party; (iii) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (iv) do or cause to be done all such other acts and things as may be reasonably necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law; and (v) bear all reasonable costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 6.2. (b) Debtor recognizes that Secured Party may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended from time to time (the "Securities Act") and applicable state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account for investment and not with a view to the distribution or resale thereof. Debtor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Secured Party shall not be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer of such securities to register such securities under the Securities Act or under any applicable state securities laws, even if such issuer would agree to do so. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 26 26 (c) Debtor further agrees to do or cause to be done, to the extent that Debtor may do so under applicable law, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at Debtor's expense. Debtor further agrees that a breach of any of the covenants contained in this Section 6.2 will cause irreparable injury to Secured Party and that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) Debtor's failure to perform such covenants will not cause irreparable injury to Secured Party or (ii) Secured Party has an adequate remedy at law in respect of such breach. Debtor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Secured Party by reason of a breach of any of the covenants contained in this Section 6.2 and, consequently, agrees that, if Debtor shall breach any of such covenants and Secured Party shall sue for damages for such breach, Debtor shall pay to Secured Party, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral on the date Secured Party shall demand compliance with this Section 6.2. (d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH CONTROLLING PERSON. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 27 27 ARTICLE 7 Miscellaneous Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective heirs, successors and permitted assigns, except that Debtor may not assign any of its rights, indebtedness, liabilities or obligations under this Agreement without the prior written consent of Secured Party. Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto, except as provided in Section 4.15(g). Section 7.4 Notices. All notices and other communications provided for in this Agreement shall be given or made by telecopy or in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section 7.4. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy or when personally delivered or, in the case of a mailed notice, three (3) Business Days after deposit in the mails, in each case given or addressed as aforesaid; provided, however, that notices to Secured Party shall be deemed given when received by Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 28 28 Section 7.5 Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED PARTY EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR AND SECURED PARTY EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 7.6 Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.7 Survival of Representations and Warranties. All representations and warranties made in this Agreement or in any certificate delivered pursuant hereto shall survive the execution and delivery of this Agreement, and no investigation by Secured Party shall affect the representations and warranties or the right of Secured Party to rely upon them. Section 7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.9 Waiver of Bond. In the event Secured Party seeks to take possession of any or all of the Collateral by judicial process, Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.10 Severability. Any provision of this Agreement which is determined by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 29 29 Section 7.11 Construction. Debtor and Secured Party acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Debtor and Secured Party. Section 7.12 Termination. If all of the Obligations shall have been paid and performed in full and all Commitments of Secured Party shall have expired or terminated, Secured Party shall, upon the written request of Debtor, execute and deliver to Debtor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of Secured Party and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF. Section 7.14 Consigned Inventory. Notwithstanding anything to the contrary contained herein or in any other Loan Document, Debtor (a) may maintain Inventory at locations other than those set forth in Schedule 5 (the "Offsite Inventory") and (b) shall not be required to execute UCC-1 Financing Statements for the jurisdictions in which the Offsite Inventory are located, provided, that, the book value of all Offsite Inventory (as defined in each of the respective Amended and Restated Pledge and Security Agreements dated the date hereof executed by Karts International Incorporated and each of its Subsidiaries in favor of Secured Party) of Karts International Incorporated and each of its Subsidiaries does not exceed $50,000 in the aggregate. [The remainder of this page has been intentionally left blank] AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 30 30 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTOR: ------ STRAIGHT LINE MANUFACTURING, INC. By: ____________________________________ Name: ____________________________________ Title: ____________________________________ Address for Notices: ------------------- P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telecopy No.: 504-747-2700 Attention: President AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 31 31 SECURED PARTY: ------------- THE SCHLINGER FOUNDATION By: ____________________________________ Name: ____________________________________ Title: ____________________________________ 1234 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (Straight Line Manufacturing, Inc.) - Page 32 32 EX-10.57 17 0017.txt AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT EXHIBIT 10.57 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT -------------------------------------------------- (USA Industries, Incorporated) THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of May 17, 2000, is by and between USA INDUSTRIES, INCORPORATED, an Alabama corporation ("Debtor"), whose address is 202 Challenge Avenue, Prattville, Alabama 36067 and whose Tax I.D. No. is 63-1059139, and THE SCHLINGER FOUNDATION ("Secured Party") whose address is 1944 Edison Street, Santa Yinez, California 93460. R E C I T A L S: --------------- A. Karts International Incorporated ("Borrower") is, concurrently herewith, entering into that certain Amended and Restated Loan Agreement dated as of May 17, 2000, with the Secured Party (such agreement, as it may be amended, renewed, extended, restated, replaced, substituted, supplemented or otherwise modified from time to time, is referred to herein as the "Loan Agreement"). B. The execution and delivery of this Agreement is required by the terms of the Loan Agreement and is a condition to the availability of the Loan to Borrower pursuant to the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Secured Party to make the Loan under the Loan Agreement, the parties hereto hereby agree as follows: ARTICLE 1 Definitions ----------- Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Account" means any "account", as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all rights of Debtor to payment for goods sold or leased, services rendered or the license of Intellectual Property, whether or not earned by performance; (b) all accounts receivable of Debtor; (c) all rights of Debtor to receive any payment of money or other form of consideration; (d) all security pledged, assigned or granted to or held by Debtor to secure any of the foregoing; (e) all guaranties of, or indemnifications with respect to, any of the foregoing; (f) all rights of Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation and resale; and (g) all rights to brokerage commissions. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 1 "Broker" means any "broker," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "Capital Stock" means corporate stock and any and all securities, shares, partnership interests, limited partnership interests, limited liability company interests, membership interests, equity interests, participations, rights or other equivalents (however designated) of corporate stock or any of the foregoing issued by any entity (whether a corporation, a partnership, a limited liability company or another entity) and includes, without limitation, securities convertible into Capital Stock and rights or options to acquire Capital Stock. "Chattel Paper" means any "chattel paper," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor. "Clearing Corporation" means any "clearing corporation," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Person that is registered as a "clearing agency" under the federal securities laws, (b) federal reserve bank, or (c) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including, without limitation, promulgation of rules, are subject to regulation by a federal or state governmental authority. "Collateral" has the meaning specified in Section 2.1. "Commodity Account" means any "commodity account," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all accounts maintained by a Commodity Intermediary in which a Commodity Contract is carried for Debtor. "Commodity Contract" means any "commodity contract," as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, a commodity futures contract, a commodity option, or other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws, or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "Commodity Customer" means any "commodity customer" as such term is defined in Article or Chapter 9 of the UCC, and includes, without limitation, any Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "Commodity Intermediary" means any "commodity intermediary," as such term is defined in Article or Chapter 9 of the UCC, including, without limitation, (a) a Person who is registered as a futures commission merchant under the federal commodities laws, or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to the federal commodities laws. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 2 "Copyright License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Copyright including, without limitation, the agreements identified on Schedule 1. "Copyright Security Agreement" means a copyright security agreement, executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit A, as such agreement may be amended, supplemented or otherwise modified from time to time. "Copyrights" means all of the following: (a) all copyrights, works protectable by copyright, copyright registrations and copyright applications of Debtor, including, without limitation, those set forth on Schedule 1; (b) all renewals, extensions and modifications thereof; (c) all income, royalties, damages, profits and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present or future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Deposit Accounts" means any and all deposit accounts (including cash collateral accounts), bank accounts or investment accounts now owned or hereafter acquired or opened by Debtor, including, without limitation, those set forth on Schedule 2, and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts and other property deposited therein and all balances therein and all investments made with funds deposited therein or otherwise held in connection therewith, including, without limitation, indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the government of the U.S., certificates of deposit and all contract rights, General Intangibles, contracts, Instruments, Investment Property, Security Entitlements, Financial Assets, Commodity Contracts and other Documents now or hereafter existing with respect thereto, including, but not limited to, any and all renewals, extensions, reissuances and replacements and substitutions therefor with all earnings, profits or other Proceeds therefrom in the form of interest or otherwise, from time to time representing, evidencing, deposited into or held in the Deposit Accounts. "Document" means any "document," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, including, without limitation, all documents of title and all receipts covering, evidencing or representing goods now owned or hereafter acquired by Debtor. "Entitlement Holder" means any "entitlement holder", as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary, including, without limitation, any Person who acquires a security entitlement under Article or Chapter 8 of the UCC. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 3 "Equipment" means any "equipment," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, all machinery, equipment, furniture, fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft and vehicles now owned or hereafter acquired by Debtor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Financial Asset" means any "financial asset," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Security, (b) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment, and (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article or Chapter 8 of the UCC. "General Intangibles" means any "general intangibles," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all of Debtor's service marks, trade names, trade secrets, registrations, goodwill, franchises, licenses, permits, proprietary information, customer lists, designs and inventions; (b) all of Debtor's books and records, data, plans, manuals, computer software, computer tapes, computer disks, computer programs, source codes, object codes, management information systems and all rights of Debtor to retrieve data and other information from third parties; (c) all of Debtor's contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts and certificates of deposit; (d) all rights of Debtor to payment under letters of credit and similar agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all choses in action and causes of action of Debtor (whether arising in contract, tort or otherwise and whether or not currently in litigation) and all judgments in favor of Debtor; (g) all rights and claims of Debtor under warranties and indemnities; and (h) all rights of Debtor under any insurance, surety or similar contract or arrangement. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" by any Person means any indebtedness, liability or obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any indebtedness, liability or obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other indebtedness, liability or obligation as to the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming such Person is required to perform thereunder). AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 4 "Instrument" means any "instrument," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include all promissory notes, drafts, bills of exchange and trade acceptances of Debtor, whether now owned or hereafter acquired. "Intellectual Property" means the Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. "Inventory" means any "inventory," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) all goods and other personal property of Debtor that are held for sale or lease or to be furnished under any contract of service; (b) all raw materials, work-in-process, finished goods, inventory, supplies and materials of Debtor; (c) all wrapping, packaging, advertising and shipping materials of Debtor; (d) all goods that have been returned to, repossessed by or stopped in transit by Debtor; and (e) all Documents evidencing any of the foregoing. "Investment Property" means any "investment property," as such term is defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Debtor: (a) the Securities Accounts and other Investment Property described on Schedule 3; (b) any Security or Capital Stock, whether certificated or uncertificated; (c) any Security Entitlement; (d) any Securities Account; (e) any Commodity Contract; and (f) any Commodity Account. "Issuer" means any "issuer," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (a) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate; (b) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security; (c) directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate; or (d) becomes responsible for, or in the place of, another Issuer. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 5 "License" means any permit, certificate, approval, order, license or other authorization. "Obligations" means the "Obligations," as such term is defined in the Loan Agreement, and the obligations, indebtedness and liabilities of Debtor under this Agreement and any other Loan Document to which Debtor may be a party. "Patent License" means any written agreement now or hereafter in existence granting to Debtor any right to use any invention on which a Patent is in existence including, without limitation, the agreements described on Schedule 1. "Patent Security Agreement" means a patent security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit B, as such agreement may be amended, supplemented or otherwise modified from time to time. "Patents" means all of the following: (a) all patents, patent applications and patentable inventions of Debtor, including, without limitation, those set forth on Schedule 1, and all of the inventions and improvements described and claimed therein; (b) all continuations, divisions, renewals, extensions, modifications, substitutions, continuations-in- part or reissues of any of the foregoing; (c) all income, royalties, profits, damages, awards and payments relating to or payable under any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; (e) all other rights and benefits relating to any of the foregoing throughout the world; and (f) all goodwill associated with any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Pledged Collateral" has the meaning specified in Section 4.16(b)(i). "Pledged Shares" means all Capital Stock now or hereafter owned by Debtor, including, without limitation, the shares of Capital Stock described on Schedule 4. "Proceeds" means any "proceeds," as such term is defined in Article or Chapter 9 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting, or purporting to act, for or on behalf of any Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Securities Account" means any "securities account," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 6 "Securities Intermediary" means any "securities intermediary," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any (a) Clearing Corporation, or (b) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. "Security" means any "security," as such term is defined in Article or Chapter 8 of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer (a) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer, (b) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations, and (c) which (i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or (ii) is a medium for investment and by its terms expressly provides that it is a security governed by Article or Chapter 8 of the UCC. "Security Certificate" means any "security certificate," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any certificate representing a Security. "Security Entitlement" means any "security entitlement," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Trademark License" means any written agreement now or hereafter in existence granting to Debtor any right to use any Trademark, including, without limitation, the agreements identified on Schedule 1. "Trademark Security Agreement" means a trademark security agreement executed and delivered by Debtor to Secured Party, substantially in the form of Exhibit C, as such agreement may be amended, supplemented or otherwise modified from time to time. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 7 "Trademarks" means all of the following: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos, other business identifiers, prints and labels on which any of the foregoing have appeared or appear, all registrations and recordings thereof and all applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the U.S., any state thereof or any other country or any political subdivision thereof, including, without limitation, those described in Schedule 1; (b) all reissues, extensions and renewals thereof; (c) all income, royalties, damages and payments now or hereafter relating to or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (e) the right to sue for past, present and future infringements of any of the foregoing; (f) all rights corresponding to any of the foregoing throughout the world; and (g) all goodwill associated with and symbolized by any of the foregoing; in each case, whether now owned or hereafter acquired by Debtor. "UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided, that if, by applicable law, the perfection or effect of perfection or non-perfection of the security interest created hereunder in any Collateral is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or the effect of perfection or non-perfection. "Uncertificated Security" means any "uncertificated security," as such term is defined in Article or Chapter 8 of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. "U.S." means the United States of America. Section 1.2 Other Definitional Provisions. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein shall have the meanings therefor specified in the Loan Agreement. References to "Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. All references to statutes and regulations shall include any amendments of the same and any successor statutes and regulations. References to particular sections of the UCC should be read to refer also to parallel sections of the Uniform Commercial Code as enacted in each state or other jurisdiction where any portion of the Collateral is or may be located. ARTICLE 2 Security Interest ----------------- Section 2.1 Security Interest. As collateral security for the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as collateral) to Secured Party, and grants to Secured AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 8 Party a continuing lien on and security interest in, all of Debtor's right, title and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; (f) all Equipment (including, without limitation, Equipment at the locations set forth on Schedule 5 hereto); (g) all Inventory (including, without limitation, Inventory at the locations set forth on Schedule 5 hereto); (h) all Intellectual Property; (i) all Investment Property, and the certificates and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Investment Property; (j) all Deposit Accounts; (k) the Pledged Shares and the certificates representing the Pledged Shares, all additional Capital Stock of the Subsidiaries of Debtor and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares or such additional Capital Stock, and all rights, interests and other property, including, without limitation, General Intangibles, relating to any or all of the Pledged Shares, such additional Capital Stock and such dividends, cash, instruments and other property; (l) all indebtedness from time to time owed to Debtor by its Subsidiaries and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such indebtedness; (m) all proceeds, in cash or otherwise, of any of the property described in the foregoing clauses (a) through (l) and all liens, security, rights, remedies and claims of Debtor with respect thereto; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 9 (n) all other goods and personal property of Debtor of any kind or character, whether tangible or intangible, including, without limitation, any and all rights in and claims under insurance policies, judgments and rights thereunder, and tort claims; and (o) all Proceeds and products of any or all of the foregoing. Section 2.2 Debtor Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Debtor shall remain liable under the contracts, agreements, documents and instruments included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights or remedies hereunder shall not release Debtor from any of its duties or obligations under the contracts, agreements, documents and instruments included in the Collateral, and (c) Secured Party shall not have any indebtedness, liability or obligation under any of the contracts, agreements, documents and instruments included in the Collateral by reason of this Agreement, and Secured Party shall not be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 2.3 Delivery of Collateral. All certificates or instruments representing or evidencing the Pledged Shares, any Instruments or Chattel Paper or any other Collateral including, without limitation, any Investment Property, promptly upon Debtor gaining any rights therein, shall be delivered to and held by or on behalf of Secured Party pursuant hereto in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. After the occurrence and during the continuation of an Event of Default, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing any Pledged Collateral in its possession for certificates or instruments of smaller or larger denominations. ARTICLE 3 Representations and Warranties ------------------------------ To induce Secured Party to enter into this Agreement and the other Loan Documents, Debtor represents and warrants that: Section 3.1 Title. Debtor is, and with respect to Collateral acquired after the date hereof Debtor will be, the legal and beneficial owner of the Collateral free and clear of any Lien or other encumbrance, except for Liens otherwise expressly permitted by Secured Party in the Loan Agreement or any other Loan Document (hereinafter "Permitted Liens"). Section 3.2 Accounts. Unless Debtor has given Secured Party written notice to the contrary, whenever the security interest granted hereunder attaches to an Account, Debtor shall be deemed to have represented and warranted to Secured Party as to each of its Accounts at the time of its creation that, to the best of Debtor's knowledge (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor, (c) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, the amount of each Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) except for defenses and business disputes arising in the ordinary course of business which in the aggregate are not material, no Account is subject to any offset, counterclaim or other defense. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 10 Section 3.3 Financing Statements. No financing statement, security agreement or other Lien instrument covering all or any part of the Collateral is on file in any public office, except as may have been filed in favor of Secured Party pursuant to this Agreement and except for financing statements evidencing Permitted Liens. Except as otherwise disclosed on Schedule 6 hereto, Debtor does not do business and has not done business within the past five (5) years under a trade name or any name other than its legal name set forth at the beginning of this Agreement. Section 3.4 Principal Place of Business. The principal place of business and chief executive office of Debtor, and the office where Debtor keeps its books and records, is located at the address of Debtor shown at the beginning of this Agreement. Section 3.5 Location of Collateral. All Inventory (except Inventory in transit) and Equipment (other than vehicles) of Debtor is located at the places specified on Schedule 5 hereto. If any such location is leased by Debtor, the name and address of the landlord leasing such location is identified on Schedule 5 hereto. All Inventory (except Inventory in transit) and Equipment will be located only at (a) the specific locations which are described as locations for such types of Inventory and Equipment on Schedule 5 hereto or (b) subject to the requirements of this Agreement, such other locations as may be expressly identified by Debtor from time to time as locations for such types of Inventory and Equipment, which identification shall be set forth in a written notice given by Debtor to Secured Party at least 30 days prior to the date upon which any such Inventory or Equipment is located at such location. Debtor has exclusive possession and control of its Inventory and Equipment. None of the Inventory (other than Inventory in transit as to which all Documents evidencing such Inventory have been delivered to Secured Party) or Equipment (other than vehicles) of Debtor is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments, Chattel Paper and Security Certificates of Debtor have been delivered to Secured Party. Section 3.6 Perfection. Upon the filing of Uniform Commercial Code financing statements in the jurisdictions listed on Schedule 7, the filing of a Patent Security Agreement (if any) and a Trademark Security Agreement (if any) with the United States Patent and Trademark Office, the filing of a Copyright Security Agreement (if any) with the United States Copyright Office, and upon Secured Party's obtaining possession of the Pledged Shares and all other Instruments, Chattel Paper and Security Certificates of Debtor, the security interest in favor of Secured Party created herein will constitute a valid and perfected Lien upon and security interest in the Collateral (except for (a) vehicles covered by certificates of title, and (b) other Property excluded from the application of Article or Chapter 9 of the UCC by Section 9-104 of the UCC), subject to no equal or prior Liens except for those Liens (if any) which constitute Permitted Liens and are permitted by the Loan Agreement to have equal or greater priority. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 11 Section 3.7 Inventory. All production (if any) and purchase of Inventory by Debtor has been in compliance with all requirements of the Fair Labor Standards Act. Section 3.8 Intellectual Property. (a) All of the Intellectual Property is subsisting, valid and enforceable. The information contained on Schedule 1 hereto is true, correct and complete. All Intellectual Property existing on the date hereof is identified on Schedule 1 hereto. (b) Debtor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property free and clear of any Liens, including, without limitation, any pledges, assignments, licenses, user agreements and covenants by Debtor not to sue third Persons, other than Permitted Liens. (c) No claim has been made that the use of any of the Intellectual Property violates or may violate the rights of any third Person. (d) Each of the Patents and Trademarks identified on Schedule 1 hereto has been properly registered with the United States Patent and Trademark Office and each of the Copyrights identified on Schedule 1 hereto has been properly registered with the United States Copyright Office. Section 3.9 Pledged Shares and Instruments. (a) The Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable under the laws of the jurisdiction of incorporation or organization of the issuers thereof. To the best knowledge of Debtor, the Instruments have been duly authorized and validly issued and constitute legal and enforceable indebtedness of the makers or issuers thereof. (b) Debtor is the legal and beneficial owner of the Pledged Shares and the Instruments, free and clear of any Lien (other than the Lien created by this Agreement), and Debtor has not sold, granted any option with respect to, assigned, transferred or otherwise disposed of any of its rights or interest in or to the Pledged Shares or the Instruments. (c) On the date hereof, the Pledged Shares constitute the percentage of the issued and outstanding Capital Stock of the issuers thereof indicated on Schedule 4, as such Schedule 4 may from time to time be supplemented, amended or modified. Section 3.10 Investment Property. As of the Closing Date, Schedule 3 contains a complete and accurate description of all Investment Property owned by Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 12 ARTICLE 4 Covenants Debtor covenants and agrees with Secured Party that until the Obligations are paid and performed in full: Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to exist, and shall defend the Collateral against, any Lien or other encumbrance on the Collateral except for those Permitted Liens (if any) which are permitted to attach to the Collateral in accordance with the Loan Agreement, and shall defend Debtor's rights in the Collateral and Secured Party's pledge and collateral assignment of and security interest in the Collateral against the claims and demands of all Persons. Debtor shall do nothing to impair the rights of Secured Party in the Collateral. Section 4.2 Modification of Accounts. Debtor shall, in accordance with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of Secured Party, Debtor shall not, other than in the ordinary course of business and pursuant to customary business practices in Debtor's industry, (a) grant any extension of time for any payment with respect to any of the Accounts, (b) compromise, compound or settle any of the Accounts for less than the full amount thereof, (c) release, in whole or in part, any Person liable for payment of any of the Accounts, (d) allow any credit or discount for payment with respect to any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or Guarantee securing any Account. Section 4.3 Disposition of Collateral. Except as expressly permitted by the terms of the Loan Agreement, Debtor shall not sell, lease, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of Secured Party. Section 4.4 Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Debtor, Debtor shall promptly execute and deliver all such further agreements, documents and instruments and take such further action as Secured Party may reasonably deem necessary or appropriate to preserve and perfect its security interest in and pledge and collateral assignment of the Collateral and carry out the provisions and purposes of this Agreement or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral, and, to the extent any of the Collateral at any time constitutes Investment Property, then Debtor shall cause Secured Party to obtain "control," as defined in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if Secured Party reasonably so requests) of the manners prescribed in Section 8-106 of the UCC. Debtor and Secured Party agree that the grant of the security interest in the Investment Property pursuant to this Agreement shall have the effect of a delivery of such securities to Secured Party pursuant to Section 8-301 of the UCC, and the effect of a taking of delivery by Secured Party of such Collateral in accordance with Section 8- 302 of the UCC. Except as otherwise expressly permitted by the terms of the Loan Agreement relating to disposition of assets and except for Permitted Liens, Debtor agrees to defend the title to the Collateral and the Lien thereon of Secured Party against the claim of any other Person and to maintain and preserve such Lien. Without limiting the generality of the foregoing, Debtor shall (a) execute and deliver to Secured Party such financing statements as Secured Party may from time to time require; (b) deliver and pledge to Secured Party all Documents (including, without limitation, all documents of title) evidencing Inventory or Equipment (except for certificates of title covering vehicles) and cause Secured Party to be named as lienholder on all such Documents; (c) deliver and pledge to Secured Party all Instruments and Chattel Paper of Debtor with any necessary endorsements; and (d) execute and deliver to Secured Party such other agreements, documents and instruments as Secured Party may require to perfect and maintain the validity, effectiveness and priority of the Liens intended to be created by the Loan Documents. Debtor authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of Debtor where permitted by law. A carbon, photographic or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 13 Section 4.5 Insurance. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Secured Party from time to time. If requested by Secured Party, each policy for property damage insurance shall provide for all proceeds thereof to be paid directly to Secured Party. If requested by Secured Party, each policy of insurance maintained by Debtor shall (i) name Debtor and Secured Party as insured parties thereunder (without any representation or warranty by or obligation upon Secured Party) as their interests may appear, (ii) contain the agreement by the insurer that all proceeds of such policy shall be payable to Secured Party notwithstanding any action, inaction or breach of representation or warranty by Debtor, (iii) provide that there shall be no recourse against Secured Party for payment of premiums or other amounts with respect thereto, and (iv) provide that at least ten (10) days prior written notice of cancellation or of lapse shall be given to Secured Party by the insurer. Debtor will, if requested by Secured Party, deliver to Secured Party original or duplicate policies of such insurance and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance. Debtor will also, at the request of Secured Party, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to any Collateral shall be paid to Secured Party, as provided for in this paragraph, and applied as Secured Party in its sole discretion deems appropriate. Section 4.6 Bailees. If any of the Collateral is at any time in the possession or control of any warehouseman, bailee or any of Debtor's agents or processors, Debtor shall, at the request of Secured Party, notify such warehouseman, bailee, agent or processor of the security interest created hereunder and shall instruct such Person to hold such Collateral for Secured Party's account subject to Secured Party's instructions. Section 4.7 Inspection Rights. Debtor shall permit Secured Party and its representatives to examine, inspect and audit the Collateral and to examine, inspect and audit Debtor's books and records at any reasonable time, and as the Secured Party may desire. Secured Party may at any time and from time to time contact account debtors to verify the existence, amounts and terms of the Accounts. Section 4.8 Mortgagee and Landlord Waivers or Subordinations. Subject to the provisions of the Loan Agreement, Debtor shall cause each mortgagee of real property owned by Debtor and each landlord of real property leased by Debtor to execute and deliver instruments satisfactory in form and substance to Secured Party by which such mortgagee or landlord waives or subordinates its rights, if any, in any of the Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 14 Section 4.9 Corporate Changes. Debtor shall not change its name, identity or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless Debtor shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to protect its Liens and the perfection and priority thereof. Debtor shall not change its principal place of business, chief executive office or the place where it keeps its books and records unless it shall have given Secured Party thirty (30) days prior written notice thereof and shall have taken all action deemed necessary or appropriate by Secured Party to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.10 Books and Records; Information. Debtor shall keep accurate and complete books and records of the Collateral and Debtor's business and financial condition in accordance with GAAP. Debtor shall from time to time at the request of Secured Party deliver to Secured Party such information regarding the Collateral and Debtor as Secured Party may reasonably request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. To the extent required by Section 4.4 of this Agreement, Debtor shall mark its books and records to reflect the security interest of Secured Party under this Agreement. Section 4.11 Equipment and Inventory. (a) Debtor shall keep the Equipment (other than vehicles) and Inventory (other than Inventory in transit) at the locations specified on Schedule 5 hereto or at such other places within the U.S. where all action required to perfect Secured Party's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken; provided that if any Equipment (other than vehicles) or Inventory (other than Inventory in transit) is being relocated to any jurisdiction where the security interest of Secured Party under this Agreement has not been previously perfected, then in such case Debtor shall deliver prompt (and in any event within not less than thirty (30) days) notice thereof to Secured Party. (b) Debtor shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear of the Equipment excepted). Debtor shall not permit any waste or destruction of the Equipment or Inventory or any part thereof. Debtor shall not permit the Equipment or Inventory to be used in violation of any law, rule or regulation or the terms of any policy of insurance. Debtor shall not use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. (c) Debtor shall comply with all requirements of the Fair Labor Standards Act in producing or purchasing Inventory. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 15 (d) Within forty-five (45) days of the end of each of Debtor's fiscal quarters, Debtor shall provide Secured Party with a report setting forth in reasonable detail any change during such preceding fiscal quarter of the location of any Equipment or Inventory (unless such location is one of the locations already specified on Schedule 5 hereto). Section 4.12 Warehouse Receipts Non-Negotiable. Debtor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the UCC) unless such warehouse receipt or receipt in the nature thereof is delivered to Secured Party. Section 4.13 Notification. Debtor shall promptly notify Secured Party of (a) any Lien, encumbrance or claim (other than Permitted Liens) that has attached to or been made or asserted against any of the Collateral, (b) any material change in any of the Collateral, including, without limitation, any material damage to or loss of Collateral, and (c) the occurrence of any other event or condition (including, without limitation, matters as to Lien priority) that could have a material adverse effect on the Collateral or the security interest created hereunder. Section 4.14 Collection of Accounts. Debtor shall cause all collections of Accounts and sales of Inventory to be conducted in compliance with the terms of the Loan Agreement. In addition all cash proceeds (including, without limitation, all Proceeds of Collateral) shall be deposited directly, as received, into one or more of the Deposit Accounts. Debtor agrees that all Proceeds of Collateral deposited in any collection account or concentration account shall at all times continue to be Collateral under the terms of this Agreement. Debtor shall cause each of the Deposit Accounts to be collaterally assigned, on a first priority basis, to Secured Party as security for the payment and performance of the Obligations pursuant to agreements in form and substance reasonably satisfactory to Secured Party which have been acknowledged and agreed to by the depository banks on or before June 17, 2000. Section 4.15 Intellectual Property. Except with the written consent of Secured Party: (a) Debtor shall prosecute diligently all applications in respect of Intellectual Property, now or hereafter pending; (b) Debtor shall make federal applications on all of its unpatented but patentable inventions and all of its registrable but unregistered Copyrights and Trademarks other than any immaterial Patents, Trademarks and Copyrights which are not useful in Debtor's business; (c) Debtor shall preserve and maintain all of its rights in the Intellectual Property and shall protect the Intellectual Property from infringement, unfair competition, cancellation or dilution by all appropriate action, including, without limitation, the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property; AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 16 (d) Debtor shall not abandon any of the Intellectual Property except for any immaterial Intellectual Property which is not useful in Debtor's business; (e) Debtor shall not sell or assign any of its interest in, or grant any license under (except as permitted by Section 5.5), any of the Intellectual Property and shall maintain the quality of any and all products and services with respect to which the Intellectual Property is used. Debtor shall not enter into any agreement regarding Intellectual Property, including, but not limited to, any licensing agreement not permitted by Section 5.5, that is or may be inconsistent with Debtor's obligations under this Agreement or any of the other Loan Documents; (f) If Debtor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 1 hereto, Debtor shall give Secured Party prompt written notice thereof and the provisions of this Agreement shall automatically apply thereto and Debtor hereby authorizes Secured Party to modify or update Schedule 1 hereto to include any such new Intellectual Property; (g) Upon the occurrence of any event that would require any addition to or modification of Schedule 1 hereto or upon the request of Secured Party, Debtor shall furnish to Secured Party statements and schedules further identifying the Intellectual Property and such other items in connection with the Intellectual Property as Secured Party may request. Promptly upon the request of Secured Party, Debtor shall modify this Agreement by amending Schedule 1 hereto to include any Intellectual Property that becomes part of the Collateral; (h) If an Event of Default shall have occurred and be continuing, Debtor shall use its best efforts to obtain any consents, waivers or agreements necessary to enable Secured Party to exercise its rights and remedies with respect to the Intellectual Property; and (i) Debtor shall, at the request of Secured Party, execute and deliver to Secured Party a Copyright Security Agreement, a Patent Security Agreement, a Trademark Security Agreement and all other agreements, documents, instruments and other items as may be necessary for Secured Party to file such agreements with the United States Copyright Office, the United States Patent and Trademark Office and any similar domestic or foreign office, department or agency. Debtor will, at any time and from time to time upon the request of Secured Party, execute and deliver to Secured Party all such other agreements, documents, instruments and other items as may be necessary or appropriate for Secured Party to create and perfect its security interest in the Intellectual Property and to make all appropriate filings with respect thereto. Section 4.16 Voting Rights, Distributions, Etc. (a) So long as no Event of Default shall have occurred and be continuing: (i) Debtor shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications in respect of any of the Pledged Collateral) pertaining to any of the Pledged Collateral or any part thereof; provided, however, that without the prior written consent of Secured Party, no vote shall be cast or consent, waiver or ratification given or action taken which would (x) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (y) amend, modify or waive any term, provision or condition of the certificate of incorporation, by-laws, certificate of formation, operating agreement or other charter document or other agreement relating to, evidencing, providing for the issuance of or securing any Collateral; and provided further that Debtor shall give Secured Party at least five (5) Business Days' prior written notice in the form of an officer's certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof; and AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 17 (ii) Unless an Event of Default shall have occurred and be continuing, Debtor shall be entitled to receive and retain any and all dividends and interest paid in respect of any of the Collateral to the extent permitted by the Loan Agreement. During the continuance of any Default, any dividends, interest or other distributions (whether in cash, securities, property or otherwise) received by Debtor with respect to any Pledged Collateral shall be held by Debtor in trust for the benefit of Secured Party and, upon the request of Secured Party, shall be delivered promptly to Secured Party to hold as Collateral or shall be applied by Secured Party toward payment of the Obligations, as Secured Party may in its discretion determine. If such Default is waived or cured to the satisfaction of Secured Party, any such distributions shall be returned promptly to Debtor (provided that no other Default or Event of Default exists). If such Default remains uncured and becomes an Event of Default, any such distributions will be applied by Secured Party as provided in the Loan Agreement. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) Secured Party may, without notice to Debtor, transfer or register in the name of Secured Party or any of its nominees any or all of the Collateral described in Section 2.1(m) or Section 2.1(n), the proceeds thereof (in cash or otherwise) and all liens, security, rights, remedies and claims of Debtor with respect thereto (collectively, the "Pledged Collateral") held by Secured Party hereunder, and Secured Party or its nominee may thereafter, after delivery of notice to Debtor, exercise all voting and corporate rights at any meeting of any corporation, partnership or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of any corporation, partnership or other business entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or Secured Party of any right, privilege or option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but Secured Party shall have no duty to exercise any of the aforesaid rights, privileges or options, and Secured Party shall not be responsible for any failure to do so or delay in so doing. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 18 (ii) All rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection 4.16(a)(i) and to receive the dividends, interest and other distributions which it would otherwise be authorized to receive and retain pursuant to subsection 4.16(a)(ii) shall be suspended until such Default or Event of Default shall no longer exist, and all such rights shall, until such Default or Event of Default shall no longer exist, thereupon become vested in Secured Party which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends, interest and other distributions. (iii) All dividends, interest and other distributions which are received by Debtor contrary to the provisions of this subsection 4.16(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Debtor and shall be forthwith paid over to Secured Party as Collateral in the same form as so received (with any necessary endorsement). (iv) Debtor shall execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies and other instruments as Secured Party may reasonably request for the purpose of enabling Secured Party to exercise the voting and other rights which it is entitled to exercise pursuant to this subsection 4.16(b) and to receive the dividends, interest and other distributions which it is entitled to receive and retain pursuant to this subsection 4.16(b). The foregoing shall not in any way limit Secured Party's power and authority granted pursuant to Section 5.1. Section 4.17 Transfers and Other Liens; Additional Investments. (a) Except as may be expressly permitted by the terms of the Loan Agreement, Debtor shall not grant any option with respect to, exchange, sell or otherwise dispose of any of the Collateral or create or permit to exist any Lien upon or with respect to any of the Collateral except for the Liens created hereby. (b) Debtor agrees that it will (i) cause each issuer of any of the Pledged Collateral not to issue any Capital Stock, notes or other securities or instruments in addition to or in substitution for any of the Pledged Collateral, except, with the written consent of Secured Party, to Debtor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all such Capital Stock, notes or other securities or instruments, and (iii) promptly (and in any event within three Business Days) deliver to Secured Party an Amendment, duly executed by Debtor, in substantially the form of Exhibit D (an "Amendment"), in respect of such Capital Stock, notes or other securities or instruments, together with all certificates, notes or other securities or instruments representing or evidencing the same. Debtor hereby (i) authorizes Secured Party to attach each Amendment to this Agreement, (ii) agrees that all such Capital Stock, notes or other securities or instruments listed on any Amendment delivered to Secured Party shall for all purposes hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Article III with respect to such Pledged Collateral. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 19 Section 4.18 Possession; Reasonable Care. Regardless of whether a Default or an Event of Default has occurred or is continuing, Secured Party shall have the right to hold in its possession all Instruments, Chattel Paper and Pledged Collateral pledged, assigned or transferred hereunder and from time to time constituting a portion of the Collateral. Secured Party may, from time to time, in its sole discretion, appoint one or more agents (which in no case shall be Debtor or an Affiliate of Debtor) to hold physical custody, for the account of Secured Party, of any or all of the Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Following the occurrence and during the continuation of an Event of Default, Secured Party shall be entitled to take possession of the Collateral. Section 4.19 Acknowledgment of Collateral Assignment of Deposit Accounts. Debtor shall deliver to Secured Party, on or before June 17, 2000, and at any time as Secured Party may request hereafter, acknowledgment by each financial institution in which any Deposit Account is held or maintained that the collateral assignment of such Deposit Account has been recorded in the books and records of such financial institution, and that Secured Party shall have dominion and control over such Deposit Account, such acknowledgment to be in form and substance satisfactory to Secured Party. Section 4.20 Statement of Account for Deposit Accounts. Debtor shall, from time to time upon written request of Secured Party, provide to Secured Party a copy of each statement of account for any Deposit Account received by Debtor from the financial institution in which a Deposit Account is held or maintained. At Secured Party's request, Debtor will use its reasonable efforts to make such arrangements as are reasonably necessary in order to enable Secured Party to access such information by inquiry of an officer or other representative of any such financial institution or via any automated information system which may be maintained by such financial institution. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 20 ARTICLE 5 Rights of Secured Party Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of Debtor or in its own name, to take after the occurrence and during the continuance of an Event of Default, any and all action and to execute any and all documents and instruments which Secured Party at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, Debtor hereby gives Secured Party the power and right on behalf of Debtor and in its own name to do any of the following after the occurrence and during the continuance of an Event of Default, without notice to or the consent of Debtor: (a) to demand, sue for, collect or receive, in the name of Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title or any other instruments for the payment of money under the Collateral or any policy of insurance; (b) to pay or discharge taxes, Liens or other encumbrances levied or placed on or threatened against the Collateral; (c) to notify post office authorities to change the address for delivery of mail of Debtor to an address designated by Secured Party and to receive, open and dispose of mail addressed to Debtor; (d) (i) to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to Secured Party or as Secured Party shall direct; (ii) to receive payment of and receipt for any and all monies, claims and other amounts due and to become due at any time in respect of or arising out of any Collateral; (iii) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought against Debtor with respect to any Collateral; (vi) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as Secured Party may deem appropriate; (vii) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms as Secured Party may determine; (viii) to add or release any guarantor, indorser, surety or other party to any of the Collateral; (ix) to renew, extend or otherwise change the terms and conditions of any of the Collateral; (x) to grant or issue any exclusive or nonexclusive license under or with respect to any of the Intellectual Property; (xi) to endorse Debtor's name on all applications, documents, papers and instruments necessary or desirable in order for Secured Party to use any of the Intellectual Property; (xii) to make, settle, compromise or adjust any claims under or pertaining to any of the Collateral (including, without limitation, claims under any policy of insurance); and (xiii) to sell, transfer, pledge, convey, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Debtor's expense, at any time, or from time to time, all acts and things which Secured Party deems necessary to protect, preserve, maintain or realize upon the Collateral and Secured Party's security interest therein. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 21 This power of attorney is a power coupled with an interest and shall be irrevocable until this Agreement is terminated in accordance with its terms. Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to Secured Party in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. Neither Secured Party nor any Person designated by Secured Party shall be liable for any act or omission or for any error of judgment or any mistake of fact or law. This power of attorney is conferred on Secured Party solely to protect, preserve, maintain and realize upon its security interest in the Collateral. Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve or maintain any Lien given to secure the Collateral. Section 5.2 Set-off. If an Event of Default shall have occurred and be continuing, Secured Party shall have the right to set-off and apply against the Obligations, at any time and without notice to Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Secured Party to Debtor and although such Obligations may be unmatured. The rights and remedies of Secured Party hereunder are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Secured Party may have. Section 5.3 Assignment by Secured Party. In accordance with the provisions of the Loan Agreement, Secured Party may at any time assign or otherwise transfer all or any portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, the Obligations), in connection with an assignment of the Obligations, to any other Person, and such other Person shall thereupon become vested with all the benefits thereof granted to Secured Party herein or otherwise. Section 5.4 Performance by Secured Party. If Debtor shall fail to perform any covenant or agreement contained in this Agreement, Secured Party may perform or attempt to perform such covenant or agreement on behalf of Debtor. In such event, Debtor shall, at the request of Secured Party, promptly pay any amount expended by Secured Party in connection with such performance or attempted performance to Secured Party, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that Secured Party shall not have any liability or responsibility for the performance of any obligation of Debtor under this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 22 Section 5.5 License. If no Event of Default shall have occurred and be continuing, Debtor shall have the exclusive, non-transferrable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other Persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration. Debtor agrees not to sell or assign its interest in, or grant any sublicense under, the license granted under this Section 5.5 without the prior written consent of Secured Party. Section 5.6 Change of Depository. In the event of the termination by any financial institution in which any Deposit Account is maintained of any agreement with or for the benefit of Secured Party, or if any such financial institution shall fail to comply with any provisions of any such agreement or any instructions of Secured Party in accordance with any such agreement or this Agreement, or if Secured Party determines in its sole discretion that the financial condition of any such financial institution has materially deteriorated, Debtor agrees to transfer the affected Deposit Account(s) to another financial institution acceptable to Secured Party and cause such substitute financial institution to execute such agreements as Secured Party may require, in form and substance acceptable to Secured Party, to ensure that Secured Party has a perfected, first priority collateral assignment of or security interest in the Deposit Account(s) held with such substitute financial institution. If any affected Deposit Account is a lockbox account, Debtor agrees to notify its account debtors promptly to remit all payments which were being sent to the terminated Deposit Account directly to the substitute Deposit Account. Section 5.7 Collection of Deposit Accounts. After the occurrence and during the continuation of an Event of Default, upon written demand from Secured Party to any financial institution in which any of the Deposit Accounts are maintained, each such financial institution is hereby authorized and directed by Debtor to make payment directly to Secured Party of the funds in or credited to the Deposit Accounts, or such part thereof as Secured Party may request, and each such financial institution shall be fully protected in relying upon the written statement of Secured Party that an Event of Default has occurred and is continuing and that the Deposit Accounts are at the time of such demand assigned hereunder and that Secured Party is entitled to payment of the Obligations therefrom. Secured Party's receipt for sums paid it pursuant to such demand shall be a full and complete release, discharge and acquittance to the depository or other financial institution making such payment to the extent of the amount so paid. Debtor hereby authorizes Secured Party, upon (a) Debtor's failure to make payment of any of the Obligations, or any part thereof, or (b) any acceleration of the maturity of the Obligations upon the occurrence of any Event of Default, each as provided in the Loan Agreement, (i) to withdraw, collect and receipt for any and all funds, securities or other investments on deposit in or payable on the Deposit Accounts, (ii) on behalf of Debtor to endorse the name of Debtor upon any checks, drafts or other instruments payable to Debtor evidencing payment on the Deposit Accounts, and (iii) to surrender or present for notation of withdrawal the passbook, certificate or other documents issued to Debtor in connection with the Deposit Accounts. No power granted herein to Secured Party by Debtor shall terminate upon any disability of Debtor. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 23 ARTICLE 6 Default Section 6.1 Rights and Remedies. If an Event of Default shall have occurred and be continuing, Secured Party shall have the following rights and remedies (subject to Section 6.3): (a) In addition to all other rights and remedies granted to Secured Party in this Agreement or in any other Loan Document or by applicable law, Secured Party shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) and Secured Party may also, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Without limiting the generality of the foregoing, Secured Party may (i) without demand or notice to Debtor, collect, receive or take possession of the Collateral or any part thereof and for that purpose Secured Party may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at Secured Party's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable or otherwise as may be permitted by law. Secured Party shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of Debtor, which right or equity of redemption is hereby expressly waived and released by Debtor. Upon the request of Secured Party, Debtor shall assemble the Collateral and make it available to Secured Party at any place designated by Secured Party that is reasonably convenient to Debtor and Secured Party. Debtor agrees that Secured Party shall not be obligated to give more than five (5) days prior written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. Secured Party shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Debtor shall be liable for all expenses of retaking, holding, preparing for sale or the like, and all attorneys' fees, legal expenses and other costs and expenses incurred by Secured Party in connection with the collection of the Obligations and the enforcement of Secured Party's rights under this Agreement. Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral applied to the Obligations are insufficient to pay the Obligations in full. Secured Party may apply the Collateral against the Obligations in such order and manner as Secured Party may elect in its sole discretion. Debtor waives all rights of marshaling, valuation and appraisal in respect of the Collateral. Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party as collateral for, and then or at any time thereafter applied in whole or in part by Secured Party against, the Obligations in such order as Secured Party shall select. Any surplus of such cash or cash proceeds and interest accrued thereon, if any, held by Secured Party and remaining after payment in full of all the Obligations shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus; provided that Secured Party shall have no obligation to invest or otherwise pay interest on any amounts held by it in connection with or pursuant to this Agreement. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 24 (b) Secured Party may cause any or all of the Collateral held by it to be transferred into the name of Secured Party or the name or names of Secured Party's nominee or nominees. (c) Secured Party may exercise any and all rights and remedies of Debtor under or in respect of the Collateral, including, without limitation, any and all rights of Debtor to demand or otherwise require payment of any amount under, or performance of any provision of, any of the Collateral and any and all voting rights and corporate powers in respect of the Collateral. (d) Secured Party may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (e) On any sale of the Collateral, Secured Party is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of Secured Party's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. (f) For purposes of enabling Secured Party to exercise its rights and remedies under this Section 6.1 and enabling Secured Party and its successors and assigns to enjoy the full benefits of the Collateral, Debtor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Debtor) to use, assign, license or sublicense any of the Intellectual Property, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and all computer programs used for the completion or printout thereof. This license shall also inure to the benefit of all successors, assigns and transferees of Secured Party. (g) Secured Party may require that Debtor assign all of its right, title and interest in and to the Intellectual Property or any part thereof to Secured Party or such other Person as Secured Party may designate pursuant to documents satisfactory to Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 25 Section 6.2 Registration Rights, Private Sales, Etc. (a) If Secured Party shall determine to exercise its right to sell all or any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the request of Secured Party (which request may be made by Secured Party in its sole discretion), Debtor will, at its own expense: (i) execute and deliver, and cause each issuer of any of the Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such agreements, documents and instruments, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Collateral under the provisions of the Securities Act (as hereinafter defined) and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) use its best efforts to qualify such Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such Collateral, as requested by Secured Party; (iii) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (iv) do or cause to be done all such other acts and things as may be reasonably necessary to make such sale of the Collateral or any part thereof valid and binding and in compliance with applicable law; and (v) bear all reasonable costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 6.2. (b) Debtor recognizes that Secured Party may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended from time to time (the "Securities Act") and applicable state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account for investment and not with a view to the distribution or resale thereof. Debtor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Secured Party shall not be under any obligation to delay a sale of any of the Collateral for the period of time necessary to permit the issuer of such securities to register such securities under the Securities Act or under any applicable state securities laws, even if such issuer would agree to do so. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 26 (c) Debtor further agrees to do or cause to be done, to the extent that Debtor may do so under applicable law, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at Debtor's expense. Debtor further agrees that a breach of any of the covenants contained in this Section 6.2 will cause irreparable injury to Secured Party and that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) Debtor's failure to perform such covenants will not cause irreparable injury to Secured Party or (ii) Secured Party has an adequate remedy at law in respect of such breach. Debtor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by Secured Party by reason of a breach of any of the covenants contained in this Section 6.2 and, consequently, agrees that, if Debtor shall breach any of such covenants and Secured Party shall sue for damages for such breach, Debtor shall pay to Secured Party, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral on the date Secured Party shall demand compliance with this Section 6.2. (d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH CONTROLLING PERSON. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 27 ARTICLE 7 Miscellaneous Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.2 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective heirs, successors and permitted assigns, except that Debtor may not assign any of its rights, indebtedness, liabilities or obligations under this Agreement without the prior written consent of Secured Party. Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto, except as provided in Section 4.15(g). Section 7.4 Notices. All notices and other communications provided for in this Agreement shall be given or made by telecopy or in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof, or, as to any party, at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section 7.4. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy or when personally delivered or, in the case of a mailed notice, three (3) Business Days after deposit in the mails, in each case given or addressed as aforesaid; provided, however, that notices to Secured Party shall be deemed given when received by Secured Party. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 28 Section 7.5 Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN DALLAS COUNTY, TEXAS. DEBTOR AND SECURED PARTY EACH AGREE THAT DALLAS COUNTY, TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. DEBTOR AND SECURED PARTY EACH CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 7.6 Headings. The headings, captions and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.7 Survival of Representations and Warranties. All representations and warranties made in this Agreement or in any certificate delivered pursuant hereto shall survive the execution and delivery of this Agreement, and no investigation by Secured Party shall affect the representations and warranties or the right of Secured Party to rely upon them. Section 7.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.9 Waiver of Bond. In the event Secured Party seeks to take possession of any or all of the Collateral by judicial process, Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.10 Severability. Any provision of this Agreement which is determined by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 29 Section 7.11 Construction. Debtor and Secured Party acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Debtor and Secured Party. Section 7.12 Termination. If all of the Obligations shall have been paid and performed in full and all Commitments of Secured Party shall have expired or terminated, Secured Party shall, upon the written request of Debtor, execute and deliver to Debtor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of Secured Party and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF. Section 7.14 Consigned Inventory. Notwithstanding anything to the contrary contained herein or in any other Loan Document, Debtor (a) may maintain Inventory at locations other than those set forth in Schedule 5 (the "Offsite Inventory") and (b) shall not be required to execute UCC-1 Financing Statements for the jurisdictions in which the Offsite Inventory are located, provided, that, the book value of all Offsite Inventory (as defined in each of the respective Amended and Restated Pledge and Security Agreements dated the date hereof executed by Karts International Incorporated and each of its Subsidiaries in favor of Secured Party) of Karts International Incorporated and each of its Subsidiaries does not exceed $50,000 in the aggregate. [The remainder of this page has been intentionally left blank] AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 30 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTOR: USA INDUSTRIES, INCORPORATED By: ____________________________________ Name: ____________________________________ Title: ------------------------------------- Address for Notices: ------------------- P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telecopy No.: 504-747-2700 Attention: President AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 31 SECURED PARTY: ------------- THE SCHLINGER FOUNDATION By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (USA Industries, Incorporated) - Page 32 EX-10.58 18 0018.txt AMENDED AND RESTATED SPECIFIC GUARANTY EXHIBIT 10.58 AMENDED AND RESTATED SPECIFIC GUARANTY THIS AMENDED AND RESTATED SPECIFIC GUARANTY (this "Guaranty") dated the 17th day of May, 2000, is executed by the undersigned, KINT, L.L.C., whose address for notice hereunder is 62194 Commercial Street, Roseland, Louisiana 70456 ("Guarantor") in favor of THE SCHLINGER FOUNDATION, whose address for notice hereunder is 1944 Edison Street, Santa Yinez, California 93460 ("Schlinger"). 1. Obligations. As an inducement to Schlinger to extend or continue to extend credit and other financial accommodations to KARTS INTERNATIONAL INCORPORATED, a Nevada corporation ("Borrower") pursuant to the terms of that certain Amended and Restated Loan Agreement dated as of May 17, 2000 between Borrower and Schlinger (as the same may be amended from time to time, the "Loan Agreement"), Guarantor, for value received, does hereby unconditionally and absolutely guarantee the prompt and full payment and performance of the Guaranteed Indebtedness when due or declared to be due and at all times thereafter. The term "Guaranteed Indebtedness" shall mean (i) all amounts owing by Borrower under that certain Amended and Restated Term Note of even date herewith payable by Borrower to the order of Schlinger in the stated principal amount of $2,500,000.00, (the "Note"), (ii) all other Obligations (hereinafter as defined in the Loan Agreement) of Borrower to Schlinger, (iii) all costs and expenses incurred by Schlinger in connection with the collection of all or any part of the indebtedness and obligations owing by Borrower under the Note and/or any of the other Loan Documents (hereinafter as defined in the Loan Agreement), or the protection of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, (iv) all renewals, extensions, modifications and rearrangements of the Obligations. This is an absolute, continuing and unconditional guarantee of payment and not of collection and if at any time or from time to time there is no outstanding Guaranteed Indebtedness, the obligations of Guarantor with respect to any and all Guaranteed Indebtedness incurred thereafter shall not be affected. This Guaranty and the Guarantor's obligations hereunder are irrevocable and, in the event of Guarantor's death, shall be binding upon Guarantor's estate pursuant to paragraph 8 herein. All of the Guaranteed Indebtedness shall be conclusively presumed to have been made or acquired in acceptance hereof. Guarantor shall be liable, jointly and severally, with Borrower and any other guarantor of all or any part of the Guaranteed Indebtedness. 2. Representations and Warranties. Guarantor hereby represents and warrants the following to Schlinger: (a) This Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of Directors of Guarantor has determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, or (ii) if Guarantor is a partnership, the requisite number of its partners have determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor; and (b) Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower and Guarantor is not relying on Schlinger to provide such information to Guarantor either now or in the future; and Specific Guaranty 05/28/99 1 (c) Guarantor has the power and authority to execute, deliver and perform this Guaranty and any other agreements executed by Guarantor contemporaneously herewith, and the execution, delivery and performance of this Guaranty and any other agreements executed by Guarantor contemporaneously herewith do not and will not violate (i) any agreement or instrument to which Guarantor is a party, (ii) any law, rule, regulation or order of any governmental authority to which Guarantor is subject, or (iii) its articles or certificate of incorporation or bylaws, if Guarantor is a corporation, or its partnership agreement, if Guarantor is a partnership; and (d) Neither Schlinger nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty; and (e) The financial statements and other financial information regarding Guarantor heretofore and hereafter delivered to Schlinger are and shall be true and correct in all material respects and fairly present the financial position of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor reflected in the financial statements and other financial information regarding Guarantor heretofore delivered to Schlinger since the date of the last statement thereof; and (f) As of the date hereof, and after giving effect to this Guaranty and the obligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) the fair saleable value of Guarantor's assets exceeds and will continue to exceed its liabilities (both fixed and contingent), (iii) Guarantor is and will continue to be able to pay its debts as they mature, and (iv) if Guarantor is not an individual, Guarantor has and will continue to have sufficient capital to carry on its business and all businesses in which it is about to engage; and (g) Guarantor, together with Borrower and the other Obligors defined in the Loan Agreement, are a combined enterprise with a common purpose, each dependent on the other, and the successful operations and viability of any one of them enures to the benefit of each of them. Guarantor has determined that the availability of credit to Borrower, and the ability of Borrower to make proceeds of such credit available for its respective subsidiaries, is of direct and indirect benefit to it, of equivalent value, and that execution and performance of this Guaranty is in its best interest; and (h) Except as may be set out on any exhibit attached hereto or as disclosed in the Borrower's annual report on form 10-K filed with the SEC for the year ended December 31, 1999 or the Borrower's quarterly report on form 10-Q filed with the SEC for the quarter ended March 31, 2000, (i) there are no legal proceedings, material claims or demands pending or, to the knowledge of Guarantor, threatened against Guarantor or any of Guarantor's assets, (ii) Guarantor is not in material breach or material default of any legal requirement; and (iii) no event has occurred which, with a lapse of time or action by a third party, could result in Guarantor's material breach or material default under any legal requirement. Specific Guaranty 05/28/99 2 3. Covenants. Guarantor hereby covenants and agrees with Schlinger as follows: (a) Guarantor shall not, so long as its obligations under this Guaranty continue, transfer or pledge any material portion of its assets for less than full and adequate consideration; and (b) Guarantor shall promptly furnish to Schlinger at any time and from time to time such financial statements and other financial information of Guarantor as Schlinger may require, in form and substance satisfactory to Schlinger (including, without limitation, annual financial statements within 45 days after the end of each calendar year); and (c) Guarantor shall promptly inform Schlinger of (i) any litigation or governmental investigation against Guarantor or affecting any security for all or any part of the Guaranteed Indebtedness or this Guaranty which, if determined adversely, might have a material adverse effect upon the financial condition of Guarantor or upon such security or might cause a default under any of the Loan Documents, (ii) any claim or controversy which might become the subject of such litigation or governmental investigation, and (iii) any material adverse change in the financial condition of Guarantor; and (d) Guarantor hereby subordinates all indebtedness now or hereafter owing by Borrower to Guarantor to the Guaranteed Indebtedness. 4. Consent and Waiver. (a) Guarantor waives (i) promptness, diligence and notice of acceptance of this Guaranty and notice of the incurring of any obligation, indebtedness or liability to which this Guaranty applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind, and (ii) the taking of any other action by Schlinger, including without limitation giving any notice of default or any other notice to, or making any demand on, Borrower, any other guarantor of all or any part of the Guaranteed Indebtedness or any other party. (b) Schlinger may at any time, without the consent of or notice to Guarantor, without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of Guarantor hereunder: (i) change the manner, place or terms of payment of all or any part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or alter all or any part of the Guaranteed Indebtedness; (ii) change the interest rate accruing on any of the Guaranteed Indebtedness (including, without limitation, any periodic change in such interest rate that occurs because such Guaranteed Indebtedness accrues interest at a variable rate which may fluctuate from time to time); (iii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty or setoff against all or any part of the Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Indebtedness or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (v) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (vi) settle or compromise all or any part of the Guaranteed Indebtedness and subordinate the payment of all or any part of the Guaranteed Indebtedness to the payment of any obligations, indebtedness or liabilities which may be due or become due to Schlinger or others; (vii) apply any payment, collections through process of law or otherwise or other collateral of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to Schlinger not guaranteed under this Guaranty; and (viii) apply any sums paid to Schlinger by Guarantor, Borrower or others to the Guaranteed Indebtedness in such order and manner as Schlinger, in its sole discretion, may determine. Specific Guaranty 05/28/99 3 (c) Should Schlinger seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) Schlinger first enforce any rights or remedies against Borrower or any other person or entity liable to Schlinger for all or any part of the Guaranteed Indebtedness, including without limitation that a judgment first be rendered against Borrower or any other person or entity, or that Borrower or any other person or entity should be joined in such cause, or (ii) Schlinger first enforce rights against any collateral which shall ever have been given to secure all or any part of the Guaranteed Indebtedness or this Guaranty. Such waiver shall be without prejudice to Schlinger's right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (d) In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Schlinger, its directors, officers, employees, representatives or agents in connection with Schlinger's administration of the Guaranteed Indebtedness, except for Schlinger's willful misconduct and gross negligence. 5. Obligations Not Impaired. (a) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events: (i) the death, disability or lack of corporate power of Borrower, Guarantor (except as provided in paragraph 8 herein) or any other guarantor of all or any part of the Guaranteed Indebtedness, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other guarantor of all or any part of the Guaranteed Indebtedness, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, whether occurring by reason of law or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking or accepting of any other guaranty for all or any part of the Guaranteed Indebtedness; (vi) any failure by Schlinger to acquire, perfect or continue any lien or security interest on collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (viii) any failure by Schlinger to sell any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; or (x) any other circumstance which might otherwise constitute a defense available to, or discharge of, Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness. Specific Guaranty 05/28/99 4 (b) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Schlinger upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other guarantor of all or any part of the Guaranteed Indebtedness, or otherwise, all as though such payment had not been made. (c) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the existence of any other guaranty or the payment by any other guarantor of all or any part of the Guaranteed Indebtedness. (d) Guarantor's obligations hereunder shall not be released, diminished, impaired, reduced or affected by, nor shall any provision contained herein be deemed to be a limitation upon, the amount of credit which Schlinger may extend to Borrower, the number of transactions between Schlinger and Borrower, payments by Borrower to Schlinger or Schlinger's allocation of payments by Borrower. (e) In the event Borrower is a corporation or partnership, none of the following shall affect Guarantor's liability hereunder: (i) the unenforceability of all or any part of the Guaranteed Indebtedness against Borrower by reason of the fact that the Guaranteed Indebtedness exceeds the amount permitted by law; (ii) the act of creating all or any part of the Guaranteed Indebtedness is ultra vires; or (iii) the officers or partners creating all or any part of the Guaranteed Indebtedness acted in excess of their authority. Guarantor hereby acknowledges that withdrawal from, or termination of, any ownership interest in Borrower now or hereafter owned or held by Guarantor shall not alter, affect or in any way limit the obligations of Guarantor hereunder. 6. Actions against Guarantor. In the event of a default in the payment or performance of all or any part of the Guaranteed Indebtedness when such Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or otherwise, Guarantor shall pay the amount due thereon to Schlinger, in lawful money of the United States, at Schlinger's address set forth above within 5 days after demand thereof by Schlinger. One or more successive or concurrent actions may be brought against Guarantor, either in the same action in which Borrower is sued or in separate actions, as often as Schlinger deems advisable. The exercise by Schlinger of any right or remedy under this Guaranty or under any other agreement or instrument, at law, in equity or otherwise, shall not preclude concurrent or subsequent exercise of any other right or remedy. The books and records of Schlinger shall be admissible in evidence in any action or proceeding involving this Guaranty and shall be prima facie evidence of the payments made on, and the outstanding balance of, the Guaranteed Indebtedness. Specific Guaranty 05/28/99 5 7. Payment by Guarantor. Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Schlinger contemporaneously with such payment. In the absence of such notice to Schlinger by Guarantor in compliance with the provisions hereof, any sums received by Schlinger on account of the Guaranteed Indebtedness shall be conclusively deemed paid by Borrower. 8. Death of Guarantor. In the event of the death of Guarantor, the obligations of the deceased Guarantor under this Guaranty shall continue as an obligation against Guarantor's estate as to (a) all of the Guaranteed Indebtedness that is outstanding on the date of Guarantor's death, and any renewals or extensions thereof, and (b) all loans, advances and other extensions of credit made to or for the account of Borrower on or after the date of Guarantor's death pursuant to an obligation of Schlinger under a commitment or agreement described in paragraph 1 above and made to or with Borrower prior to the date of Guarantor's death. The terms and conditions of this Guaranty, including without limitation the consents and waivers set forth in paragraph 4 hereof, shall remain in effect with respect to the Guaranteed Indebtedness described in the preceding sentence in the same manner as if Guarantor had not died. 9. Notice of Sale. In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice shall be deemed given when such notice is deposited in the United States mail, postage prepaid, at the address for Guarantor set forth on the first page of this Guaranty, five (5) days prior to the date any public sale, or after which any private sale, of any such collateral is to be held; provided, however, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 10. Waiver by Schlinger. No delay on the part of Schlinger in exercising any right hereunder or failure to exercise the same shall operate as a waiver of such right. In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Schlinger, and then only in the specific instance and for the purpose given. 11. Successors and Assigns. This Guaranty is for the benefit of Schlinger, its successors and assigns, and in the event of an assignment by Schlinger of the Guaranteed Indebtedness, or any part thereof, the rights and benefits hereunder shall be transferred with such indebtedness. This Guaranty is binding upon Guarantor and Guarantor's heirs, executors, administrators, personal representatives and successors, including without limitation any person or entity obligated by operation of law upon the reorganization, merger, consolidation or other change in the organizational structure of Guarantor. Specific Guaranty 05/28/99 6 12. Costs and Expenses. Guarantor shall pay on demand by Schlinger all costs and expenses, including without limitation all reasonable attorneys' fees, incurred by Schlinger in connection with the enforcement and/or collection of this Guaranty. This covenant shall survive the payment of the Guaranteed Indebtedness. 13. Severability. If any provision of this Guaranty is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Guaranty and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable. 14. No Obligation. Nothing contained herein shall be construed as an obligation on the part of Schlinger to extend or continue to extend credit to Borrower. 15. Amendment. No modification or amendment of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by an officer of Schlinger, and then shall be effective only in the specific instance and for the purpose for which given. 16. Cumulative Rights. All rights and remedies of Schlinger hereunder are cumulative of each other and of every other right or remedy which Schlinger may otherwise have at law or in equity or under any instrument or agreement, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies. 17. Governing Law; Venue; Submission to Jurisdiction. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS. GUARANTOR AGREES THAT DALLAS COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Specific Guaranty 05/28/99 7 18. Compliance with Applicable Usury Laws. Notwithstanding any other provision of this Guaranty or of any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, Guarantor and Schlinger by its acceptance hereof agree that Guarantor shall never be required or obligated to pay interest in excess of the maximum nonusurious interest rate as may be authorized by applicable law for the written contracts which constitute the Guaranteed Indebtedness. It is the intention of Guarantor and Schlinger to conform strictly to the applicable laws which limit interest rates, and any of the aforesaid contracts for interest, if and to the extent payable by Guarantor, shall be held to be subject to reduction to the maximum nonusurious interest rate allowed under said law. 19. Descriptive Headlines. The headings in this Guaranty are for convenience only and shall not define or limit the provisions hereof. 20. Gender. Within this Guaranty, words of any gender shall be held and construed to include the other gender. 21. Limitation regarding Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this Guaranty, the Guaranteed Indebtedness of Guarantor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; provided, however, that, for purposes of the immediately preceding clause, it shall be presumed that the Guaranteed Indebtedness of Guarantor under this Guaranty do not equal or exceed any aggregate amount which would render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary. Subject to but without limiting the generality of the foregoing sentence, the provisions of this Guaranty are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of Guarantor under this Guaranty would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by Guarantor or Schlinger, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding. 22. Notices. All notices hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, to the address for Schlinger and Guarantor set forth on the first page of this Guaranty. Schlinger and Guarantor may, by proper written notice hereunder, change the address to which notices may be sent thereafter to such party. 23. Entire Agreement. This Guaranty contains the entire agreement between Guarantor and Schlinger regarding the subject matter hereof and supersedes all prior written and oral agreements and understandings, if any, regarding same; provided, however, this Guaranty is in addition to and does not replace, cancel, modify or affect any other guaranty of Guarantor now or hereafter held by Schlinger that relates to Borrower or any other person or entity. Specific Guaranty 05/28/99 8 24. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH. 25. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 26. Amendment and Restatement of Original Guaranty. Effective as of the date hereof, this Agreement shall constitute an amendment and restatement of all, but not an extinguishment, discharge, satisfaction or novation of any, indebtedness liabilities and/or obligations of Borrower under that certain Specific Guaranty dated June 3, 1999 executed by Guarantor to and in favor of Schlinger. EXECUTED AND EFFECTIVE as of the date first set forth above. GUARANTOR: KINT, L.L.C. By: --------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Specific Guaranty 05/28/99 9 EX-10.59 19 0019.txt AMENDED AND RESTATED SPECIFIC GUARANTY EXHIBIT 10.59 AMENDED AND RESTATED SPECIFIC GUARANTY THIS AMENDED AND RESTATED SPECIFIC GUARANTY (this "Guaranty") dated the 17th day of May, 2000, is executed by the undersigned, BRISTER'S THUNDER KARTS, INC., whose address for notice hereunder is 62194 Commercial Street, Roseland, Louisiana 70456 ("Guarantor") in favor of THE SCHLINGER FOUNDATION, whose address for notice hereunder is 1944 Edison Street, Santa Yinez, California 93460 ("Schlinger"). 1. Obligations. As an inducement to Schlinger to extend or continue to extend credit and other financial accommodations to KARTS INTERNATIONAL INCORPORATED, a Nevada corporation ("Borrower") pursuant to the terms of that certain Amended and Restated Loan Agreement dated as of May 17, 2000 between Borrower and Schlinger (as the same may be amended from time to time, the "Loan Agreement"), Guarantor, for value received, does hereby unconditionally and absolutely guarantee the prompt and full payment and performance of the Guaranteed Indebtedness when due or declared to be due and at all times thereafter. The term "Guaranteed Indebtedness" shall mean (i) all amounts owing by Borrower under that certain Amended and Restated Term Note of even date herewith payable by Borrower to the order of Schlinger in the stated principal amount of $2,500,000.00, (the "Note"), (ii) all other Obligations (hereinafter as defined in the Loan Agreement) of Borrower to Schlinger, (iii) all costs and expenses incurred by Schlinger in connection with the collection of all or any part of the indebtedness and obligations owing by Borrower under the Note and/or any of the other Loan Documents (hereinafter as defined in the Loan Agreement), or the protection of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, (iv) all renewals, extensions, modifications and rearrangements of the Obligations. This is an absolute, continuing and unconditional guarantee of payment and not of collection and if at any time or from time to time there is no outstanding Guaranteed Indebtedness, the obligations of Guarantor with respect to any and all Guaranteed Indebtedness incurred thereafter shall not be affected. This Guaranty and the Guarantor's obligations hereunder are irrevocable and, in the event of Guarantor's death, shall be binding upon Guarantor's estate pursuant to paragraph 8 herein. All of the Guaranteed Indebtedness shall be conclusively presumed to have been made or acquired in acceptance hereof. Guarantor shall be liable, jointly and severally, with Borrower and any other guarantor of all or any part of the Guaranteed Indebtedness. 2. Representations and Warranties. Guarantor hereby represents and warrants the following to Schlinger: (a) This Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of Directors of Guarantor has determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor, or (ii) if Guarantor is a partnership, the requisite number of its partners have determined that this Guaranty may reasonably be expected to benefit, directly or indirectly, Guarantor; and (b) Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower and Guarantor is not relying on Schlinger to provide such information to Guarantor either now or in the future; and Specific Guaranty 05/28/99 1 (c) Guarantor has the power and authority to execute, deliver and perform this Guaranty and any other agreements executed by Guarantor contemporaneously herewith, and the execution, delivery and performance of this Guaranty and any other agreements executed by Guarantor contemporaneously herewith do not and will not violate (i) any agreement or instrument to which Guarantor is a party, (ii) any law, rule, regulation or order of any governmental authority to which Guarantor is subject, or (iii) its articles or certificate of incorporation or bylaws, if Guarantor is a corporation, or its partnership agreement, if Guarantor is a partnership; and (d) Neither Schlinger nor any other party has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty; and (e) The financial statements and other financial information regarding Guarantor heretofore and hereafter delivered to Schlinger are and shall be true and correct in all material respects and fairly present the financial position of Guarantor as of the dates thereof, and no material adverse change has occurred in the financial condition of Guarantor reflected in the financial statements and other financial information regarding Guarantor heretofore delivered to Schlinger since the date of the last statement thereof; and (f) As of the date hereof, and after giving effect to this Guaranty and the obligations evidenced hereby, (i) Guarantor is and will be solvent, (ii) the fair saleable value of Guarantor's assets exceeds and will continue to exceed its liabilities (both fixed and contingent), (iii) Guarantor is and will continue to be able to pay its debts as they mature, and (iv) if Guarantor is not an individual, Guarantor has and will continue to have sufficient capital to carry on its business and all businesses in which it is about to engage; and (g) Guarantor, together with Borrower and the other Obligors defined in the Loan Agreement, are a combined enterprise with a common purpose, each dependent on the other, and the successful operations and viability of any one of them enures to the benefit of each of them. Guarantor has determined that the availability of credit to Borrower, and the ability of Borrower to make proceeds of such credit available for its respective subsidiaries, is of direct and indirect benefit to it, of equivalent value, and that execution and performance of this Guaranty is in its best interest; and (h) Except as may be set out on any exhibit attached hereto or as disclosed in the Borrower's annual report on form 10-K filed with the SEC for the year ended December 31, 1999 or the Borrower's quarterly report on form 10-Q filed with the SEC for the quarter ended March 31, 2000, (i) there are no legal proceedings, material claims or demands pending or, to the knowledge of Guarantor, threatened against Guarantor or any of Guarantor's assets, (ii) Guarantor is not in material breach or material default of any legal requirement; and (iii) no event has occurred which, with a lapse of time or action by a third party, could result in Guarantor's material breach or material default under any legal requirement. Specific Guaranty 05/28/99 2 3. Covenants. Guarantor hereby covenants and agrees with Schlinger as follows: (a) Guarantor shall not, so long as its obligations under this Guaranty continue, transfer or pledge any material portion of its assets for less than full and adequate consideration; and (b) Guarantor shall promptly furnish to Schlinger at any time and from time to time such financial statements and other financial information of Guarantor as Schlinger may require, in form and substance satisfactory to Schlinger (including, without limitation, annual financial statements within 45 days after the end of each calendar year); and (c) Guarantor shall promptly inform Schlinger of (i) any litigation or governmental investigation against Guarantor or affecting any security for all or any part of the Guaranteed Indebtedness or this Guaranty which, if determined adversely, might have a material adverse effect upon the financial condition of Guarantor or upon such security or might cause a default under any of the Loan Documents, (ii) any claim or controversy which might become the subject of such litigation or governmental investigation, and (iii) any material adverse change in the financial condition of Guarantor; and (d) Guarantor hereby subordinates all indebtedness now or hereafter owing by Borrower to Guarantor to the Guaranteed Indebtedness. 4. Consent and Waiver. (a) Guarantor waives (i) promptness, diligence and notice of acceptance of this Guaranty and notice of the incurring of any obligation, indebtedness or liability to which this Guaranty applies or may apply and waives presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence in enforcement and indulgences of every kind, and (ii) the taking of any other action by Schlinger, including without limitation giving any notice of default or any other notice to, or making any demand on, Borrower, any other guarantor of all or any part of the Guaranteed Indebtedness or any other party. (b) Schlinger may at any time, without the consent of or notice to Guarantor, without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of Guarantor hereunder: (i) change the manner, place or terms of payment of all or any part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or alter all or any part of the Guaranteed Indebtedness; (ii) change the interest rate accruing on any of the Guaranteed Indebtedness (including, without limitation, any periodic change in such interest rate that occurs because such Guaranteed Indebtedness accrues interest at a variable rate which may fluctuate from time to time); (iii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty or setoff against all or any part of the Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Indebtedness or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (v) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (vi) settle or compromise all or any part of the Guaranteed Indebtedness and subordinate the payment of all or any part of the Guaranteed Indebtedness to the payment of any obligations, indebtedness or liabilities which may be due or become due to Schlinger or others; (vii) apply any payment, collections through process of law or otherwise or other collateral of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to Schlinger not guaranteed under this Guaranty; and (viii) apply any sums paid to Schlinger by Guarantor, Borrower or others to the Guaranteed Indebtedness in such order and manner as Schlinger, in its sole discretion, may determine. Specific Guaranty 05/28/99 3 (c) Should Schlinger seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) Schlinger first enforce any rights or remedies against Borrower or any other person or entity liable to Schlinger for all or any part of the Guaranteed Indebtedness, including without limitation that a judgment first be rendered against Borrower or any other person or entity, or that Borrower or any other person or entity should be joined in such cause, or (ii) Schlinger first enforce rights against any collateral which shall ever have been given to secure all or any part of the Guaranteed Indebtedness or this Guaranty. Such waiver shall be without prejudice to Schlinger's right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (d) In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Schlinger, its directors, officers, employees, representatives or agents in connection with Schlinger's administration of the Guaranteed Indebtedness, except for Schlinger's willful misconduct and gross negligence. 5. Obligations Not Impaired. (a) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events: (i) the death, disability or lack of corporate power of Borrower, Guarantor (except as provided in paragraph 8 herein) or any other guarantor of all or any part of the Guaranteed Indebtedness, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other guarantor of all or any part of the Guaranteed Indebtedness, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness, or any other person or entity from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, whether occurring by reason of law or otherwise; (iv) the taking or accepting of any collateral for all or any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking or accepting of any other guaranty for all or any part of the Guaranteed Indebtedness; (vi) any failure by Schlinger to acquire, perfect or continue any lien or security interest on collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty; (viii) any failure by Schlinger to sell any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty in a commercially reasonable manner or as otherwise required by law; (ix) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; or (x) any other circumstance which might otherwise constitute a defense available to, or discharge of, Borrower or any other guarantor of all or any part of the Guaranteed Indebtedness. Specific Guaranty 05/28/99 4 (b) This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of all or any part of the Guaranteed Indebtedness is rescinded or must otherwise be returned by Schlinger upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor, any other guarantor of all or any part of the Guaranteed Indebtedness, or otherwise, all as though such payment had not been made. (c) Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the existence of any other guaranty or the payment by any other guarantor of all or any part of the Guaranteed Indebtedness. (d) Guarantor's obligations hereunder shall not be released, diminished, impaired, reduced or affected by, nor shall any provision contained herein be deemed to be a limitation upon, the amount of credit which Schlinger may extend to Borrower, the number of transactions between Schlinger and Borrower, payments by Borrower to Schlinger or Schlinger's allocation of payments by Borrower. (e) In the event Borrower is a corporation or partnership, none of the following shall affect Guarantor's liability hereunder: (i) the unenforceability of all or any part of the Guaranteed Indebtedness against Borrower by reason of the fact that the Guaranteed Indebtedness exceeds the amount permitted by law; (ii) the act of creating all or any part of the Guaranteed Indebtedness is ultra vires; or (iii) the officers or partners creating all or any part of the Guaranteed Indebtedness acted in excess of their authority. Guarantor hereby acknowledges that withdrawal from, or termination of, any ownership interest in Borrower now or hereafter owned or held by Guarantor shall not alter, affect or in any way limit the obligations of Guarantor hereunder. 6. Actions against Guarantor. In the event of a default in the payment or performance of all or any part of the Guaranteed Indebtedness when such Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or otherwise, Guarantor shall pay the amount due thereon to Schlinger, in lawful money of the United States, at Schlinger's address set forth above within 5 days after demand thereof by Schlinger. One or more successive or concurrent actions may be brought against Guarantor, either in the same action in which Borrower is sued or in separate actions, as often as Schlinger deems advisable. The exercise by Schlinger of any right or remedy under this Guaranty or under any other agreement or instrument, at law, in equity or otherwise, shall not preclude concurrent or subsequent exercise of any other right or remedy. The books and records of Schlinger shall be admissible in evidence in any action or proceeding involving this Guaranty and shall be prima facie evidence of the payments made on, and the outstanding balance of, the Guaranteed Indebtedness. Specific Guaranty 05/28/99 5 7. Payment by Guarantor. Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Schlinger contemporaneously with such payment. In the absence of such notice to Schlinger by Guarantor in compliance with the provisions hereof, any sums received by Schlinger on account of the Guaranteed Indebtedness shall be conclusively deemed paid by Borrower. 8. Death of Guarantor. In the event of the death of Guarantor, the obligations of the deceased Guarantor under this Guaranty shall continue as an obligation against Guarantor's estate as to (a) all of the Guaranteed Indebtedness that is outstanding on the date of Guarantor's death, and any renewals or extensions thereof, and (b) all loans, advances and other extensions of credit made to or for the account of Borrower on or after the date of Guarantor's death pursuant to an obligation of Schlinger under a commitment or agreement described in paragraph 1 above and made to or with Borrower prior to the date of Guarantor's death. The terms and conditions of this Guaranty, including without limitation the consents and waivers set forth in paragraph 4 hereof, shall remain in effect with respect to the Guaranteed Indebtedness described in the preceding sentence in the same manner as if Guarantor had not died. 9. Notice of Sale. In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any collateral securing all or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice shall be deemed given when such notice is deposited in the United States mail, postage prepaid, at the address for Guarantor set forth on the first page of this Guaranty, five (5) days prior to the date any public sale, or after which any private sale, of any such collateral is to be held; provided, however, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 10. Waiver by Schlinger. No delay on the part of Schlinger in exercising any right hereunder or failure to exercise the same shall operate as a waiver of such right. In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Schlinger, and then only in the specific instance and for the purpose given. 11. Successors and Assigns. This Guaranty is for the benefit of Schlinger, its successors and assigns, and in the event of an assignment by Schlinger of the Guaranteed Indebtedness, or any part thereof, the rights and benefits hereunder shall be transferred with such indebtedness. This Guaranty is binding upon Guarantor and Guarantor's heirs, executors, administrators, personal representatives and successors, including without limitation any person or entity obligated by operation of law upon the reorganization, merger, consolidation or other change in the organizational structure of Guarantor. Specific Guaranty 05/28/99 6 12. Costs and Expenses. Guarantor shall pay on demand by Schlinger all costs and expenses, including without limitation all reasonable attorneys' fees, incurred by Schlinger in connection with the enforcement and/or collection of this Guaranty. This covenant shall survive the payment of the Guaranteed Indebtedness. 13. Severability. If any provision of this Guaranty is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Guaranty and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable. 14. No Obligation. Nothing contained herein shall be construed as an obligation on the part of Schlinger to extend or continue to extend credit to Borrower. 15. Amendment. No modification or amendment of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same shall be in writing and signed by an officer of Schlinger, and then shall be effective only in the specific instance and for the purpose for which given. 16. Cumulative Rights. All rights and remedies of Schlinger hereunder are cumulative of each other and of every other right or remedy which Schlinger may otherwise have at law or in equity or under any instrument or agreement, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies. 17. Governing Law; Venue; Submission to Jurisdiction. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS GUARANTY IS PERFORMABLE IN DALLAS COUNTY, TEXAS. GUARANTOR AGREES THAT DALLAS COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DALLAS COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Specific Guaranty 05/28/99 7 18. Compliance with Applicable Usury Laws. Notwithstanding any other provision of this Guaranty or of any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Indebtedness, Guarantor and Schlinger by its acceptance hereof agree that Guarantor shall never be required or obligated to pay interest in excess of the maximum nonusurious interest rate as may be authorized by applicable law for the written contracts which constitute the Guaranteed Indebtedness. It is the intention of Guarantor and Schlinger to conform strictly to the applicable laws which limit interest rates, and any of the aforesaid contracts for interest, if and to the extent payable by Guarantor, shall be held to be subject to reduction to the maximum nonusurious interest rate allowed under said law. 19. Descriptive Headlines. The headings in this Guaranty are for convenience only and shall not define or limit the provisions hereof. 20. Gender. Within this Guaranty, words of any gender shall be held and construed to include the other gender. 21. Limitation regarding Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this Guaranty, the Guaranteed Indebtedness of Guarantor hereunder shall not exceed an aggregate amount equal to the greatest amount that would not render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to avoidance under Sections 544, 548 or 550 of the Federal Bankruptcy Code or subject to being set aside or annulled under any applicable state law relating to fraud on creditors; provided, however, that, for purposes of the immediately preceding clause, it shall be presumed that the Guaranteed Indebtedness of Guarantor under this Guaranty do not equal or exceed any aggregate amount which would render Guarantor's indebtedness, liabilities or obligations under this Guaranty subject to being so avoided, set aside or annulled, and the burden of proof to the contrary shall be on the party asserting to the contrary. Subject to but without limiting the generality of the foregoing sentence, the provisions of this Guaranty are severable and, in any legally binding action or proceeding involving any state corporate law or any bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights and general principles of equity, if the indebtedness, liabilities or obligations of Guarantor under this Guaranty would otherwise be held or determined to be void, invalid or unenforceable on account of the amount of its indebtedness, liabilities or obligations under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the amount of such indebtedness, liabilities or obligations shall, without any further action by Guarantor or Schlinger, be automatically limited and reduced to the greatest amount which is valid and enforceable as determined in such action or proceeding. 22. Notices. All notices hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, to the address for Schlinger and Guarantor set forth on the first page of this Guaranty. Schlinger and Guarantor may, by proper written notice hereunder, change the address to which notices may be sent thereafter to such party. 23. Entire Agreement. This Guaranty contains the entire agreement between Guarantor and Schlinger regarding the subject matter hereof and supersedes all prior written and oral agreements and understandings, if any, regarding same; provided, however, this Guaranty is in addition to and does not replace, cancel, modify or affect any other guaranty of Guarantor now or hereafter held by Schlinger that relates to Borrower or any other person or entity. Specific Guaranty 05/28/99 8 24. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH. 25. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 26. Amendment and Restatement of Original Guaranty. Effective as of the date hereof, this Agreement shall constitute an amendment and restatement of all, but not an extinguishment, discharge, satisfaction or novation of any, indebtedness liabilities and/or obligations of Borrower under that certain Specific Guaranty dated June 3, 1999 executed by Guarantor to and in favor of Schlinger. EXECUTED AND EFFECTIVE as of the date first set forth above. GUARANTOR: BRISTER'S THUNDER KARTS, INC. By: -------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Specific Guaranty 05/28/99 9 EX-10.60 20 0020.txt STOCK PURCHASE AGREEMENT DARTED MAY 17, 2000 EXHIBIT 10.60 STOCK PURCHASE AGREEMENT DATED MAY 17, 2000 BY AND AMONG KARTS INTERNATIONAL INCORPORATED AND THE SCHLINGER FOUNDATION ________________________________________________________________________________ STOCK PURCHASE AGREEMENT by and among KARTS INTERNATIONAL INCORPORATED and THE SCHLINGER FOUNDATION Dated as of May 17, 2000 ________________________________________________________________________________ TABLE OF CONTENTS ----------------- Page ---- SECTION 1. DESCRIPTION OF TRANSACTION...................................1 -------------------------- 1.1 Description of Securities....................................1 ------------------------- 1.2 Closing......................................................1 ------- 1.3 Conditions to Closing........................................1 --------------------- 1.4 Definitions..................................................3 ----------- SECTION 2. REPRESENTATIONS OF THE COMPANY...............................4 ------------------------------ 2.1 Loan Agreement...............................................4 -------------- 2.2 Corporate Power..............................................4 --------------- 2.3 Governmental Authorizations; Third Party Consents............5 ------------------------------------------------- 2.4 Authorization................................................5 ------------- 2.5 Capitalization...............................................5 -------------- 2.6 Preemptive Rights; Registration Rights.......................6 -------------------------------------- 2.7 Effect of Transactions.......................................6 ---------------------- 2.8 Brokerage....................................................6 --------- 2.9 Disclosure...................................................6 ---------- SECTION 3. REPRESENTATIONS OF THE INVESTORS.............................7 -------------------------------- 3.1 Authorization................................................7 ------------- 3.2 Investment Purpose...........................................7 ------------------ 3.3 Restrictions on Transferability..............................7 ------------------------------- 3.4 Status of Investor...........................................8 ------------------ 3.5 Brokerage....................................................8 --------- 3.6 Own Account..................................................8 ----------- 3.7 Governmental Authorizations; Third Party Consents............8 ------------------------------------------------- 3.8 Effect of Transactions.......................................8 ---------------------- SECTION 4. COVENANTS OF THE COMPANY.....................................8 ------------------------ 4.1 Loan Agreement...............................................8 -------------- 4.2 Use of Proceeds..............................................8 --------------- 4.3 Restricted Corporate Actions.................................9 ---------------------------- 4.4 Board of Directors..........................................10 ------------------ 4.5 Preservation of Corporate Existence and Property............10 ------------------------------------------------ 4.6 Shareholder and Director Information........................10 ------------------------------------ 4.7 Liability Insurance.........................................10 ------------------- 4.8 No Impairment...............................................10 ------------- 4.9 Reserve for Conversion Shares...............................10 ----------------------------- 4.10 Bylaws......................................................11 ------ 4.11 Compliance..................................................11 ---------- 4.12 Rule 144A Information.......................................11 --------------------- 4.13 Brokerage...................................................11 ---------- 4.14 Employment Agreements.......................................11 --------------------- SECTION 5. GENERAL...........................................................11 ------- 5.1 Amendments, Waivers and Consents............................11 -------------------------------- 5.2 Survival; Assignability of Rights...........................12 --------------------------------- i 5.3 Rights of Investor Inter Se.................................12 --------------------------- 5.4 Headings....................................................12 -------- 5.5 Governing Law...............................................12 ------------- 5.6 Notices and Demands.........................................12 ------------------- 5.7 Severability................................................13 ------------ 5.8 Expenses....................................................13 -------- 5.9 Entire Agreement............................................13 ---------------- 5.10 Counterparts................................................13 ------------ ii SCHEDULES AND EXHIBITS ---------------------- Exhibit A - Form of Certificate of Designations Exhibit B - Form of Voting Agreement Exhibit C - Form of Legal Opinion Exhibit D - Form of Registration Rights Agreement Exhibit E - Form of Amended and Restated Bylaws Schedule 2.4 - Authorization Schedule 2.5 - Capitalization Schedule 2.8 - Brokerage Schedule 4.2 - Use of Proceeds Schedule 4.3 - Restricted Corporate Actions iii STOCK PURCHASE AGREEMENT ------------------------ Karts International Incorporated, a Nevada corporation (the "Company") and The Schlinger Foundation (the "Investor"), enter into this Stock Purchase Agreement, dated May 17, 2000 (this "Agreement"). SECTION 1. DESCRIPTION OF TRANSACTION -------------------------- 1.1 Description of Securities. The Company has furnished the Investor with financial and nonfinancial information concerning the Company and its assets, liabilities, condition (financial and otherwise), operations, business and prospects. Based on such information, the representations and warranties set forth herein and the other terms and provisions hereof, the Investor will purchase 4,000,000 shares of Series A Preferred Stock, par value $0.001 per share, of the Company (the "Series A Preferred"), for an aggregate purchase price of $3,000,000, all on the terms and subject to the conditions set forth herein. 1.2 Closing. The closing (the "Closing") of the sale of the Series A Preferred will take place at the offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, at 10:00 a.m., on the date of this Agreement, or such other time and place as agreed to by the parties hereto (the "Closing Date"). At the Closing, the Company will deliver to the Investor certificates representing the shares of Series A Preferred being acquired by the Investor on the Closing Date upon payment of the purchase price by the Investor to the Company of immediately available funds by wire transfer, or by other form of payment acceptable to the Company. In addition, at the Closing the Company shall deliver to the Investors payment for the expenses of the Investor and its counsel, to the extent such expenses are reimbursable by the Company, as provided in Section 5.8 below. 1.3 Conditions to Closing. The obligation of the Investor to purchase and pay for the Series A Preferred to be purchased by the Investor on the Closing Date is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: (a) the Company shall have duly authorized and filed the Certificate of Designation (the "Certificate") with the Secretary of State of the State of Nevada, substantially in the form attached hereto as Exhibit A; (b) each of Investor, Charles Brister and Richard N. Jones shall have executed a Voting Agreement ("Voting Agreement"), substantially in the form attached hereto as Exhibit B; (c) counsel for the Company, shall have delivered to the Investor a legal opinion, dated as of the Closing Date and substantially in the form attached hereto as Exhibit C; (d) the Company and the Investor shall have entered into a Registration Rights Agreement (the "Registration Rights Agreement"), substantially in the form attached hereto as Exhibit D; (e) the Company shall have adopted Amended and Restated Bylaws substantially in the form attached hereto as Exhibit E; (f) Timothy P. Halter, Joseph R. Manmes, and Ronald C. Morgan shall have resigned as directors of the Company; (g) all representations of the Company to the Investor shall be true, correct and complete as of the Closing Date; (h) there shall be no change in the business, assets, financial condition, operation and results of operations of the Company since December 31, 1999, which, in the Investor's sole judgment, is materially adverse to the Company; (i) the Investor, through their personnel and representatives, shall have completed and been satisfied with the results of their due diligence review of the Company's business; and (j) the Company shall have delivered to the Investor: (i) the Articles of Incorporation of the Company and all amendments thereto, certified by the Secretary of State of Nevada; (ii) (A) copies of the resolutions of the Company's Board of Directors authorizing and approving this Agreement and all of the transactions and agreements contemplated hereby and thereby, (B) the Amended and restated Bylaws of the Company and (C) the names of the officer or officers of the Company authorized to execute this Agreement and any and all documents, agreements and instruments contemplated herein, all certified by the Secretary of the Company to be true, correct, complete and in full force and effect and unmodified as of the Closing Date; (iii) a certificate of existence for the Company from the Secretary of State of Nevada; (iv) a certificate of account status for the Company from the Comptroller of the State of Nevada; (v) certificates from each state where the Company is required to be qualified as a foreign corporation showing such qualification, dated as of a date within ten (10) days of the Closing Date; and (vi) such other documents, instruments, and certificates as the Investor may reasonably request. (k) the Company and the Investor shall have executed that certain Amended and Restated Loan Agreement (the "Loan Agreement"); (l) each of the conditions precedent set forth in Section 7 of the Loan Agreement shall have been satisfied in the sole and absolute discretion of the Investor. 1.4 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: "Articles of Incorporation" shall mean the Articles of Incorporation of the Company, as amended to date. 2 "Bylaws" shall mean the Bylaws of the Company, as amended to date. "Certificate" shall have the meaning given in Section 1.3(a). "Common Stock" shall mean the common stock, par value $0.001 per share, of the Company. "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of the Company. "Conversion Shares" shall mean any securities of the Company issued or issuable upon conversion of the Series A Preferred. "Employee Benefit Plans" shall mean employee benefit plans within Section 3(3) of ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Existing Preferred Shares" shall mean the Company's 9% Convertible Preferred Stock outstanding on the date of this Agreement. "GAAP" shall mean generally accepted accounting principles consistently applied. "New Securities" shall mean any shares of capital stock of the Company, including Common Stock and any series of Preferred Stock, whether now authorized or not, and rights, options or warrants to purchase said shares of Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable for said shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New Securities" does not include (i) the Conversion Shares, (ii) Common Stock offered to the public generally pursuant to a registration statement under the Securities Act in connection with a Qualified Public Offering, (iii) securities issued or sold in connection with stock options granted under the Stock Option Plan, including, without limitation, upon exercise of presently outstanding stock options, net of repurchases and cancellations and expirations (without exercise) of such options, (iv) stock issued in connection with any stock split, stock dividend or recapitalization by the Company, (v) stock issued in connection with any merger or acquisition approved by the Investor, (vi) Common Stock issued as a dividend or upon conversion of the Company's Existing Preferred Shares or (vii) Common Stock issued upon the exercise of warrants of the Company outstanding at the date of this Agreement. "Preferred Stock" shall mean the preferred stock, par value $0.001 per share, of the Company, which, after the filing of the Certificate, will consist only of the Series A Preferred and the Existing Preferred Stock. "Pro Rata Share" shall mean the ratio that (i) the sum of the total number of shares of Common Stock which are then held by the Investor and those which the Investor has the right to obtain pursuant to exercise or conversion of any option, warrant, right or convertible security (including the Series A Preferred) bears to (ii) the sum of the total number of shares of Common Stock then outstanding and which are issuable pursuant to exercise or conversion of any then outstanding options, warrants, rights or convertible securities (including the Series A Preferred). 3 "Requisite Interest" shall mean the vote of the holders of at least a majority of the then outstanding Series A Preferred (including, for such purposes, any Conversion Shares into which any of the Series A Preferred have been converted that have not been sold to the public). "Securities" shall mean the equity securities of the Company, including any class or series of Preferred Stock, Common Stock, instruments convertible or exchangeable into such securities, or rights to acquire such securities. "Securities Act" shall mean the Securities Act of 1933, as amended. "Series A Preferred" shall mean the Series A Preferred Stock, $0.001 par value per share, of the Company. "Stock Option Plan" shall mean the 1998 Stock Compensation Plan of Karts International Incorporated as it exists on the date of this Agreement. "Subsidiary" shall mean any corporation, partnership, joint venture, limited liability company or other legal entity in which the Company owns, directly or indirectly, an equity interest. "To the best knowledge of the Company" shall mean those facts after due inquiry that are actually known, or should have been known, by the officers of the Company. SECTION 2. REPRESENTATIONS OF THE COMPANY ------------------------------ As part of the basis of this Agreement, the Company hereby represents and warrants to the Investor, at the Closing Date, that: 2.1 Loan Agreement. Each of the representations and warranties made by the Borrower pursuant to Section 6 of the Loan Agreement are hereby made to the Investor for purposes of this Agreement and are hereby incorporated by reference herein. 2.2 Corporate Power. The Company and the Subsidiaries have all required corporate power and authority to own their respective properties and to carry on their respective businesses as presently conducted and as proposed to be conducted. The Company has all required corporate power and authority to execute and deliver this Agreement and the other agreements contemplated herein, to issue and sell the Series A Preferred hereunder, to issue shares of Common Stock upon conversion of the Series A Preferred, and to carry out the transactions contemplated by this Agreement and the other agreements contemplated herein. Attached hereto are true, correct and complete copies of the Articles of Incorporation and Bylaws of the Company. 2.3 Governmental Authorizations; Third Party Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind is necessary or required in connection with the execution, delivery or performance by the Company of this Agreement, or any other documents executed pursuant to this Agreement, other than as specifically required by this Agreement, the filing of a registration statement pursuant to the Registration Rights Agreement, the filing of a Form D with the Securities and Exchange Commission and filings required under applicable state securities or "blue sky" laws. 4 2.4 Authorization. Except as indicated on Schedule 2.4 hereof, all corporate action on the part of the Company, its directors and shareholders necessary for (a) the authorization, execution, delivery and performance of this Agreement and the other agreements contemplated herein by the Company, (b) the authorization, sale, issuance and delivery of the Series A Preferred (including the Conversion Shares) and (c) the performance of all of the Company's obligations hereunder and under the other agreements contemplated herein has been taken. This Agreement and all documents executed pursuant to this Agreement are valid and binding obligations of the Company, enforceable according to their terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditor rights, (ii) laws and judicial decisions regarding indemnification for violations of federal securities laws, (iii) the availability of specific performance or other equitable remedies, and (iv) with respect to any indemnification agreements set forth herein or therein, principles of public policy. 2.5 Capitalization. The authorized and issued capital stock of the Company is as set forth in Schedule 2.5. All of the presently outstanding shares of capital stock of the Company have been validly authorized and issued and are fully paid and nonassessable. The Series A Preferred have been validly authorized and, when delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable and free of all encumbrances and restrictions, except restrictions on transfer imposed by applicable federal and state securities laws and the Certificate. The relative rights, preferences, restrictions and other provisions relating to the Series A Preferred are as set forth in Exhibit A. Except as indicated on Schedule 2.5, the Company has authorized and reserved for issuance upon conversion of the Series A Preferred not less than 8,000,000 shares of its Common Stock, and the Conversion Shares will be, when and if issued, validly authorized and issued, fully paid and nonassessable, and free of all encumbrances and restrictions, except restrictions on transfer imposed by applicable federal and state securities laws and the Articles of Incorporation. Except as provided in Schedule 2.5, the Company has not issued any other shares of its capital stock and there are no outstanding options, warrants, subscriptions or other rights or obligations to purchase or acquire any of such shares, nor any outstanding securities convertible into or exchangeable for such shares. Except as disclosed on Schedule 2.5 or as contemplated under this Agreement (and the other agreements executed in connection herewith), there are no agreements to which the Company is a party or has knowledge regarding the issuance, registration, voting or transfer of or obligation (contingent or otherwise) of the Company or any Subsidiary to repurchase or otherwise acquire or retire or redeem any of its outstanding shares of capital stock. No dividends are accrued but unpaid on any capital stock of the Company. 2.6 Preemptive Rights; Registration Rights. There are no preemptive rights affecting the issuance or sale of the Company's capital stock. Except as disclosed in Schedule 2.6, the Company is not under any contractual obligation to register (in compliance with the filing requirements and being deemed effective under the Securities Act) any of its presently outstanding Securities or any of its Securities which may hereafter be issued, except as described in the Registration Rights Agreement. 5 2.7 Effect of Transactions. The Company's execution and delivery of this Agreement and the other agreements contemplated herein, its performance of the transactions contemplated by this Agreement and the other agreements contemplated herein, and the performance of the businesses of the Company and each Subsidiary as now conducted, does not and will not violate any terms of the Articles of Incorporation or Bylaws or violate any judgment, decree or order, or any material contract or obligation of the Company or such Subsidiary, as the case may be, or any statute, rule or regulation of any federal, state or local government or agency applicable to the Company or any such Subsidiary, or any material contract to which any employee of the Company or any Subsidiary is bound. The offer and sale of the Series A Preferred will be in compliance with all federal and state securities laws. No consent, approval or filing with any regulatory agency is required to be taken by the Company or any Subsidiary in connection with the transactions contemplated by this Agreement, except those which the Company or such Subsidiary has obtained or made in a timely manner, except for any filing of Form D or any applicable state blue sky filing that may be made by the Company after the Closing. 2.8 Brokerage. Except as provided in Schedule 2.8, there are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Company or any Subsidiary. 2.9 Disclosure. This Agreement and the exhibits and schedules hereto, when taken as a whole with other documents and certificates furnished by the Company and any Subsidiary to the Investors or their counsel, do not contain any untrue statement of material fact or omit any material fact necessary in order to make the statements therein not misleading; provided, however, certain materials provided to the Investor contain projections and estimates of future events, and such projections and estimates have been based upon certain assumptions that management of the Company and the Subsidiaries made in good faith and believed were reasonable at the time such materials were prepared. There is no fact known to the Company, any Subsidiary that has not been disclosed to the Investors prior to the date of this Agreement that materially and adversely affects the business, assets, properties, prospects or condition (financial or otherwise) of the Company or its Subsidiaries , taken as a whole, or the ability of the Company or any Subsidiary to perform under this Agreement or the other agreements contemplated hereby or to consummate the transactions contemplated hereby or thereby. SECTION 3. REPRESENTATIONS OF THE INVESTORS -------------------------------- As part of the basis of this Agreement, the Investor hereby represents to the Company, at the Closing Date, that: 3.1 Authorization. The execution of this Agreement and the documents executed by the Investor pursuant to this Agreement have been authorized by all necessary action on the part of the Investor, have been executed and delivered, and constitute valid, legal, binding and enforceable agreements of the Investor, except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditor rights, (b) laws and judicial decisions regarding indemnification for violations of federal securities laws, (c) the availability of specific performance or other equitable remedies, and (d) with respect to any indemnification agreements set forth herein or therein, principles of public policy. 6 3.2 Investment Purpose. The Investor is acquiring the Series A Preferred for its own account, for investment, and not with a view to any "distribution" within the meaning of the Securities Act. The Investor has no present intention to make any transfer of the Series A Preferred. 3.3 Restrictions on Transferability. The Investor understands that because the Series A Preferred have not been, and the Conversion Shares when issued will not have been, registered under the Securities Act, it cannot dispose of any or all of the Series A Preferred or Conversion Shares unless they are subsequently registered under the Securities Act or exemptions from registration are available. The Investor understands that no public market now exists for any of the Securities issued by the Company and that there is no assurance that a public market will ever exist for the Series A Preferred (or the Conversion Shares). The Investor acknowledges and understands that, except as provided in the Registration Rights Agreement, it has no registration rights. Although it may be possible in the future to make limited public sales of the Series A Preferred and/or Conversion Shares without registration under the Securities Act, Rule 144 is not now available and there is no assurance that it will become available for any purpose. By reason of these restrictions, the Investor understands that it may be required to hold the Series A Preferred and/or the Conversion Shares for an indefinite period of time. The Investor agrees that in no event will it make a transfer or disposition of any of the Series A Preferred (or the Conversion Shares) unless and until, if requested by the Company, at the expense of the Investor or transferee, it shall have furnished to the Company an opinion of counsel or other evidence, reasonably satisfactory to the Company, to the effect that such transfer may be made without registration under the Securities Act. The Investor understands that each certificate representing the Series A Preferred and Conversion Shares will bear appropriate state "blue sky" legends and a legend substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 3.4 Status of Investor. The Investor is knowledgeable and experienced in making venture capital investments, and able to bear the economic risk of loss of its investment in the Company. The Investor is an "accredited investor," as that term is defined in Rule 501(a) of Regulation D under the Securities Act. 3.5 Brokerage. There are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Investor. 3.6 Own Account. The Investor is acting on its own behalf in connection with the investigation and examination of the Company and its decision to execute these documents. Investor has received (i) the Company's annual report filed with the SEC on Form 10-K for the year ended December 31, 1999, (ii) the Company's quarterly report filed with the SEC on Form 10-Q for the quarter ended March 31, 2000, and (iii) such other information regarding the Company as has been requested by the Investor or its representatives. 7 3.7 Governmental Authorizations; Third Party Consents. Based upon the information provided to the Investor by the Company, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind is necessary or required by the Investor in connection with the execution, delivery and performance by the Investor of this Agreement, or any other documents executed pursuant to this Agreement; provided, however, that the Investor makes no representations with respect to applicable federal or state securities laws; and provided, further, however, that any liability of the Investor resulting from a breach of this representation shall be limited to the aggregate purchase price paid by the Investor for the Series A Preferred purchased hereunder. 3.8 Effect of Transactions. The Investor's execution, delivery and performance of this Agreement and the other agreements contemplated by this Agreement will not violate any terms of its organizational documents or, to its knowledge, violate any judgment, decree or order, or any material contract or obligation of the Investor or any statute, rule or regulation of any federal, state or local government or agency applicable to the Investor. SECTION 4. COVENANTS OF THE COMPANY ------------------------ The Company hereby covenants that, except as otherwise provided below, for so long as the Investor holds any of the Series A Preferred that: 4.1 Loan Agreement. Each of the covenants made by the Company to Investor pursuant to Sections 8, 9, 10 and 11 of the Loan Agreement are hereby made for the benefit of Investor for purposes of this Agreement and are hereby incorporated by reference herein. 4.2 Use of Proceeds. The Company shall use the net proceeds from the sale of the Series A Preferred for the purposes set forth on Schedule 4.2. It is the intention of the Company and the Subsidiaries to conduct their businesses in accordance with the current business plan of the Company, which has previously been delivered to the Investor. 4.3 Restricted Corporate Actions. The Company will not, without the written approval of the holders of a Requisite Interest, take any of the following actions: (a) repurchase any Common Stock or Preferred Stock, other than (i) the redemption of the Series A Preferred in accordance with the Certificate, (ii) the purchase of Common Stock from employees pursuant to agreements with the Company as of the Closing Date to repurchase such stock; provided that the purchase price shall not exceed the price paid by such employee for such stock, or (iii) as indicated on Schedule 4.3 hereof; (b) declare or pay any dividend (other than a stock dividend) on the Common Stock or Preferred Stock (other than dividends on the shares of Series A Preferred in accordance with the Certificate and dividends on the Existing Preferred Stock in accordance with the terms of such stock as they exist on the date of this Agreement); 8 (c) except to the extent necessary to comply with foreign laws, create any subsidiary in which the Company owns less than one hundred percent (100%) of the equity securities, or permit any Subsidiary to issue any equity securities to anyone other than the Company or a wholly-owned Subsidiary of the Company or merge with or into any Subsidiary; (d) create any new class or series of shares that has a preference over or is on a parity with the Series A Preferred with respect to voting, dividends or liquidation preferences (except that the Company may grant voting rights to shares of a series of Preferred Stock which have the right to vote with holders of Common Stock on an as-converted basis, but in any event not in preference over the Series A Preferred); (e) enter into any arrangement or agreement which (i) conflicts with the rights of the holders of Series A Preferred (ii) restricts the Company's performance under this Agreement or any other documents executed in connection herewith or (iii) could result in the redemption of any shares of Common Stock; (f) amend the Articles of Incorporation or Bylaws; (g) adopt or amend an Employee Benefit Plan or amend the Stock Option Plan; (h) make any investments except (i) bank deposits in federally insured financial institutions, (ii) investments in direct government obligations of the United States of America (iii) commercial paper of a domestic issuer rated A-1 or better or P-1 or better by Standard & Poor's Corporation or Moody's Investor Services, Inc., respectively, maturing not more than three months from the date of acquisition and (iv) investments of the type set forth Schedule 4.3; (i) acquire substantially all of the assets, properties or capital stock of another person or entity in any single transaction or series of related transactions; (j) issue any stock, options, or securities convertible or exercisable into the capital stock of the Company, including, without limitation, pursuant to the Stock Option Plan, with exercise prices at less than fair market value, as determined by the Compensation Committee; or (k) issue any stock, options or securities convertible or exercisable into the capital stock of the Company, which are pari passu or senior to the Series A Preferred in dividends, liquidation or otherwise. 4.4 Board of Directors. The Company agrees that the Company shall take all appropriate actions to provide for sufficient vacant seats on the Board of Directors so that Investor's nominees can hold a majority of the seats on the Board. Unless otherwise agreed to by the directors nominated by the Investor, the Board of Directors will meet at least quarterly. The Company will reimburse the directors for all expenses incurred by such directors in connection with attending any board meetings or other board functions. If the Investor decides not to nominate one or more of its designees for election to the Board of Directors, the Investor shall have the right to receive notice of and have one (1) representative attend all meetings and other functions of the Board of Directors and the Company will reimburse the Investor's representative for all expenses incurred by such representative in connection with attending any such board meetings or other board functions. 9 4.5 Preservation of Corporate Existence and Property. The Company agrees to preserve, protect, and maintain, and cause each Subsidiary to preserve, protect, and maintain, (a) its corporate existence, and (b) all rights, franchises, accreditations, privileges, and properties the failure of which to preserve, protect, and maintain might have a material and adverse effect on the business, affairs, assets, prospects, operations, or condition, financial or otherwise, of the Company and its Subsidiaries, taken as a whole. 4.6 Shareholder and Director Information. At the request of the Investor, the Company shall promptly deliver to the Investor information regarding the securityholders, officers and directors of the Company, including, without limitation, names, addresses, types of securities held and terms of securities held. 4.7 Liability Insurance. The Company will use its best efforts to maintain comprehensive liability insurance (including automobile liability coverage) at regular premium rates with insurer(s) of recognized responsibility in an amount which is commercially reasonable for the benefit of itself and the Subsidiaries. 4.8 No Impairment. The Company and the Subsidiaries will observe and honor in good faith all rights of the Investors, under the terms of this Agreement or any other documents executed in connection herewith, and will take no action that would impair or otherwise prejudice such rights. 4.9 Reserve for Conversion Shares. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Series A Preferred and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Series A Preferred from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Series A Preferred or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Series A Preferred. 4.10 Bylaws. The Company shall at all times cause its Bylaws to provide that the number of directors fixed in accordance therewith shall in no event conflict with any of the terms or provisions of this Agreement or the Articles of Incorporation. The Company shall at all times maintain provisions in its Bylaws and/or Articles of Incorporation indemnifying all directors against liability and absolving all directors from liability to the Company and its shareholders to the maximum extent permitted under the laws of the State of Nevada. 4.11 Compliance. The Company shall comply, and cause each Subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could materially and adversely affect the business or condition, financial or otherwise of the Company and the Subsidiaries, taken as a whole. 10 4.12 Rule 144A Information. The Company shall, at all times during which it is neither subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide in writing, upon the written request of the Investor or a prospective buyer of the Series A Preferred or Conversion Shares from the Investor, all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the Commission under the Securities Act ("Rule 144A Information"). The Company's obligations under this Section 4.12 shall at all times be contingent upon the Investor obtaining from the prospective buyer of Series A Preferred or Conversion Shares a written agreement to take all reasonable precautions to safeguard the Rule 144A Information from disclosure to anyone other than a person who will assist such buyer in evaluating the purchase of any Series A Preferred or Conversion Shares. 4.13 Brokerage. The Company agrees to indemnify and hold harmless the Investors for any brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Company or any Subsidiary. 4.14 Employment Agreements. Within thirty (30) days after the Closing Date, each of Charles Brister and Richard N. Jones shall have entered into an employment agreement with the Company in form and substance acceptable to Investor. SECTION 5. GENERAL ------- 5.1 Amendments, Waivers and Consents. Unless otherwise specified in this Agreement, any consents required and any waiver, amendment or other action of the Investor or holders of the Series A Preferred (or Conversion Shares) may be made by consent(s) in writing signed by the holders of a Requisite Interest. Any specific reference to approval or action by a Requisite Interest shall not imply that other references to approval or action by the Investor or holders of Series A Preferred (or Conversion Shares) requires each holder's approval or action, unless a higher or lower approval is so specifically stated in such specific reference. Any amendment or waiver made according to this Section 5.1 will be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities have been converted) and each future holder. Any amendment or waiver by the Company must be made in writing. This Agreement may not be amended, except in a written document signed by the Company and holders of a Requisite Interest. 5.2 Survival; Assignability of Rights. All representations of the parties made in this Agreement and in the certificates, exhibits, schedules or other written information delivered or furnished by one party to the other in connection with this Agreement will survive the delivery of the Series A Preferred for a period of two (2) years subsequent to the Closing. All covenants and agreements made in this Agreement will survive the Closing, and will bind and inure to the benefit of the parties' hereto and their respective successors and assigns. Each Investor shall have the right to transfer any or all of its rights hereunder to any purchaser of Series A Preferred or Conversion Shares; provided such transferee executes a signature page to this Agreement thereby agreeing to be bound by and entitled to the benefits of this Agreement. The Company may not assign its rights or obligations hereunder without the consent of the Investor, as provided in Section 5.1. 11 5.3 Rights of Investor Inter Se. The Investor shall have the absolute right to exercise or refrain from exercising any right or rights which the Investor may have by reason of this Agreement or any Series A Preferred or Conversion Shares, including, without limitation, the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and the Investor shall not incur any liability to any other Investor with respect to exercising or refraining from exercising any such right or rights. 5.4 Headings. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 5.5 Governing Law. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF. 5.6 Notices and Demands. Any notice or demand which is permitted or required hereunder will be deemed to have been sufficiently received (except as otherwise provided herein) (a) upon receipt when personally delivered, (b) or one (1) day after sent by overnight delivery or telecopy providing confirmation or receipt of delivery, or (c) three (3) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested to the following addresses: if to the Company at the address as shown on the signature page of this Agreement (with a copy as shown), or at any other address designated by the Company to the Investors in writing; if to an Investor, at its mailing address as shown on the signature pages of this Agreement (with a copy as shown), or at any other address designated by the Investor to the Company in writing. 5.7 Severability. If any provision of this Agreement is held invalid under applicable law, such provision will be ineffective to the extent of such invalidity, and such invalid provision will be modified to the extent necessary to make it valid and enforceable. Any such invalidity will not invalidate the remainder of this Agreement. 5.8 Expenses. The Company will pay (a) all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement, and (b) the reasonable out-of-pocket expenses of the Investors and the reasonable legal fees and disbursements incurred by one counsel for the Investors with respect to this Agreement and the transactions contemplated hereby. The Investors designate Jenkens & Gilchrist, a professional corporation, as their counsel for this transaction. If any party is required to take any action to enforce its rights under this Agreement, the prevailing party shall be entitled to its reasonable expenses, including attorneys' fees, in connection with any such action. 5.9 Entire Agreement. This Agreement and the exhibits to this Agreement constitute the entire agreement of the parties, and supersede any prior agreements. 5.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be taken to be an original; but such counterparts will together constitute one document. [Remainder of page left blank intentionally; signature page follows.] 12 The undersigned have executed this Agreement as of the day and year first written above. KARTS INTERNATIONAL INCORPORATED By: /s/ Charles Brister ------------------------ Name: Charles Brister Title: President and C.E.O. Address: P.O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telephone: 504-747-1111 Telecopy: 504-747-2700 With a copy to: Rick Goodner, Esq. Jackson Walker, L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Telephone: 214-953-6167 Telecopy: 214-953-5822 13 THE SCHLINGER FOUNDATION By: /s/ Evert I. Schlinger --------------------------------------------- Name: Evert I. Schlinger --------------------------------------------- Title: President --------------------------------------------- Address: 1944 Edison Street Santa Ynez, California 93460 Telephone: 805-686-1618 Telecopy: 805-686-1618 With a copy to: Jenkens & Gilchrist, a Professional Corporation 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: W. Alan Kailer, Esq. Telephone: 214-855-4500 Telecopy: 214-855-4300 14 EX-10.61 21 0021.txt REGISTRATION RIGHTS AGREEMENT Exhibit 10.61 REGISTRATION RIGHTS AGREEMENT ----------------------------- THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of this 17th day of May 2000, by and among KARTS INTERNATIONAL INCORPORATED, a Nevada corporation (the "Company"), and THE SCHLINGER FOUNDATION, (the "Investor"). WITNESSETH: ---------- WHEREAS, the Investor and the Company are parties to that certain Stock Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), whereby the Investor shall purchase and the Company shall issue [4,000,000] shares of the Company's Series A Preferred Stock, par value $0.001 per share (the "Series A Preferred"); WHEREAS, the obligations of the Investor under the Purchase Agreement are conditioned, among other things, upon the execution and delivery of this Agreement by the Investor and the Company; and WHEREAS, the Company and the Investor desire to be granted and to grant the rights created herein. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings: (a) All capitalized terms used and not otherwise defined herein shall have the meanings given them in the Purchase Agreement. (b) "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. (c) "Common Stock" shall mean the Company's Common Stock, par value per share $0.001, as authorized on the date of this Agreement. (d) "Conversion Shares" shall mean the shares of Common Stock issued or issuable upon conversion of the Series A Preferred. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (f) "Investors" shall mean Investor and any Person who acquires any Registration Securities from Investor in accordance with the terms of this Agreement. (g) "Person" shall mean an individual, a corporation, a partnership, a limited liability company, a joint venture, a trust, an estate, an unincorporated organization, a government and any agency or political subdivision thereof. (h) "Registrable Securities" shall mean (i) the Conversion Shares or shares of any security of the Company issued or issuable upon conversion of the Series A Preferred; and (ii) any other securities of the Company distributable on, with respect to, or in substitution of such Registrable Securities, except for those that have been sold or transferred pursuant to an effective registration statement, or pursuant to Rule 144, under the Securities Act. 1 (i) "Registration Expenses" shall mean all expenses incurred in effecting the registrations provided for in Sections 2 and 3, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company underwriting expenses (other than fees, commissions or discounts), expenses of any Company audits incident to or required by any such registration and Company expenses of complying with the securities or blue sky laws of any jurisdictions (but excluding fees and disbursements of counsel and other agents for the selling holders of Registrable Securities). (j) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 2. Demand Registrations. (a) At any time subsequent to the date hereof, the holder or holders of at least fifty percent (50%) of the Registrable Securities then outstanding, on behalf of all holders of Registrable Securities, severally from time to time may notify the Company in writing that such Investor(s) intends to offer for public sale any Registrable Securities (but only if the aggregate number of shares of such Registrable Securities to be offered for public sale is more than fifty percent (50%) of the Registrable Securities then outstanding). Upon receipt of such written notice, the Company will use its reasonable best efforts to cause the Registrable Securities as may be requested by the Investors to be included in a registration statement under the Securities Act. The Company shall not be required to file any registration statement for securities other than shares of Common Stock, although any conversion of Series A Preferred may be conditioned upon such registration statement becoming effective to the extent that such conversion or exercise relates to Conversion Shares covered by the Investor's written notice of an intended public offering. In the event any registration attempted under this Section 2 pursuant to which the Company would be responsible for the Registration Expenses of the Investors is not consummated, then the Company shall pay such expenses and shall remain responsible for such expenses of the Investors with respect to two (2) consummated registrations made under this Section 2; provided, however, that if a registration attempted under this Section 2 is not consummated solely as a result of the withdrawal of the Investors requesting such registration, unless such Investors reimburse the Registration Expenses incurred by the Company such registration statement shall count against the two (2) registration statements that the Company is required to a consummate. The Investors covered by the registration statement who desire to do so may sell such Registrable Securities in an offering pursuant to this Section 2 that is underwritten ("Underwritten Offering"). In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the holders of a majority of the Registrable Securities included in such offering, subject to approval of the Company not to be unreasonably withheld. (b) A registration statement filed pursuant to the request of the Investors may include other securities of the Company with respect to which "piggy-back" registration rights have been granted, and may include securities of the Company being sold for the account of the Company; provided, however, that if the Company shall request inclusion in any registration pursuant to this Section 2 of the securities being sold for its own account, or if other persons shall request inclusion in any registration undertaken pursuant to this Section 2, the Investors shall, on behalf of all entities requesting inclusion in such registration, offer to include such securities in the offering; provided, however, that the Investors may condition any such offer on their acceptance of reasonable conditions (including, without limitation, if such offering is an Underwritten Offering, that the Company or any other such requesting holders agree in writing to enter into an underwriting agreement with usual and customary terms). Notwithstanding any other provisions of this Section 2, if the representative of the underwriters advises the Investors in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of shares to be underwritten and included in the registration shall be allocated: (i) first, to the Investor(s) requiring such registration, pro rata among such Investor(s) on the basis of the number of shares of Registrable Securities for which each such Investor has requested registration, (ii) second, to the Company, and (iii) third, to the other holders requesting inclusion in the registration, pro rata among the respective holders thereof on the basis of the number of shares for which each such requesting holder has requested registration. If a Person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, the underwriter or the Investor(s). The securities so excluded shall also be withdrawn from registration. (c) Except as provided in Section 2(a) with respect to withdrawn registration statements, all Registration Expenses of the Investors incurred in connection with registrations requested pursuant to this Section 2 shall be borne by the Company. 2 3. "Piggy-Back" Registrations. (a) If the Company decides to register any of its Common Stock or securities convertible into or exchangeable for Common Stock under the Securities Act on a form which is suitable for an offering for cash or shares of the Company held by third parties and which is not a registration solely to implement an employee benefit plan, a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the Commission is applicable, the Company will promptly give written notice to the Investors of its intention to effect such a registration. Subject to Section 3(b) below, the Company will use all reasonable efforts to effect the registration under the Securities Act of all Registrable Securities that the Investor(s) request(s) be included in such registration by a written notice delivered to the Company within fifteen (15) days after the notice given by the Company. The Investors agree that any securities they request to be included in a Company registration pursuant to this Section 3 shall be included by the Company on the same form of registration statement as has been selected by the Company for the securities the Company is registering for sale for its own account. (b) If the registration involves an Underwritten Offering, the Company will not be required to register Registrable Securities in excess of the amount that the principal underwriter reasonably and in good faith recommends may be included in such offering (a "Cutback"), which recommendation, and supporting reasoning, shall be delivered to the Investors. If such a Cutback occurs, the number of shares that are entitled to be included in the registration and underwriting shall be allocated in the following manner: (i) first, to the Company for any securities it proposes to sell for its own account, (ii) second, to the Investor(s) requiring such registration pro rata among such Investor(s) on the basis of the number of shares of Registrable Securities held by the Investors for which each such Investor above requested registration, and (iii) third, to the other holders requesting inclusion in the registration, pro rata among the respective holders thereof on the basis of the number of shares for which each such requesting holder has requested registration. (c) If the Company elects to terminate any registration filed under this Section 3, the Company will have no obligation to register the securities sought to be included by the Investors in such registration. If the Company includes in such registration any securities to be offered by it, all Registration Expenses of the Investors will be borne by the Company. 4. Procedure for Registration. Whenever the Company is required under this Agreement to register Registrable Securities, it agrees to do the following: (a) use its commercially reasonable efforts to keep such registration statement continuously effective for 180 days (and, with respect to one registration on Form S-3, for up to two years, if requested by the Investors selling Registrable Securities) to complete the proposed distribution; upon the occurrence of any event that would cause the registration statement or the prospectus contained therein to contain a material misstatement or omission, the Company shall file promptly an appropriate amendment to such registration statement correcting any such misstatement or omission; (b) prepare and file with the Commission a registration statement with respect to such Registrable Securities and prepare and file with the Commission such amendments and post-effective amendments to the registration statement as may be necessary to keep the registration statement effective for 180 days (and, with respect to one registration on Form S-3, for up to two years, if requested by the Investors selling Registrable Securities) to complete the proposed distribution; cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such registration statement or supplement to the prospectus; 3 (c) advise the underwriter(s), if any, and selling Investors promptly and, if requested by such Persons, to confirm such advice in writing, (i) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective, (ii) of any request by the Commission for amendments to the registration statement or amendments or supplements to the prospectus or for additional information relating thereto, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Registrable Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (iv) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the registration statement, the prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the registration statement or the prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the registration statement or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Registrable Securities under state securities or blue sky laws, the Company shall use its reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (d) furnish to each of the selling Investors and each of the underwriter(s), if any, before filing with the Commission, copies of the registration statement or any prospectus included therein or any amendments or supplements to any such registration statement or prospectus (including all documents incorporated by reference after the initial filing of such registration statement), and the Company will consult with the selling Investors of Registrable Securities covered by such registration statement or the underwriter(s), if any, prior to the filing of such registration statement or prospectus; (e) if requested by any selling Investor or the underwriter(s), if any, incorporate in the registration statement or prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Investor and underwriter(s), if any, may reasonably request to have included therein, with respect to the number of Registrable Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; (f) furnish to each selling Investor and each of the underwriter(s), if any, without charge, at least one copy of the registration statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (g) deliver to each selling Investor and each of the underwriter(s), if any, without charge, as many copies of the prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company hereby consents to the use of the prospectus and any amendment or supplement thereto by each of the selling Investors and each of the underwriter(s), if any, in connection with the offering and the sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto; (h) prior to any public offering of Registrable Securities, the Company shall use its reasonable best efforts to register or qualify the Registrable Securities under the securities or blue sky laws of such jurisdictions as the selling Investors or underwriter(s), if any, may reasonably request and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the registration statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the registration statement, in any jurisdiction where it is not now so subject; (i) cooperate with the selling Investors and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the holders or the underwriter(s), if any, may request prior to any sale of Registrable Securities made by such underwriter(s); 4 (j) if any fact or event contemplated by clause (c)(iv) above shall exist or have occurred, promptly prepare a supplement or post-effective amendment to the registration statement or related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Registrable Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (k) cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD") and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD; (l) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement meeting the requirements of the Securities Act and Rule 158 thereunder (which need not be audited) for the twelve-month period (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm or best efforts Underwritten Offering or (ii) if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the registration statement; (m) enter into such customary agreements (including an underwriting agreement in customary form) in order to expedite or facilitate the disposition of such Registrable Securities; (n) make available for inspection by any holder of Registrable Securities included in such registration statement, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement; provided that records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided, further, each holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential; and (o) in an Underwritten Offering, use its reasonable best efforts to obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request. 5. Limitation on Registration; Lock-Up Agreement; Suspension of Sales. (a) The Company is not required to file more than two (2) registration statements in total under Section 2(a). The Company may postpone the filing of any registration statement required under Section 2 for a reasonable period of time, not to exceed ninety (90) days, if the Company has been advised by legal counsel that such filing would require the disclosure of a material fact, and the Company determines reasonably and in good faith that such disclosure would have a detrimental effect on the Company. (b) If (i) in the good faith judgment of the Board of Directors of the Company, a required registration under Section 2 would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to the Investors a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company for such registration statement or amendment to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement or amendment, then the Company shall have the right to defer such filing for a period of not more than one hundred and eighty (180) days after receipt of the request of the Investors, and, provided further, that the Company shall not defer its obligation in this manner more than once in any twelve-month period. 5 (c) Each holder of Registrable Securities agrees not to effect or request any public sale or distribution of securities which are the same as or which are similar in nature as the securities of the Company being registered, during the fourteen (14) days prior to and during the 90-day period beginning on, the effective date of a registration statement filed by the Company (except as part of such registration), but only if and to the extent requested in writing (with reasonable prior notice) by the managing underwriter or underwriter in the case of an Underwritten Offering or, if such offering is not underwritten, by the Company of securities similar to the Registrable Securities; provided, however, that all officers and directors of the Company then holding Common Stock of the Company and all holders of at least five percent (5%) of the Company's outstanding Common Stock enter into similar agreements. (d) The Company agrees (i) not to effect or initiate a registration statement for any public sale or distribution of any securities similar to those being registered, or any securities convertible into or exchangeable or exercisable for such securities, during the fourteen (14) days prior to, and during the 90-day period beginning on, the effective date of any registration statement in which the holders of Registrable Securities are participating (except as part of such registration); and (ii) that any agreement entered into on or after the date of this Agreement pursuant to which the Company issues or agrees to issue any privately placed securities shall contain a provision under which holders of such securities agree not to effect any public sale or distribution of any such securities during the periods described in (i) above, in each case including a sale pursuant to Rule 144 under the Act (except as part of any such registration, if permitted). (e) Each holder of Registrable Securities agrees that, upon receipt of notice from the Company of the occurrence of any event of the kind described in Section 4(c)(ii-iv), such holder will forthwith discontinue disposition of such Registrable Securities following the effective date of a registration statement covering such Registrable Securities until such holder's receipt of copies of the prospectus supplement and/or post-effective amendment contemplated by Section 4(j), or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed and, in either case, has received copies of any additional or supplemental filings that are incorporate or deemed to be incorporated by reference in such prospectus or registration statement. 6. Indemnification. (a) The Company agrees to indemnify and hold harmless each Investor and each Person, if any, who controls any Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus (or any amendment or supplement thereto), or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to the Investors furnished in writing to the Company by the Investors expressly for use in connection therewith. The foregoing indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) If any action, suit or proceeding shall be brought against the Investors or any Person controlling the Investors in respect of which indemnity may be sought against the Company, the Investors or such controlling Person shall promptly notify the parties against whom indemnification is being sought (collectively the "Indemnifying Parties" and each an "Indemnifying Party"), and such Indemnifying Parties shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses; 6 provided, however, that failure to so notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability unless and to the extent it is prejudiced as a result of such failure. The Investors or any such controlling Person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Investors or such controlling Person unless (i) the Indemnifying Parties have agreed in writing to pay such fees and expenses, (ii) the Indemnifying Parties have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both the Investors or such controlling Person and the Indemnifying Parties and the Investors or such controlling Person shall have been advised in writing by its counsel that representation of such indemnified party and any Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Indemnifying Party shall not have the right to assume the defense of such action, suit or proceeding on behalf of the Investors or such controlling Person). It is understood, however, that the Indemnifying Parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for the Investors and controlling Persons not having actual or potential differing interests with the Investors or among themselves, which firm shall be designated in writing by the Investors, and that all such fees and expenses shall be reimbursed as they are incurred. The Indemnifying Parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Indemnifying Parties agree to indemnify and hold harmless the Investors, to the extent provided in paragraph (a) hereof, and any such controlling Person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each Investor, severally and not jointly, agrees to indemnify and hold harmless the Company, and its directors and officers, and any Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity from the Company to the Investors set forth in paragraph (a) hereof, but only with respect to information relating to such Investor furnished in writing by or on behalf of such Investor expressly for use in the registration statement or prospectus; provided, however, that no Investor shall be liable for any claims hereunder in an amount in excess of the net proceeds received by such Investor from the sale of the Registrable Securities pursuant to the registration statement. If any action, suit or proceeding shall be brought against the Company, any of its directors or officers, or any such controlling Person based on the registration statement or prospectus, and in respect of which indemnity may be sought against the Investors pursuant to this paragraph (c), the Investors shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof the Investors shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at the Investors' expense), and the Company, its directors and officers, and any such controlling Person shall have the rights and duties given to the Investors by paragraph (b) above. (d) If the indemnification provided for in this Section 6 is unavailable (except if inapplicable according to its terms) to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an Indemnifying Party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Investors, on the other hand, from their sale of Registrable Securities (it being expressly understood and agreed that the relative benefits received by the Company from the sale of the Registrable Securities shall be equal to the amount of net proceeds received by the Company from the sale of the Registrable Securities to the Investors), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Investors, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and the Investors, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the Investors, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 7 (e) The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 6, the Investors shall not be required to contribute any amount in excess of the amount by which the net proceeds received by them in connection with the sale of the Registrable Securities exceeds the amount of any damages which the Investors have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any of the Investors or any Person controlling the Investors, the Company, its directors or officers or any Person controlling the Company. A successor to the Investors or any Person controlling the Investors, or to the Company, its directors or officers or any Person controlling the Company shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 6. (g) No Indemnifying Party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 7. Rule 144 Requirements. If the Company becomes subject to the reporting requirements of the Exchange Act, the Company will use its reasonable best efforts to file with the Commission such information as the Commission may require and will use its reasonable best efforts to make available Rule 144 under the Securities Act (or any successor exemptive rule). 8. Obligations of Investors and Others in a Registration. Each Investor agrees timely to furnish such information regarding such Person and the securities sought to be registered and to take such other action as the Company may reasonably request in connection with the registration, qualification or compliance. The Company may exclude from any registration statement any Investor that timely fails to comply with the provisions of the preceding sentence. If the registration involves an underwriter, each Investor agrees upon the request of such underwriter, not to sell any unregistered securities of the Company for a period of ninety (90) days following the effective date of the registration statement for such offering and to enter into an underwriting agreement with such underwriters containing usual and customary terms and provisions. The Investors agree not to affect the sale of securities under any registration statement until they have received a prospectus, as needed, and notice of the effectiveness of the registration statement of which the prospectus forms a part. 9. Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, their underwriters, if any, and one counsel or firm of counsel and one accountant or firm of accountants representing all the holders of Registrable Securities to be registered under such registration statement, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto. 10. Rule 144A. The Company agrees that, upon the request of any holder of Registrable Securities or any prospective purchaser of Registrable Securities designated by a holder, the Company shall promptly provide (but in any case within fifteen (15) days of a request) to such holder or potential purchaser, the following information: 8 (a) a brief statement of the nature of the business of the Company and any subsidiaries and the products and services they offer; (b) the most recent consolidated balance sheets and profit and losses and retained earnings statements, and similar financial statements of the Company for the two (2) most recent fiscal years (such financial information shall be audited, to the extent reasonably available); and (c) such other information about the Company, any subsidiaries, and their business, financial condition and results of operations as the requesting holder or purchaser of such Registrable Securities shall request in order to comply with Rule 144A, as amended, and in connection therewith the anti-fraud provisions of the federal and state securities laws. The Company hereby represents and warrants to any such requesting holder and any prospective purchaser of Registrable Securities from such holder that the information provided by the Company pursuant to this Section 10 will, as of their dates, not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 11. Limitations on Subsequent Registration Rights. The Company will not, without the prior written consent of the holder or holders of at least a majority of the then outstanding Registrable Securities, enter into any agreements with any holder or prospective holder of any securities of the Company which would grant such holder or prospective holder registration rights with respect to the securities of the Company which are senior or pari passu to the rights granted to the Investors hereunder. 12. Consent to be Bound. Each subsequent holder of Series A Preferred or Registrable Securities must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement. 13. Assignability of Registration Rights. Subject to Section 12 hereof, the registration rights set forth in this Agreement are assignable to each assignee as to the Series A Preferred, the Conversion Shares or each share of Registrable Securities conveyed in accordance herewith who agrees in writing to be bound by the terms and conditions of this Agreement. The term "seller" as used in this Agreement refers to a holder of the Registrable Securities selling such shares. 14. Amendment, Termination and Waiver. Except as otherwise provided herein, no amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by the Company and the holders of at least two-thirds of the then outstanding Series A Preferred (including, for such purposes, any Registrable Securities). 15. Specific Performance. The Company and the Investors agree that the rights created by this Agreement are unique, and that the loss of any such right is not susceptible to monetary quantification. Consequently, the parties agree that an action for specific performance (including for temporary and/or permanent injunctive relief) of the obligations created by this Agreement is a proper remedy for the breach of the provisions of this Agreement, without the necessity of proving actual damages. If the parties hereto are forced to institute legal proceedings to enforce their rights in accordance with the provisions of this Agreement, the prevailing party shall be entitled to recover its reasonable expenses, including attorneys' fees, in connection with any such action. 16. Miscellaneous. (a) Except as otherwise specifically provided herein, all notices, requests, demands and other communications provided for hereunder shall be in writing and shall be deemed effectively given (i) upon receipt when personally delivered, (ii) one (1) day after being sent by overnight delivery or telecopy providing confirmation or receipt of delivery, or (iii) three (3) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, to the applicable party at the addresses indicated below: 9 If to the Company: ----------------- Karts International Incorporated P. O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Attention: President Telephone: 504-747-1111 Telecopy: 504-747-2700 With a copy to: -------------- Rick Gudner, Esq. Jackson Walker, L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Telephone: 214-953-6167 Telecopy: 214-953-5822 If to the Investors: ------------------- The Schlinger Foundation 1944 Edison Street Santa Ynez, California 93460 Attention: Evert Schlinger Telephone: 905-686-1618 Telecopy: 905-686-1618 E-mail: ____________________ With a copy to: -------------- Jenkens & Gilchrist, a Professional Corporation 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Attention: W. Alan Kailer, Esq. Telephone: 214-855-4361 Telecopy: 214-855-4300 E-mail: akailer@jenkens.com or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other parties complying as to delivery with the terms of this paragraph (a). (b) This Agreement and the legal relations between the parties arising hereunder shall be governed by and interpreted in accordance with the laws of the State of Texas. The parties hereto agree to submit to the jurisdiction of the federal and state courts of the State of Texas with respect to the breach or interpretation of this Agreement or the enforcement of any and all rights, duties, liabilities, obligations, powers, and other relations between the parties arising under this Agreement. (c) This Agreement, the Purchase Agreement, including all exhibits, schedules and attachments thereto, and all other agreements executed in connection herewith and therewith, constitute the full and entire understanding and agreement between the parties regarding the matters set forth herein and therein. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon the successors, assigns, heirs, executors and administrators of the parties hereto. (d) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10 (e) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. [Remainder of page left blank intentionally; signature page follows] 11 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above. THE COMPANY: KARTS INTERNATIONAL INCORPORATED By: _________________________________________ Name: Charles Brister Title: President and CEO THE INVESTORS: THE SCHLINGER FOUNDATION By: _________________________________________ Name: _________________________________________ Title: _________________________________________ 12 EX-10.62 22 0022.txt STOCK PURCHASE AGREEMENT DATED OCTOBER 9, 2000 EXHIBIT 10.62 STOCK PURCHASE AGREEMENT by and among KARTS INTERNATIONAL INCORPORATED and THE SCHLINGER FOUNDATION Dated as of October 9, 2000 TABLE OF CONTENTS Page ---- SECTION 1. DESCRIPTION OF TRANSACTION...................................3 1.1 Description of Securities....................................3 1.2 Closing......................................................3 1.3 Conditions to Closing........................................3 1.4 Definitions..................................................4 SECTION 2. REPRESENTATIONS OF THE COMPANY...............................6 2.1 Corporate Power..............................................6 2.2 Governmental Authorizations, Third Party Consents............6 2.3 Authorization................................................7 2.4 Capitalization...............................................7 2.5 Preemptive Rights, Registration Rights.......................7 2.6 Effect of Transactions.......................................8 2.7 Brokerage....................................................8 2.8 Disclosure...................................................8 SECTION 3. REPRESENTATIONS OF THE INVESTORS.............................8 3.1 Authorization................................................8 3.2 Restrictions on Transferability..............................9 3.3 Status of Investor...........................................9 3.4 Brokerage...................................................10 3.5 Own Account.................................................10 3.6 Governmental Authorizations, Third Party Consents...........10 3.7 Effect of Transactions......................................10 3.8 Consent of Investor.........................................10 SECTION 4. COVENANTS OF THE COMPANY....................................10 4.1 Use of Proceeds.............................................10 4.2 Restricted Corporate Actions................................11 4.3 Board of Directors..........................................12 4.4 Preservation of Corporate Existence and Property............12 4.5 Shareholder and Director Information........................12 4.6 Liability Insurance.........................................12 4.7 No Impairment...............................................12 4.8 Increase Authorized Shares of Common Stock..................13 4.9 Bylaws......................................................13 4.10 Compliance..................................................13 4.11 Rule 144A Information.......................................13 4.12 Brokerage...................................................13 -i- SECTION 5. GENERAL.....................................................14 5.1 Amendments, Waivers and Consents............................14 5.2 Survival, Assignability of Rights...........................14 5.3 Rights of Investor Inter Se.................................14 5.4 Headings....................................................14 5.5 Governing Law...............................................14 5.6 Notices and Demands.........................................15 5.7 Severability................................................15 5.8 Expenses....................................................15 5.9 Entire Agreement............................................15 5.10 Counterparts................................................15 SCHEDULES AND EXHIBITS Exhibit A - Form of Certificate of Designations Exhibit B - Form of Amendment to Registration Rights Agreement Schedule 2.3 - Authorization Schedule 2.4 - Capitalization Schedule 2.5 - Preemptive Rights; Registration Rights Schedule 2.7 - Brokerage Schedule 4.1 - Use of Proceeds Schedule 4.2 - Restricted Corporate Actions -ii- STOCK PURCHASE AGREEMENT ------------------------ Karts International Incorporated, a Nevada corporation (the "Company") and The Schlinger Foundation (the "Investor"), enter into this Stock Purchase Agreement, dated October 9, 2000 (this "Agreement "). SECTION 1. DESCRIPTION OF TRANSACTION -------------------------- 1.1 Description of Securities. The Company has furnished the Investor with financial and nonfinancial information concerning the Company and its assets, liabilities, condition (financial and otherwise), operations, business and prospects. Based on such information, the representations and warranties set forth herein and the other terms and provisions hereof, the Investor will purchase 73,333 shares of Series B Preferred Stock, par value $0.001 per share, of the Company (the "Series B Preferred"), for an aggregate purchase price of $5,500,000, all on the terms and subject to the conditions set forth herein. 1.2 Closing. The closing (the "Closing') of the sale of the Series B Preferred will take place at the offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202, at 10:00 a.m., on the date of this Agreement, or such other time and place as agreed to by the parties hereto (the "Closing Date"). At the Closing, the Company will deliver to the Investor certificates representing the shares of Series B Preferred being acquired by the Investor on the Closing Date upon payment of the purchase price by the Investor to the Company of immediately available funds by wire transfer, or by other form of payment acceptable to the Company. In addition, at the Closing the Company shall deliver to the Investors payment for the expenses of the Investor and its counsel, to the extent such expenses are reimbursable by the Company, as provided in Section 5.8 below. As of the Closing Date, the Company acknowledges that it has previously received from the Investor $5,500,000 of the purchase price for the Series B Preferred Stock. 1.3 Conditions to Closing. The obligation of the Investor to purchase and pay for the Series B Preferred to be purchased by the Investor on the Closing Date is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: (a) the Company shall have duly authorized and filed the Certificate of Designation (the "Certificate") with the Secretary of State of the State of Nevada, substantially in the form attached hereto as Exhibit A; (b) the Company and the Investor shall have entered into an amendment to the Registration Rights Agreement dated May 17, 2000 between Investor and the Company (the "Amended Registration Rights Agreement"), substantially in the form attached hereto as Exhibit B; (c) all representations of the Company to the Investor shall be true, correct and complete as of the Closing Date; STOCK PURCHASE AGREEMENT- Page 3 (d) there shall be no change in the business, assets, financial condition, operation and results of operations of the Company since June 30, 2000, which, in the Investor's sole judgment, is materially adverse to the Company; (e) the Investor, through its personnel and representatives, shall have completed and been satisfied with the results of their due diligence review of the Company's business; and (f) the Company shall have delivered to the Investor: (i) (A) copies of the resolutions of the Company's Board of Directors authorizing and approving this Agreement and all of the transactions and agreements contemplated hereby and thereby, and (B) the names of the officer or officers of the Company authorized to execute this Agreement and any and all documents, agreements and instruments contemplated herein, all certified by the Secretary of the Company to be true, correct, complete and in full force and effect and unmodified as of the Closing Date; (ii) a certificate of existence for the Company from the Secretary of State of Nevada; (iii) a certificate of account status for the Company from the Comptroller of the State of Nevada; (iv) certificates from each state where the Company is required to be qualified as a foreign corporation showing such qualification, dated as of a date within ten (10) days of the Closing Date; and (v) such other documents, instruments, and certificates as the Investor may reasonably request. 1.4 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: "Articles of Incorporation" shall mean the Articles of Incorporation of the Company, as amended to date. "Bylaws" shall mean the Bylaws of the Company, as amended to date. "Certificate" shall have the meaning given in Section 1.3(a). "Common Stock" shall mean the common stock, par value $0.001 per share, of the Company. "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of the Company. STOCK PURCHASE AGREEMENT- Page 4 "Conversion Shares" shall mean any securities of the Company issued or issuable upon conversion of the Series B Preferred. "Employee Benefit Plans" shall mean employee benefit plans within Section 3(3) of ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Existing Preferred Shares" shall mean the Company's 9% Convertible Preferred Stock and Series A Preferred Stock outstanding on the date of this Agreement. "GAAP" shall mean generally accepted accounting principles consistently applied. "New Securities" shall mean any shares of capital stock of the Company, including Common Stock and any series of Preferred Stock, whether now authorized or not, and rights, options or warrants to purchase said shares of Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable for said shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New Securities" does not include (i) the Conversion Shares, (ii) Common Stock offered to the public generally pursuant to a registration statement under the Securities Act in connection with a Qualified Public Offering, (iii) securities issued or sold in connection with stock options granted under the Stock Option Plan or any other Stock Option Plan approved by the shareholders and Board of Directors of the Company, including, without limitation, upon exercise of presently outstanding stock options, net of repurchases and cancellations and expirations (without exercise) of such options, (iv) stock issued in connection with any stock split, stock dividend or recapitalization by the Company, (v) stock issued in connection with any merger or acquisition approved by the Investor, (vi) Common Stock issued as a dividend or upon conversion of the Company's Existing Preferred Shares or (vii) Common Stock issued upon the exercise of warrants of the Company outstanding at the date of this Agreement. "Preferred Stock" shall mean the preferred stock, par value $0.001 per share, of the Company, which, after the filing of the Certificate, will consist only of the Series B Preferred Stock and the Existing Preferred Stock. "Pro Rata Share" shall mean the ratio that (i) the sum of the total number of shares of Common Stock which are then held by the Investor and those which the Investor has the right to obtain pursuant to exercise or conversion of any option, warrant, right or convertible security (including the Existing Preferred Shares and Series B Preferred) bears to (ii) the sum of the total number of shares of Common Stock then outstanding and which are issuable pursuant to exercise or conversion of any then outstanding options, warrants, rights or convertible securities (including the existing Preferred Shares and Series B Preferred). STOCK PURCHASE AGREEMENT- Page 5 "Requisite Interest" shall mean the vote of the holders of at least a majority of the then outstanding Series B Preferred (including, for such purposes, any Conversion Shares into which any of the Series B Preferred have been converted that have not been sold to the public). "Securities" shall mean the equity securities of the Company, including any class or series of Preferred Stock, Common Stock, instruments convertible or exchangeable into such securities, or rights to acquire such securities. "Securities Act" shall mean the Securities Act of 1933, as amended. "Series B Preferred" shall mean the Series B Preferred Stock, $0.001 par value per share, of the Company. "Stock Option Plan" shall mean the 1998 Stock Compensation Plan of Karts International Incorporated as it exists on the date of this Agreement. "Subsidiary" shall mean any corporation, partnership, joint venture, limited liability company or other legal entity in which the Company owns, directly or indirectly, an equity interest. "To the best knowledge of the Company" shall mean those facts after due inquiry that are actually known by the officers of the Company. SECTION 2. REPRESENTATIONS OF THE COMPANY ------------------------------ As part of the basis of this Agreement, the Company hereby represents and warrants to the Investor, at the Closing Date, that: 2.1 Corporate Power. The Company and the Subsidiaries have all required corporate power and authority to own their respective properties and to carry on their respective businesses as presently conducted and as proposed to be conducted. The Company has all required corporate power and authority to execute and deliver this Agreement and the other agreements contemplated herein, to issue and sell the Series B Preferred hereunder, to issue shares of Common Stock upon conversion of the Series B Preferred, and to carry out the transactions contemplated by this Agreement and the other agreements contemplated herein. At the Closing, true, correct and complete copies of the Articles of Incorporation and Bylaws of the Company, as amended, shall be delivered to the Investor. 2.2 Governmental Authorizations, Third Party Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind is necessary or required in connection with the execution, delivery or performance by the Company of this Agreement, or any other documents executed pursuant to this Agreement, other than as specifically required by this Agreement, the filing of a registration statement pursuant to the Amended Registration Rights Agreement, the filing of a Form D with the Securities and Exchange Commission and filings required under applicable state securities or "blue sky" laws. STOCK PURCHASE AGREEMENT- Page 6 2.3 Authorization. Except as indicated on Schedule 2.3 hereof, all corporate action on the part of the Company, its directors and shareholders necessary for (a) the authorization, execution, delivery and performance of this Agreement and the other agreements contemplated herein by the Company, (b) the authorization, sale, issuance and delivery of the Series B Preferred (including the Conversion Shares) and (c) the performance of all of the Company's obligations hereunder and under the other agreements contemplated herein has been taken. This Agreement and all documents executed pursuant to this Agreement are valid and binding obligations of the Company, enforceable according to their terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditor rights, (ii) laws and judicial decisions regarding indemnification for violations of federal securities laws, (iii) the availability of specific performance or other equitable remedies, and (iv) with respect to any indemnification agreements set forth herein or therein, principles of public policy. 2.4 Capitalization. The authorized and issued capital stock of the Company is as set forth in Schedule 2.4. All of the presently outstanding shares of capital stock of the Company have been validly authorized and issued and are fully paid and nonassessable. The Series B Preferred have been validly authorized and, when delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable and free of all encumbrances and restrictions, except restrictions on transfer imposed by applicable federal and state securities laws and the Certificate. The relative rights, preferences, restrictions and other provisions relating to the Series B Preferred are as set forth in Exhibit A. The Company does not have sufficient authorized shares of its Common Stock available for issuance upon conversion of the Series B Preferred Stock. The Company has agreed to seek approval of its shareholders for the increase of the Company's authorized shares of Common Stock to at least 50 million shares. After such shareholder approval has been obtained, the Company will have authorized and reserved for issuance upon conversion of the Series B Preferred not less than 15,000,000 shares of its Common Stock, and the Conversion Shares will be, when and if issued, validly authorized and issued, fully paid and nonassessable, and free of all encumbrances and restrictions, except restrictions on transfer imposed by applicable federal and state securities laws and the Articles of Incorporation. Except as provided in Schedule 2.4, the Company has not issued any other shares of its capital stock and there are no outstanding options, warrants, subscriptions or other rights or obligations to purchase or acquire any of such shares, nor any outstanding securities convertible into or exchangeable for such shares. Except as disclosed on Schedule 2.4 or as contemplated under this Agreement (and the other agreements executed in connection herewith), there are no agreements to which the Company is a party or has knowledge regarding the issuance, registration, voting or transfer of or obligation (contingent or otherwise) of the Company or any Subsidiary to repurchase or otherwise acquire or retire or redeem any of its outstanding shares of capital stock. No dividends are accrued but unpaid on any capital stock of the Company. 2.5 Preemptive Rights, Registration Rights. There are no preemptive rights affecting the issuance or sale of the Company's capital stock. Except as disclosed in Schedule 2.5, the Company is not under any contractual obligation to register (in compliance with the filing requirements and being deemed effective under the Securities Act) any of its presently outstanding Securities or any of its Securities which may hereafter be issued, except as described in the Amended Registration Rights Agreement. STOCK PURCHASE AGREEMENT- Page 7 2.6 Effect of Transactions. The Company's execution and delivery of this Agreement and the other agreements contemplated herein, its performance of the transactions contemplated by this Agreement and the other agreements contemplated herein, and the performance of the businesses of the Company and each Subsidiary as now conducted, does not and will not violate any terms of the Articles of Incorporation or Bylaws or violate any judgment, decree or order, or any material contract or obligation of the Company or such Subsidiary, as the case may be, or any statute, rule or regulation of any federal, state or local government or agency applicable to the Company or any such Subsidiary, or any material contract to which any employee of the Company or any Subsidiary is bound. The offer and sale of the Series B Preferred will be in compliance with all federal and state securities laws. No consent, approval or filing with any regulatory agency is required to be taken by the Company or any Subsidiary in connection with the transactions contemplated by this Agreement, except those which the Company or such Subsidiary has obtained or made in a timely manner, except for any filing of Form D or any applicable state blue sky filing that may be made by the Company after the Closing. 2.7 Brokerage. Except as provided in Schedule 2.7, there are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Company or any Subsidiary. 2.8 Disclosure. This Agreement and the exhibits and schedules hereto, when taken as a whole with other documents and certificates furnished by the Company and any Subsidiary to the Investors or their counsel, do not contain any untrue statement of material fact or omit any material fact necessary in order to make the statements therein not misleading; provided, however certain materials provided to the Investor contain projections and estimates of future events, and such projections and estimates have been based upon certain assumptions that management of the Company and the Subsidiaries made in good faith and believed were reasonable at the time such materials were prepared. There is no fact known to the Company, any Subsidiary that has not been disclosed to the Investors prior to the date of this Agreement that materially and adversely affects the business, assets, properties, prospects or condition (financial or otherwise) of the Company or its Subsidiaries, taken as a whole, or the ability of the Company or any Subsidiary to perform under this Agreement or the other agreements contemplated hereby or to consummate the transactions contemplated hereby or thereby. SECTION 3. REPRESENTATIONS OF THE INVESTORS -------------------------------- As part of the basis of this Agreement, the Investor hereby represents to the Company, at the Closing Date, that: 3.1 Authorization. The execution of this Agreement and the documents executed by the Investor pursuant to this Agreement have been authorized by all necessary action on the part of the Investor, have been executed and delivered, and constitute valid, legal, binding and enforceable agreements of the Investor, except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditor rights, (b) laws and judicial decisions regarding indemnification for violations of federal securities laws, (c) the availability of specific performance or other equitable remedies, and (d) with respect to any indemnification agreements set forth herein or therein, principles of public policy. STOCK PURCHASE AGREEMENT- Page 8 3.2 Restrictions on Transferability. The Investor understands that because the Series B Preferred have not been, and the Conversion Shares when issued will not have been, registered under the Securities Act, it cannot dispose of any or all of the Series B Preferred or Conversion Shares unless they are subsequently registered under the Securities Act or exemptions from registration are available. The Investor understands that no public market now exists for any of the Securities issued by the Company, except for the Common Stock of the Company, and that there is no assurance that a public market will ever exist for the Series B Preferred. The Investor acknowledges and understands that, except as provided in the Amended Registration Rights Agreement, it has no registration rights. Although it may be possible in the future to make limited public sales of the Series B Preferred and/or Conversion Shares without registration under the Securities Act, Rule 144 is not now available and there is no assurance that it will become available for any purpose. By reason of these restrictions, the Investor understands that it may be required to hold the Series B Preferred and/or the Conversion Shares for an indefinite period of time. The Investor agrees that in no event will it make a transfer or disposition of any of the Series B Preferred (or the Conversion Shares) unless and until, if requested by the Company, at the expense of the Investor or transferee, it shall have furnished to the Company an opinion of counsel or other evidence, reasonably satisfactory to the Company, to the effect that such transfer maybe made without registration under the Securities Act. The Investor understands that each certificate representing the Series B Preferred and Conversion Shares will bear appropriate state "blue sky" legends and a legend substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 3.3 Status of Investor. The Investor is knowledgeable and experienced in making venture capital investments, and able to bear the economic risk of loss of its investment in the Company. The Investor is an "accredited investor," as that term is defined in Rule 501 (a) of Regulation D under the Securities Act. STOCK PURCHASE AGREEMENT- Page 9 3.4 Brokerage. There are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Investor. 3.5 Own Account. The Investor is acting on its own behalf in connection with the investigation and examination of the Company and its decision to execute these documents. Investor has received (i) the Company's annual report filed with the SEC on Form 10-K for the year ended December 31, 1999, (ii) the Company's quarterly reports filed with the SEC on Form 10-Q for the quarters ended March 31 and June 30, 2000, and (iii) such other information regarding the Company as has been requested by the Investor or its representatives. 3.6 Governmental Authorizations, Third Party Consents. Based upon the information provided to the Investor by the Company, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind is necessary or required by the Investor in connection with the execution, delivery and performance by the Investor of this Agreement, or any other documents executed pursuant to this Agreement; provided, however, that the Investor makes no representations with respect to applicable federal or state securities laws; and provided, further, however, that any liability of the Investor resulting from a breach of this representation shall be limited to the aggregate purchase price paid by the Investor for the Series B Preferred purchased hereunder. 3.7 Effect of Transactions. The Investor's execution, delivery and performance of this Agreement and the other agreements contemplated by this Agreement will not violate any terms of its organizational documents or, to its knowledge, violate any judgment, decree or order, or any material contract or obligation of the Investor or any statute, rule or regulation of any federal, state or local government or agency applicable to the Investor. 3.8 Consent of Investor. Investor hereby consents as required under the Stock Purchase Agreement dated May 17, 2000 between the Company and Investor to the amendment of the Company's Articles of Incorporation increasing the authorized shares of common stock of the Company from 35,000,000 shares to at least 50,000,000 shares and the issuance by the Company of the Series B Preferred Stock. SECTION 4. COVENANTS OF THE COMPANY ------------------------ The Company hereby covenants that, except as otherwise provided below, for so long as the Investor holds any of the Series B Preferred that: 4.1 Use of Proceeds. The Company shall use the net proceeds from the sale of the Series B Preferred for the purposes set forth on Schedule 4.1. It is the intention of the Company and the Subsidiaries to conduct their businesses in accordance with the current business plan of the Company, which has previously been delivered to the Investor. STOCK PURCHASE AGREEMENT- Page 10 4.2 Restricted Corporate Actions. The Company will not, without the written approval of the holders of a Requisite Interest, take any of the following actions: (a) repurchase any Common Stock or Preferred Stock, other than (i) the redemption of the Series B Preferred in accordance with the Certificate, (ii) the redemption of the Series A Preferred Stock, (iii) the purchase of Common Stock from employees pursuant to agreements with the Company as of the Closing Date to repurchase such stock; provided that the purchase price shall not exceed the price paid by such employee for such stock, or (iv) as indicated on Schedule 4.2 hereof; (b) declare or pay any dividend (other than a stock dividend) on the Common Stock or Preferred Stock (other than dividends on the shares of Series A Preferred and dividends on the Existing Preferred Stock in accordance with the terms of such stock as they exist on the date of this Agreement); (c) except to the extent necessary to comply with foreign laws, create any subsidiary in which the Company owns less than one hundred percent (100%) of the equity securities, or permit any Subsidiary to issue any equity securities to anyone other than the Company or a wholly-owned Subsidiary of the Company or merge with or into any Subsidiary; (d) create any new class or series of shares that has a preference over or is on a parity with the Series B Preferred with respect to voting or liquidation preferences (except that the Company may grant voting rights to shares of a series of Preferred Stock which have the right to vote with holders of Common Stock on an as-converted basis, but in any event not in preference over the Series B Preferred); (e) enter into any arrangement or agreement which (i) conflicts with the rights of the holders of Series B Preferred (ii) restricts the Company's performance under this Agreement or any other documents executed in connection herewith or (iii) could result in the redemption of any shares of Common Stock, (f) except for the amendment of the Articles of Incorporation to increase authorized common stock to at least 50,000,000 shares, subject to the approval of the Company's shareholders, amend the Articles of Incorporation or Bylaws; (g) except as indicated on Schedule 4.2, adopt or amend an Employee Benefit Plan or amend the Stock Option Plan; (h) make any investments except (i) bank deposits in federally insured financial institutions, (ii) investments in direct government obligations of the United States of America, (iii) commercial paper of a domestic issuer rated A-1 or better or P-1 or better by Standard & Poor's Corporation or Moody's Investor Services, Inc., respectively, maturing not more than three months from the date of acquisition, and (iv) investments of the type set forth Schedule 4.2; STOCK PURCHASE AGREEMENT- Page 11 (i) acquire substantially all of the assets, properties or capital stock of another person or entity in any single transaction or series of related transactions; (j) issue any stock, options, or securities convertible or exercisable into the capital stock of the Company, including, without limitation, pursuant to the Stock Option Plan, with exercise prices at less than fair market value, as determined by the Compensation Committee; or (k) issue any stock, options or securities convertible or exercisable into the capital stock of the Company, which are senior to the Series B Preferred in liquidation rights or otherwise. 4.3 Board of Directors. The Company has agreed with the Series A Preferred holders that the Company shall take all appropriate actions to provide that Series A Preferred holders' nominees can hold a majority of the seats on the Board. Unless otherwise agreed to by the directors nominated by the Series A Preferred holders, the Board of Directors will meet at least quarterly. The Company will reimburse the directors for all expenses incurred by such directors in connection with attending any board meetings or other board functions. The Investor shall have the right to receive notice of and have one (1) representative attend all meetings and other functions of the Board of Directors and the Company will reimburse the Investor's representative for all expenses incurred by such representative in connection with attending any such board meetings or other board functions, which representative may also be a representative of the Series A holders. 4.4 Preservation of Corporate Existence and Property. The Company agrees to preserve, protect, and maintain, and cause each Subsidiary to preserve, protect, and maintain, (a) its corporate existence, and (b) all rights, franchises, accreditations, privileges, and properties the failure of which to preserve, protect, and maintain might have a material and adverse effect on the business, affairs, assets, prospects, operations, or condition, financial or otherwise, of the Company and its Subsidiaries, taken as a whole. 4.5 Shareholder and Director Information. At the request of the Investor, the Company shall promptly deliver to the Investor information regarding the securityholders, officers and directors of the Company, including, without limitation, names, addresses, types of securities held and terms of securities held. 4.6 Liability Insurance. The Company will use its best efforts to maintain comprehensive liability insurance (including automobile liability coverage) at regular premium rates with insurer(s) of recognized responsibility in an amount which is commercially reasonable for the benefit of itself and the Subsidiaries. 4.7 No Impairment. The Company and the Subsidiaries will observe and honor in good faith all rights of the Investors, under the terms of this Agreement or any other documents executed in connection herewith, and will take no action that would impair or otherwise prejudice such rights. STOCK PURCHASE AGREEMENT- Page 12 4.8 Increase Authorized Shares of Common Stock. The Company shall as soon as practicable after the Closing Date seek shareholder approval for an amendment of the Company's Articles of Incorporation increasing the authorized shares of common stock of the Company from 35,000,000 million shares to at least 50,000,000 shares. Upon such shareholder approval, the Company shall thereafter at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Series B Preferred and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Series B Preferred from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Series B Preferred or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Series B Preferred. 4.9 Bylaws. The Company shall at all times cause its Bylaws to provide that the number of directors fixed in accordance therewith shall in no event conflict with any of the terms or provisions of this Agreement or the Articles of Incorporation. The Company shall at all times maintain provisions in its Bylaws and/or Articles of Incorporation indemnifying all directors against liability and absolving all directors from liability to the Company and its shareholders to the maximum extent permitted under the laws of the State of Nevada. 4.10 Compliance. The Company shall comply, and cause each Subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could materially and adversely affect the business or condition, financial or otherwise of the Company and the Subsidiaries, taken as a whole. 4.11 Rule 144A Information. The Company shall, at all times during which it is neither subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide in writing, upon the written request of the Investor or a prospective buyer of the Series B Preferred or Conversion Shares from the Investor, all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the Commission under the Securities Act ("Rule 144A Information"). The Company's obligations under this Section 4.11 shall at all times be contingent upon the Investor obtaining from the prospective buyer of Series B Preferred or Conversion Shares a written agreement to take all reasonable precautions to safeguard the Rule 144A Information from disclosure to anyone other than a person who will assist such buyer in evaluating the purchase of any Series B Preferred or Conversion Shares. 4.12 Brokerage. The Company agrees to indemnify and hold harmless the Investors for any brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Company or any Subsidiary. STOCK PURCHASE AGREEMENT- Page 13 SECTION 5. GENERAL ------- 5.1 Amendments, Waivers and Consents. Unless otherwise specified in this Agreement, any consents required and any waiver, amendment or other action of the Investor or holders of the Series B Preferred (or Conversion Shares) may be made by consent(s) in writing signed by the holders of a Requisite Interest. Any specific reference to approval or action by a Requisite Interest shall not imply that other references to approval or action by the Investor or holders of Series B Preferred (or Conversion Shares) requires each holder's approval or action, unless a higher or lower approval is so specifically stated in such specific reference. Any amendment or waiver made according to this Section 5.1 will be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities have been converted) and each future holder. Any amendment or waiver by the Company must be made in writing. This Agreement may not be amended, except in a written document signed by the Company and holders of a Requisite Interest. 5.2 Survival, Assignability of Rights. All representations of the parties made in this Agreement and in the certificates, exhibits, schedules or other written information delivered or furnished by one party to the other in connection with this Agreement will survive the delivery of the Series B Preferred for a period of two (2) years subsequent to the Closing. All covenants and agreements made in this Agreement will survive the Closing, and will bind and inure to the benefit of the parties' hereto and their respective successors and assigns. Each Investor shall have the right to transfer any or all of its rights hereunder to any purchaser of Series B Preferred or Conversion Shares; provided such transferee executes a signature page to this Agreement thereby agreeing to be bound by and entitled to the benefits of this Agreement. The Company may not assign its rights or obligations hereunder without the consent of the Investor, as provided in Section 5.1. 5.3 Rights of Investor Inter Se. The Investor shall have the absolute right to exercise or refrain from exercising any right or rights which the Investor may have by reason of this Agreement or any Series B Preferred or Conversion Shares, including, without limitation, the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and the Investor shall not incur any liability to any other Investor with respect to exercising or refraining from exercising any such right or rights. 5.4 Headings. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 5.5 Governing Law. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF. STOCK PURCHASE AGREEMENT- Page 14 5.6 Notices and Demands. Any notice or demand which is permitted or required hereunder will be deemed to have been sufficiently received (except as otherwise provided herein) (a) upon receipt when personally delivered, (b) or one (1) day after sent by overnight delivery or telecopy providing confirmation or receipt of delivery, or (c) three (3) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested to the following addresses: if to the Company at the address as shown on the signature page of this Agreement (with a copy as shown), or at any other address designated by the Company to the Investors in writing; if to an Investor, at its mailing address as shown on the signature pages of this Agreement (with a copy as shown), or at any other address designated by the Investor to the Company in writing. 5.7 Severability. If any provision of this Agreement is held invalid under applicable law, such provision will be ineffective to the extent of such invalidity, and such invalid provision will be modified to the extent necessary to make it valid and enforceable. Any such invalidity will not invalidate the remainder of this Agreement. 5.8 Expenses. The Company will pay (a) all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement, and (b) the reasonable out-of-pocket expenses of the Investors and the reasonable legal fees and disbursements incurred by one counsel for the Investors with respect to this Agreement and the transactions contemplated hereby. If any party is required to take any action to enforce its rights under this Agreement, the prevailing party shall be entitled to its reasonable expenses, including attorneys' fees, in connection with any such action. 5.9 Entire Agreement. This Agreement and the exhibits to this Agreement constitute the entire agreement of the parties relating to the transactions contemplated herein. 5.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be taken to be an original; but such counterparts will together constitute one document. STOCK PURCHASE AGREEMENT- Page 15 The undersigned have executed this Agreement as of the day and year first written above. KARTS INTERNATIONAL INCORPORATED By: _______________________________________ Name: _______________________________________ Title: _______________________________________ Address: P.O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telephone: 504-747-1111 Telecopy: 504-747-2700 With a copy to: Rick Goodner, Esq. Jackson Walker, L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Telephone: 214-953-6167 Telecopy: 214-953-5822 THE SCHLINGER FOUNDATION By: _______________________________________ Name: _______________________________________ Title: _______________________________________ Address: 1944 Edison Street Santa Ynez, California 93460 Telephone: 805-686-1618 Telecopy: 805-686-1618 STOCK PURCHASE AGREEMENT- Page 16 EX-10.63 23 0023.txt STOCK PURCHASE AGREEMENT DATED NOVEMBER 28, 2000 EXHIBIT 10.63 STOCK PURCHASE AGREEMENT by and among KARTS INTERNATIONAL INCORPORATED and THE SCHLINGER FOUNDATION Dated as of November 28, 2000 TABLE OF CONTENTS Page ---- SECTION 1. DESCRIPTION OF TRANSACTION..........................................3 1.1 Description of Securities....................................3 1.2 Closing......................................................3 1.3 Conditions to Closing........................................3 1.4 Definitions..................................................4 SECTION 2. REPRESENTATIONS OF THE COMPANY......................................6 2.1 Corporate Power..............................................6 2.2 Governmental Authorizations, Third Party Consents............6 2.3 Authorization................................................6 2.4 Capitalization...............................................7 2.5 Preemptive Rights, Registration Rights.......................7 2.6 Effect of Transactions.......................................7 2.7 Brokerage....................................................8 2.8 Disclosure...................................................8 SECTION 3. REPRESENTATIONS OF THE INVESTORS....................................8 3.1 Authorization................................................8 3.2 Restrictions on Transferability..............................9 3.3 Status of Investor...........................................9 3.4 Brokerage....................................................9 3.5 Own Account..................................................9 3.6 Governmental Authorizations, Third Party Consents...........10 3.7 Effect of Transactions......................................10 3.8 Consent of Investor.........................................10 SECTION 4. COVENANTS OF THE COMPANY...........................................10 4.1 Use of Proceeds.............................................10 4.2 Restricted Corporate Actions................................10 4.3 Board of Directors..........................................12 4.4 Preservation of Corporate Existence and Property............12 4.5 Shareholder and Director Information........................12 4.6 Liability Insurance.........................................12 4.7 No Impairment...............................................12 4.8 Increase Authorized Shares of Common Stock..................12 4.9 Bylaws......................................................13 4.10 Compliance..................................................13 4.11 Rule 144A Information.......................................13 4.12 Brokerage...................................................13 -i- SECTION 5. GENERAL............................................................13 5.1 Amendments, Waivers and Consents............................13 5.2 Survival, Assignability of Rights...........................14 5.3 Rights of Investor Inter Se.................................14 5.4 Headings....................................................14 5.5 Governing Law...............................................14 5.6 Notices and Demands.........................................14 5.7 Severability................................................14 5.8 Expenses....................................................15 5.9 Entire Agreement............................................15 5.10 Counterparts................................................15 SCHEDULES AND EXHIBITS ---------------------- Schedule 2.3 - Authorization Schedule 2.4 - Capitalization Schedule 2.5 - Preemptive Rights; Registration Rights Schedule 2.7 - Brokerage Schedule 4.1 - Use of Proceeds Schedule 4.2 - Restricted Corporate Actions -ii- STOCK PURCHASE AGREEMENT ------------------------ Karts International Incorporated, a Nevada corporation (the "Company") and The Schlinger Foundation (the "Investor"), enter into this Stock Purchase Agreement, dated November 28, 2000 (this "Agreement "). SECTION 1. DESCRIPTION OF TRANSACTION -------------------------- 1.1 Description of Securities. The Company has furnished the Investor with financial and nonfinancial information concerning the Company and its assets, liabilities, condition (financial and otherwise), operations, business and prospects. Based on such information, the representations and warranties set forth herein and the other terms and provisions hereof, the Investor will purchase 14,667 shares of Series B Preferred Stock, par value $0.001 per share, of the Company (the "Series B Preferred"), for an aggregate purchase price of $1,100,000, all on the terms and subject to the conditions set forth herein. 1.2 Closing. The closing (the "Closing') of the sale of the Series B Preferred will take place at the offices of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202, at 10:00 a.m., on the date of this Agreement, or such other time and place as agreed to by the parties hereto (the "Closing Date"). At the Closing, the Company will deliver to the Investor certificates representing the shares of Series B Preferred being acquired by the Investor on the Closing Date upon payment of the purchase price by the Investor to the Company of immediately available funds by wire transfer, or by other form of payment acceptable to the Company. In addition, at the Closing the Company shall deliver to the Investors payment for the expenses of the Investor and its counsel, to the extent such expenses are reimbursable by the Company, as provided in Section 5.8 below. As of the Closing Date, the Company acknowledges that it has previously received from the Investor $1,100,000 of the purchase price for the Series B Preferred Stock. 1.3 Conditions to Closing. The obligation of the Investor to purchase and pay for the Series B Preferred to be purchased by the Investor on the Closing Date is subject to the satisfaction, at or prior to the Closing, of each of the following conditions: (a) all representations of the Company to the Investor shall be true, correct and complete as of the Closing Date; (b) there shall be no change in the business, assets, financial condition, operation and results of operations of the Company since September 30, 2000, which, in the Investor's sole judgment, is materially adverse to the Company; (c) the Investor, through its personnel and representatives, shall have completed and been satisfied with the results of their due diligence review of the Company's business; and (d) the Company shall have delivered to the Investor: STOCK PURCHASE AGREEMENT - Page 3 (i) (A) copies of the resolutions of the Company's Board of Directors authorizing and approving this Agreement and all of the transactions and agreements contemplated hereby and thereby, including a copy of the Certificate of Designation for the Series B Preferred Stock; and (B) the names of the officer or officers of the Company authorized to execute this Agreement and any and all documents, agreements and instruments contemplated herein, all certified by the Secretary of the Company to be true, correct, complete and in full force and effect and unmodified as of the Closing Date; (ii) a certificate of existence for the Company from the Secretary of State of Nevada has previously been delivered to the Investor; (iii) a certificate of account status for the Company from the Comptroller of the State of Nevada has previously been delivered to the Investor; (iv) certificates from each state where the Company is required to be qualified as a foreign corporation showing such qualification has previously been delivered to the Investor; and (v) such other documents, instruments, and certificates as the Investor may reasonably request. 1.4 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: "Articles of Incorporation" shall mean the Articles of Incorporation of the Company, as amended to date. "Bylaws" shall mean the Bylaws of the Company, as amended to date. "Certificate" shall mean the Certificate of Designation for the Series B Preferred Stock as filed with the Nevada Secretary of State on October 6, 2000. "Common Stock" shall mean the common stock, par value $0.001 per share, of the Company. "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of the Company. "Conversion Shares" shall mean any securities of the Company issued or issuable upon conversion of the Series B Preferred. "Employee Benefit Plans" shall mean employee benefit plans within Section 3(3) of ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. STOCK PURCHASE AGREEMENT - Page 4 "Existing Preferred Shares" shall mean the Company's 9% Convertible Preferred Stock, Series A Preferred Stock and Series B Preferred Stock outstanding on the date of this Agreement. "GAAP" shall mean generally accepted accounting principles consistently applied. "New Securities" shall mean any shares of capital stock of the Company, including Common Stock and any series of Preferred Stock, whether now authorized or not, and rights, options or warrants to purchase said shares of Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible into or exchangeable for said shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New Securities" does not include (i) the Conversion Shares, (ii) Common Stock offered to the public generally pursuant to a registration statement under the Securities Act in connection with a Qualified Public Offering, (iii) securities issued or sold in connection with stock options granted under the Stock Option Plan or any other Stock Option Plan approved by the shareholders and Board of Directors of the Company, including, without limitation, upon exercise of presently outstanding stock options, net of repurchases and cancellations and expirations (without exercise) of such options, (iv) stock issued in connection with any stock split, stock dividend or recapitalization by the Company, (v) stock issued in connection with any merger or acquisition approved by the Investor, (vi) Common Stock issued as a dividend or upon conversion of the Company's Existing Preferred Shares or (vii) Common Stock issued upon the exercise of warrants of the Company outstanding at the date of this Agreement. "Preferred Stock" shall mean the preferred stock, par value $0.001 per share, of the Company, which consists of the Existing Preferred Shares. "Pro Rata Share" shall mean the ratio that (i) the sum of the total number of shares of Common Stock which are then held by the Investor and those which the Investor has the right to obtain pursuant to exercise or conversion of any option, warrant, right or convertible security (including the Existing Preferred Shares) bears to (ii) the sum of the total number of shares of Common Stock then outstanding and which are issuable pursuant to exercise or conversion of any then outstanding options, warrants, rights or convertible securities (including the Existing Preferred Shares). "Requisite Interest" shall mean the vote of the holders of at least a majority of the then outstanding Series B Preferred (including, for such purposes, any Conversion Shares into which any of the Series B Preferred have been converted that have not been sold to the public). "Securities" shall mean the equity securities of the Company, including any class or series of Preferred Stock, Common Stock, instruments convertible or exchangeable into such securities, or rights to acquire such securities. "Securities Act" shall mean the Securities Act of 1933, as amended. STOCK PURCHASE AGREEMENT - Page 5 "Series B Preferred" shall mean the Series B Preferred Stock, $0.001 par value per share, of the Company. "Stock Option Plan" shall mean the 1998 Stock Compensation Plan of Karts International Incorporated as it exists on the date of this Agreement and the 2000 Stock Compensation Plan which is subject to stockholder approval at the Annual Meeting of Stockholders to be held on December 12, 2000. "Subsidiary" shall mean any corporation, partnership, joint venture, limited liability company or other legal entity in which the Company owns, directly or indirectly, an equity interest. "To the best knowledge of the Company" shall mean those facts after due inquiry that are actually known by the officers of the Company. SECTION 2. REPRESENTATIONS OF THE COMPANY ------------------------------ As part of the basis of this Agreement, the Company hereby represents and warrants to the Investor, at the Closing Date, that: 2.1 Corporate Power. The Company and the Subsidiaries have all required corporate power and authority to own their respective properties and to carry on their respective businesses as presently conducted and as proposed to be conducted. The Company has all required corporate power and authority to execute and deliver this Agreement and the other agreements contemplated herein, to issue and sell the Series B Preferred hereunder, to issue shares of Common Stock upon conversion of the Series B Preferred, and to carry out the transactions contemplated by this Agreement and the other agreements contemplated herein. At the Closing, true, correct and complete copies of the Articles of Incorporation and Bylaws of the Company, as amended, shall be delivered to the Investor. 2.2 Governmental Authorizations, Third Party Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind is necessary or required in connection with the execution, delivery or performance by the Company of this Agreement, or any other documents executed pursuant to this Agreement, other than as specifically required by this Agreement, the filing of a registration statement pursuant to the Amended Registration Rights Agreement, the filing of a Form D with the Securities and Exchange Commission and filings required under applicable state securities or "blue sky" laws. 2.3 Authorization. Except as indicated on Schedule 2.3 hereof, all corporate action on the part of the Company, its directors and shareholders necessary for (a) the authorization, execution, delivery and performance of this Agreement and the other agreements contemplated herein by the Company, (b) the authorization, sale, issuance and delivery of the Series B Preferred (including the Conversion Shares) and (c) the performance of all of the Company's obligations hereunder and under the other agreements contemplated herein has been taken. This Agreement and all documents executed pursuant to this Agreement are valid and binding obligations of the Company, enforceable according to their terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditor rights, (ii) laws and judicial decisions regarding indemnification for violations of federal securities laws, (iii) the availability of specific performance or other equitable remedies, and (iv) with respect to any indemnification agreements set forth herein or therein, principles of public policy. STOCK PURCHASE AGREEMENT - Page 6 2.4 Capitalization. The authorized and issued capital stock of the Company is as set forth in Schedule 2.4. All of the presently outstanding shares of capital stock of the Company have been validly authorized and issued and are fully paid and nonassessable. The Series B Preferred have been validly authorized and, when delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable and free of all encumbrances and restrictions, except restrictions on transfer imposed by applicable federal and state securities laws and the Certificate. The relative rights, preferences, restrictions and other provisions relating to the Series B Preferred are as set forth in the Certificate. The Company does not have sufficient authorized shares of its Common Stock available for issuance upon conversion of the Series B Preferred Stock. The Company has agreed to seek approval of its stockholders for the increase of the Company's authorized shares of Common Stock to 90 million shares at the Annual Meeting of Stockholders to be held on December 12, 2000. After such stockholder approval has been obtained, the Company will have authorized and reserved for issuance upon conversion of the Series B Preferred not less than 3,000,000 shares of its Common Stock, and the Conversion Shares will be, when and if issued, validly authorized and issued, fully paid and nonassessable, and free of all encumbrances and restrictions, except restrictions on transfer imposed by applicable federal and state securities laws and the Articles of Incorporation. Except as provided in Schedule 2.4, the Company has not issued any other shares of its capital stock and there are no outstanding options, warrants, subscriptions or other rights or obligations to purchase or acquire any of such shares, nor any outstanding securities convertible into or exchangeable for such shares. Except as disclosed on Schedule 2.4 or as contemplated under this Agreement (and the other agreements executed in connection herewith), there are no agreements to which the Company is a party or has knowledge regarding the issuance, registration, voting or transfer of or obligation (contingent or otherwise) of the Company or any Subsidiary to repurchase or otherwise acquire or retire or redeem any of its outstanding shares of capital stock. No dividends are accrued but unpaid on any capital stock of the Company. 2.5 Preemptive Rights, Registration Rights. There are no preemptive rights affecting the issuance or sale of the Company's capital stock. Except as disclosed in Schedule 2.5, the Company is not under any contractual obligation to register (in compliance with the filing requirements and being deemed effective under the Securities Act) any of its presently outstanding Securities or any of its Securities which may hereafter be issued, except as described in the Amended Registration Rights Agreement. 2.6 Effect of Transactions. The Company's execution and delivery of this Agreement and the other agreements contemplated herein, its performance of the transactions contemplated by this Agreement and the other agreements contemplated herein, and the performance of the businesses of the Company and each Subsidiary as now conducted, does not and will not violate any terms of the Articles of Incorporation or Bylaws or violate any judgment, decree or order, or any material contract or obligation of the Company or such Subsidiary, as the case may be, or any statute, rule or regulation of any federal, state or local government or agency applicable to the Company or any such Subsidiary, or any material contract to which any employee of the Company or any Subsidiary is bound. The offer and sale of the Series B Preferred will be in compliance with all federal and state securities laws. No consent, approval or filing with any regulatory agency is required to be taken by the Company or any Subsidiary in connection with the transactions contemplated by this Agreement, except those which the Company or such Subsidiary has obtained or made in a timely manner, except for any filing of Form D or any applicable state blue sky filing that may be made by the Company after the Closing. STOCK PURCHASE AGREEMENT - Page 7 2.7 Brokerage. Except as provided in Schedule 2.7, there are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Company or any Subsidiary. 2.8 Disclosure. This Agreement and the exhibits and schedules hereto, when taken as a whole with other documents and certificates furnished by the Company and any Subsidiary to the Investors or their counsel, do not contain any untrue statement of material fact or omit any material fact necessary in order to make the statements therein not misleading; provided, however certain materials provided to the Investor contain projections and estimates of future events, and such projections and estimates have been based upon certain assumptions that management of the Company and the Subsidiaries made in good faith and believed were reasonable at the time such materials were prepared. There is no fact known to the Company, any Subsidiary that has not been disclosed to the Investors prior to the date of this Agreement that materially and adversely affects the business, assets, properties, prospects or condition (financial or otherwise) of the Company or its Subsidiaries, taken as a whole, or the ability of the Company or any Subsidiary to perform under this Agreement or the other agreements contemplated hereby or to consummate the transactions contemplated hereby or thereby. SECTION 3. REPRESENTATIONS OF THE INVESTORS -------------------------------- As part of the basis of this Agreement, the Investor hereby represents to the Company, at the Closing Date, that: 3.1 Authorization. The execution of this Agreement and the documents executed by the Investor pursuant to this Agreement have been authorized by all necessary action on the part of the Investor, have been executed and delivered, and constitute valid, legal, binding and enforceable agreements of the Investor, except as may be limited by (a) applicable bankruptcy, insolvency, reorganization or other similar laws of general application relating to or affecting the enforcement of creditor rights, (b) laws and judicial decisions regarding indemnification for violations of federal securities laws, (c) the availability of specific performance or other equitable remedies, and (d) with respect to any indemnification agreements set forth herein or therein, principles of public policy. STOCK PURCHASE AGREEMENT - Page 8 3.2 Restrictions on Transferability. The Investor understands that because the Series B Preferred have not been, and the Conversion Shares when issued will not have been, registered under the Securities Act, it cannot dispose of any or all of the Series B Preferred or Conversion Shares unless they are subsequently registered under the Securities Act or exemptions from registration are available. The Investor understands that no public market now exists for any of the Securities issued by the Company, except for the Common Stock of the Company, and that there is no assurance that a public market will ever exist for the Series B Preferred. The Investor acknowledges and understands that, except as provided in the Amended Registration Rights Agreement, it has no registration rights. Although it may be possible in the future to make limited public sales of the Series B Preferred and/or Conversion Shares without registration under the Securities Act, Rule 144 is not now available and there is no assurance that it will become available for any purpose. By reason of these restrictions, the Investor understands that it may be required to hold the Series B Preferred and/or the Conversion Shares for an indefinite period of time. The Investor agrees that in no event will it make a transfer or disposition of any of the Series B Preferred (or the Conversion Shares) unless and until, if requested by the Company, at the expense of the Investor or transferee, it shall have furnished to the Company an opinion of counsel or other evidence, reasonably satisfactory to the Company, to the effect that such transfer maybe made without registration under the Securities Act. The Investor understands that each certificate representing the Series B Preferred and Conversion Shares will bear appropriate state "blue sky" legends and a legend substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 3.3 Status of Investor. The Investor is knowledgeable and experienced in making venture capital investments, and able to bear the economic risk of loss of its investment in the Company. The Investor is an "accredited investor," as that term is defined in Rule 501 (a) of Regulation D under the Securities Act. 3.4 Brokerage. There are no claims for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Investor. 3.5 Own Account. The Investor is acting on its own behalf in connection with the investigation and examination of the Company and its decision to execute these documents. Investor has received (i) the Company's annual report filed with the SEC on Form 10-K for the year ended December 31, 1999, (ii) the Company's quarterly reports filed with the SEC on Form 10-Q for the quarters ended March 31 and June 30, 2000, and (iii) such other information regarding the Company as has been requested by the Investor or its representatives. STOCK PURCHASE AGREEMENT - Page 9 3.6 Governmental Authorizations, Third Party Consents. Based upon the information provided to the Investor by the Company, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind is necessary or required by the Investor in connection with the execution, delivery and performance by the Investor of this Agreement, or any other documents executed pursuant to this Agreement; provided, however, that the Investor makes no representations with respect to applicable federal or state securities laws; and provided, further, however, that any liability of the Investor resulting from a breach of this representation shall be limited to the aggregate purchase price paid by the Investor for the Series B Preferred purchased hereunder. 3.7 Effect of Transactions. The Investor's execution, delivery and performance of this Agreement and the other agreements contemplated by this Agreement will not violate any terms of its organizational documents or, to its knowledge, violate any judgment, decree or order, or any material contract or obligation of the Investor or any statute, rule or regulation of any federal, state or local government or agency applicable to the Investor. 3.8 Consent of Investor. Investor hereby consents as required under the Stock Purchase Agreement dated May 17, 2000 and the Stock Purchase Agreement dated October 9, 2000 between the Company and Investor to the amendment of the Company's Articles of Incorporation increasing the authorized shares of common stock of the Company from 35,000,000 shares to 90,000,000 shares and the issuance by the Company of the Series B Preferred Stock. SECTION 4. COVENANTS OF THE COMPANY ------------------------ The Company hereby covenants that, except as otherwise provided below, for so long as the Investor holds any of the Series B Preferred that: 4.1 Use of Proceeds. The Company shall use the net proceeds from the sale of the Series B Preferred for the purposes set forth on Schedule 4.1. It is the intention of the Company and the Subsidiaries to conduct their businesses in accordance with the current business plan of the Company, which has previously been delivered to the Investor. 4.2 Restricted Corporate Actions. The Company will not, without the written approval of the holders of a Requisite Interest, take any of the following actions: (a) repurchase any Common Stock or Preferred Stock, other than (i) the redemption of the Series B Preferred in accordance with the Certificate, (ii) the redemption of the Series A Preferred Stock, (iii) the purchase of Common Stock from employees pursuant to agreements with the Company as of the Closing Date to repurchase such stock; provided that the purchase price shall not exceed the price paid by such employee for such stock, or (iv) as indicated on Schedule 4.2 hereof; STOCK PURCHASE AGREEMENT - Page 10 (b) declare or pay any dividend (other than a stock dividend) on the Common Stock or Preferred Stock (other than dividends on the shares of Series A Preferred and dividends on the Existing Preferred Stock in accordance with the terms of such stock as they exist on the date of this Agreement); (c) except to the extent necessary to comply with foreign laws, create any subsidiary in which the Company owns less than one hundred percent (100%) of the equity securities, or permit any Subsidiary to issue any equity securities to anyone other than the Company or a wholly-owned Subsidiary of the Company or merge with or into any Subsidiary; (d) create any new class or series of shares that has a preference over or is on a parity with the Series B Preferred with respect to voting or liquidation preferences (except that the Company may grant voting rights to shares of a series of Preferred Stock which have the right to vote with holders of Common Stock on an as-converted basis, but in any event not in preference over the Series B Preferred); (e) enter into any arrangement or agreement which (i) conflicts with the rights of the holders of Series B Preferred (ii) restricts the Company's performance under this Agreement or any other documents executed in connection herewith or (iii) could result in the redemption of any shares of Common Stock, (f) except for the amendment of the Articles of Incorporation to increase authorized common stock to 90,000,000 shares, subject to the approval of the Company's stockholders, amend the Articles of Incorporation or Bylaws; (g) except as indicated on Schedule 4.2, adopt or amend an Employee Benefit Plan or amend the Stock Option Plan; (h) make any investments except (i) bank deposits in federally insured financial institutions, (ii) investments in direct government obligations of the United States of America, (iii) commercial paper of a domestic issuer rated A-1 or better or P-1 or better by Standard & Poor's Corporation or Moody's Investor Services, Inc., respectively, maturing not more than three months from the date of acquisition, and (iv) investments of the type set forth Schedule 4.2; (i) acquire substantially all of the assets, properties or capital stock of another person or entity in any single transaction or series of related transactions; (j) issue any stock, options, or securities convertible or exercisable into the capital stock of the Company, including, without limitation, pursuant to the Stock Option Plan, with exercise prices at less than fair market value, as determined by the Compensation Committee; or (k) issue any stock, options or securities convertible or exercisable into the capital stock of the Company, which are senior to the Series B Preferred in liquidation rights or otherwise. STOCK PURCHASE AGREEMENT - Page 11 4.3 Board of Directors. The Company has agreed with the Series A Preferred holders that the Company shall take all appropriate actions to provide that Series A Preferred holders' nominees can hold a majority of the seats on the Board. Unless otherwise agreed to by the directors nominated by the Series A Preferred holders, the Board of Directors will meet at least quarterly. The Company will reimburse the directors for all expenses incurred by such directors in connection with attending any board meetings or other board functions. The Investor shall have the right to receive notice of and have one (1) representative attend all meetings and other functions of the Board of Directors and the Company will reimburse the Investor's representative for all expenses incurred by such representative in connection with attending any such board meetings or other board functions, which representative may also be a representative of the Series A Preferred Stockholders. 4.4 Preservation of Corporate Existence and Property. The Company agrees to preserve, protect, and maintain, and cause each Subsidiary to preserve, protect, and maintain, (a) its corporate existence, and (b) all rights, franchises, accreditations, privileges, and properties the failure of which to preserve, protect, and maintain might have a material and adverse effect on the business, affairs, assets, prospects, operations, or condition, financial or otherwise, of the Company and its Subsidiaries, taken as a whole. 4.5 Shareholder and Director Information. At the request of the Investor, the Company shall promptly deliver to the Investor information regarding the securityholders, officers and directors of the Company, including, without limitation, names, addresses, types of securities held and terms of securities held. 4.6 Liability Insurance. The Company will use its best efforts to maintain comprehensive liability insurance (including automobile liability coverage) at regular premium rates with insurer(s) of recognized responsibility in an amount which is commercially reasonable for the benefit of itself and the Subsidiaries. 4.7 No Impairment. The Company and the Subsidiaries will observe and honor in good faith all rights of the Investors, under the terms of this Agreement or any other documents executed in connection herewith, and will take no action that would impair or otherwise prejudice such rights. 4.8 Increase Authorized Shares of Common Stock. The Company at the Annual Meeting of Stockholders to be held on December 12, 2000 will seek stockholder approval for an amendment of the Company's Articles of Incorporation increasing the authorized shares of common stock of the Company from 35,000,000 shares to 90,000,000 shares. Upon such stockholder approval, the Company shall thereafter at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Series B Preferred and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Series B Preferred from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Series B Preferred or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Series B Preferred. STOCK PURCHASE AGREEMENT - Page 12 4.9 Bylaws. The Company shall at all times cause its Bylaws to provide that the number of directors fixed in accordance therewith shall in no event conflict with any of the terms or provisions of this Agreement or the Articles of Incorporation. The Company shall at all times maintain provisions in its Bylaws and/or Articles of Incorporation indemnifying all directors against liability and absolving all directors from liability to the Company and its stockholders to the maximum extent permitted under the laws of the State of Nevada. 4.10 Compliance. The Company shall comply, and cause each Subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could materially and adversely affect the business or condition, financial or otherwise of the Company and the Subsidiaries, taken as a whole. 4.11 Rule 144A Information. The Company shall, at all times during which it is neither subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide in writing, upon the written request of the Investor or a prospective buyer of the Series B Preferred or Conversion Shares from the Investor, all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the Commission under the Securities Act ("Rule 144A Information"). The Company's obligations under this Section 4.11 shall at all times be contingent upon the Investor obtaining from the prospective buyer of Series B Preferred or Conversion Shares a written agreement to take all reasonable precautions to safeguard the Rule 144A Information from disclosure to anyone other than a person who will assist such buyer in evaluating the purchase of any Series B Preferred or Conversion Shares. 4.12 Brokerage. The Company agrees to indemnify and hold harmless the Investors for any brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by the Company or any Subsidiary. SECTION 5. GENERAL ------- 5.1 Amendments, Waivers and Consents. Unless otherwise specified in this Agreement, any consents required and any waiver, amendment or other action of the Investor or holders of the Series B Preferred (or Conversion Shares) may be made by consent(s) in writing signed by the holders of a Requisite Interest. Any specific reference to approval or action by a Requisite Interest shall not imply that other references to approval or action by the Investor or holders of Series B Preferred (or Conversion Shares) requires each holder's approval or action, unless a higher or lower approval is so specifically stated in such specific reference. Any amendment or waiver made according to this Section 5.1 will be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities have been converted) and each future holder. Any amendment or waiver by the Company must be made in writing. This Agreement may not be amended, except in a written document signed by the Company and holders of a Requisite Interest. STOCK PURCHASE AGREEMENT - Page 13 5.2 Survival, Assignability of Rights. All representations of the parties made in this Agreement and in the certificates, exhibits, schedules or other written information delivered or furnished by one party to the other in connection with this Agreement will survive the delivery of the Series B Preferred for a period of two (2) years subsequent to the Closing. All covenants and agreements made in this Agreement will survive the Closing, and will bind and inure to the benefit of the parties' hereto and their respective successors and assigns. Each Investor shall have the right to transfer any or all of its rights hereunder to any purchaser of Series B Preferred or Conversion Shares; provided such transferee executes a signature page to this Agreement thereby agreeing to be bound by and entitled to the benefits of this Agreement. The Company may not assign its rights or obligations hereunder without the consent of the Investor, as provided in Section 5.1. 5.3 Rights of Investor Inter Se. The Investor shall have the absolute right to exercise or refrain from exercising any right or rights which the Investor may have by reason of this Agreement or any Series B Preferred or Conversion Shares, including, without limitation, the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and the Investor shall not incur any liability to any other Investor with respect to exercising or refraining from exercising any such right or rights. 5.4 Headings. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 5.5 Governing Law. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF. 5.6 Notices and Demands. Any notice or demand which is permitted or required hereunder will be deemed to have been sufficiently received (except as otherwise provided herein) (a) upon receipt when personally delivered, (b) or one (1) day after sent by overnight delivery or telecopy providing confirmation or receipt of delivery, or (c) three (3) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested to the following addresses: if to the Company at the address as shown on the signature page of this Agreement (with a copy as shown), or at any other address designated by the Company to the Investors in writing; if to an Investor, at its mailing address as shown on the signature pages of this Agreement (with a copy as shown), or at any other address designated by the Investor to the Company in writing. 5.7 Severability. If any provision of this Agreement is held invalid under applicable law, such provision will be ineffective to the extent of such invalidity, and such invalid provision will be modified to the extent necessary to make it valid and enforceable. Any such invalidity will not invalidate the remainder of this Agreement. STOCK PURCHASE AGREEMENT - Page 14 5.8 Expenses. The Company will pay (a) all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement, and (b) the reasonable out-of-pocket expenses of the Investors and the reasonable legal fees and disbursements incurred by one counsel for the Investors with respect to this Agreement and the transactions contemplated hereby. If any party is required to take any action to enforce its rights under this Agreement, the prevailing party shall be entitled to its reasonable expenses, including attorneys' fees, in connection with any such action. 5.9 Entire Agreement. This Agreement and the exhibits to this Agreement constitute the entire agreement of the parties relating to the transactions contemplated herein. 5.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be taken to be an original; but such counterparts will together constitute one document. STOCK PURCHASE AGREEMENT - Page 15 The undersigned have executed this Agreement as of the day and year first written above. KARTS INTERNATIONAL INCORPORATED By: _______________________________________ Name: _______________________________________ Title: _______________________________________ Address: P.O. Box 695 62204 Commercial Street Roseland, Louisiana 70456 Telephone: 504-747-1111 Telecopy: 504-747-2700 With a copy to: Rick Goodner, Esq. Jackson Walker, L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Telephone: 214-953-6167 Telecopy: 214-953-5822 THE SCHLINGER FOUNDATION By: _______________________________________ Name: _______________________________________ Title: _______________________________________ Address: 1944 Edison Street Santa Ynez, California 93460 Telephone: 805-686-1618 Telecopy: 805-686-1618 STOCK PURCHASE AGREEMENT - Page 16 EX-10.64 24 0024.txt LICENSE AGREEMENT DATED AUGUST 1, 2000 EXHIBIT 10.64 LICENSE AGREEMENT THIS LICENSE AGREEMENT ("Agreement"), entered into and effective as of the 1st day of August 2000, by and between Charles Brister, an individual, ("Licensor") and Karts International Incorporated, a Nevada corporation ("Licensee"): WITNESSETH THAT: WHEREAS Charles Brister is the Owner of the "Technology" as defined below, and WHEREAS Licensee desires to obtain from the Licensor a license under said Technology; WHEREAS both parties acknowledge the expiration of that certain license agreement dated the 15th day of March, 1996 as amended by Addendum "A" to License Agreement dated the 15th of March, 1997 between Licensor and Licensee; WHEREAS both parties acknowledge that there is earned, yet unpaid royalties of forty thousand dollars ($40,000.00 U.S.) due to Licensor under the above referenced license agreement which will be paid in full at the time of signing of this agreement. WHEREAS both parties represent that they are able to comply with and otherwise satisfy the terms and conditions set forth in this Agreement; NOW THEREFORE, in consideration of the sum of ten dollars ($10 U.S.) and other good and valuable consideration now paid by each of the parties hereto to the other, the receipt of all of which hereby irrevocably acknowledged by each party, it is agreed as follows: SECTION 1 DEFINITIONS 1.1 "Patent Rights" shall mean collectively: (a) United States Patent Number 5,477,940, issued December 26, 1995, for "Accelerator Pedal Override Apparatus for Self-Propelled Motorized Cart with Aligned Brake and Accelerator Pushrod Type Operator Pedals" ("Pedal Override"), and (b) United States Patent Number 5,328,011 issued July 12, 1994, for "Clutch Assembly for Chain-Driven Cart ("Clutch Lube"), and (c) applications for patents that have been filed or may be filed in the future for improvements relating to the above two named patents, the inventions described and claimed therein, and any divisions, continuations, continuations-in-part, patents issuing thereon or reissues thereof; and any and all foreign patents and patent applications corresponding thereto; which will be automatically incorporated in and added to this Agreement and shall periodically be added to Appendix A attached to this Agreement and made a part thereof. 1.2 "Licensed Processes" shall mean the processes claimed in Patent Rights or processes utilizing Proprietary Materials or some option thereof. License Agreement - Page 1 1.3 "Licensed Products" shall mean products claimed in Patent Rights or products made in accordance with or by means of Licensed Processes or products made utilizing Proprietary Materials or incorporating some portion of Proprietary Materials. 1.4 "Proprietary Materials shall mean the materials supplied by Licensor together with any of the know-how and all related rights, trade secrets, and Technology, owned by Licensor and relating to a family of go-kart products and go-kart components as they presently exist and as they may be acquired, developed or modified in the future. 1.5 "Technology" shall mean any and all confidential information, Proprietary Materials, or Patent Rights supplied by Licensor to Licensee. The confidential information shall not include information which: (a) is known to Licensee on a non-confidential basis prior to disclosure by Licensor; or (b) is part of the public domain and known to the general public at the time it was disclosed to Licensee. 1.6 "Territory" shall mean the entire United States of America, its territories and possessions, and foreign countries in which Patent Rights exist. SECTION 2 GRANT OF LICENSE 2.1 Scope of License. Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee a License (the "License"): 2.1.1 to use the information or secrets disclosed in the Technology to develop Karts International Incorporated, its affiliates, or its wholly-owned subsidiaries' Licensed Products, hereinafter collectively referred to as KII Licensed Products; 2.1.2 to incorporate the information or secrets disclosed in the Technology in KII Licensed Products; 2.1.3 to manufacture or have manufactured KII Licensed Products containing the information or secrets disclosed in the Technology; 2.1.4 to sell or have sold KII Licensed Products containing the information or secrets disclosed in the Technology. 2.2 Non-Exclusive License. The License is a non-exclusive License in the Territory for the Technology for KII Licensed Products. 2.3 License Term. The term of this License shall be for a period of three years commencing on the Effective Date. License Agreement - Page 2 2.4 Royalty. With regard to the licensing of the Technology as set forth in Section 2 hereof, Licensee hereby agrees to pay to Licensor royalties as follows: (i) the greater of $20,000 or the sum of a royalty of $1.00 for each of the Licensed Products sold by Licensee 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 of the Licensed Products sold by Licensee 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 of the Licensed Products sold by Licensee 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 of the Licensed Products sold by Licensee 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 of the Licensed Products sold by Licensee 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 of the Licensed Products sold by Licensee 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. Licensee shall remit payment of accrued royalties on January 31 and July 31 of each year during the term of this Agreement. 2.5 Implementation. Licensor and Licensee agree that Licensee (i) will implement or integrate the information or secrets contained in the Technology into the KII products and (ii) shall be the exclusive owner of such KII products. 2.6 Sublicensing. Licensee shall have, with the written consent by the Licensor, the right to sublicense developers of KII products to use the information or secrets contained in the Technology for the sole purpose of developing KII products to be owned by KII or any of its affiliates or subsidiaries. The Licensee is not empowered by this clause to veto subsequent licenses. 2.7 Rights Retained. All rights not specifically assigned to Licensee are retained by Licensor. SECTION 3 TITLE 3.1 Title to the Licensed Technology. Licensor represents and warrants that it is the sole owner of all right, title and interest in and to the Technology, except as otherwise provided in Appendix A, attached hereto. SECTION 4 LIMITATIONS OF LIABILITY 4.1 Disclaimer. Except as specifically set forth herein, Licensor makes no warranties, expressed or implied, regarding or relating to the Technology or to any other materials or services furnished or provided to the Licensee hereunder. 4.2 Limitation of Liability. In no event shall the Licensor or any person or entity involved in creating the Technology be liable under any claim, demand or action arising out of or relating to performance or lack thereof under this Agreement for any special, indirect, incidental, exemplary or consequential damages, whether or not Licensor or such person has been advised of the possibility or such claim, demand or action. License Agreement - Page 3 4.3 Licensor represents and warrants that it has sufficient right, title and interest in and to the Technology to enter into this Agreement, and further warrants that the Technology does not, to the best of Licensor's knowledge, infringe any patent, copyright or other proprietary right of a third party when used as contemplated by this Agreement and that Licensor has not been notified of a possibility that the Technology might infringe any patent, copyright or other proprietary rights of a third party. SECTION 5 TERMINATION 5.1 Termination by Either Party. Either party may terminate this Agreement upon 30 (thirty) days written notice to the other party if the other party commits a material breach of any term hereof and fails to cure said breach within the 30 (thirty) day period. Such notice shall set forth the basis of termination. A material breach is considered to be, but not limited to, the following: (1) default of performance; (2) failure to meet payments; (3) failure to provide reports and access to records; or (4) unauthorized disclosures. 5.2 Automatic Termination. If Licensee shall be adjudicated insolvent, is the subject of an involuntary petition in bankruptcy not dismissed within the 60 days of the filing of said involuntary petition, or files a petition in bankruptcy, or for reorganization, or if Licensee shall take advantage of any insolvency act, or make an assignment for the benefit of creditors, then, and in any such event, this Agreement shall forthwith terminate and the license herein granted shall not constitute an asset in reorganization, bankruptcy or insolvency which may be assigned or which may accrue to any court or creditor appointed referee, receiver or committee. 5.3 Actions upon Termination. Upon termination of this Agreement for any reason, Licensee shall immediately cease use of, and forthwith return to Licensor the Technology and tangible manifestations or copies thereof and all licenses theretofore granted by Licensee under this Agreement will be transferred and assigned by Licensee to Licensor or to that person, firm, or corporation Licensor designates for that purpose. SECTION 6 MISCELLANEOUS 6.1 Assignment. Except as provided herein, Licensee shall not sell, transfer, assign or subcontract any right or obligation hereunder without prior written consent of the Licensor, provided however, Licensee may upon ten (10) days written notice to, but without prior consent of the Licensor assign this Agreement pursuant to: 6.1.1 the merger or consolidation of the Licensee; or License Agreement - Page 4 6.1.2 the sale of substantially of all the assets of the Licensee to a third party, provided the party remains fully liable for its obligation hereunder and such third party agrees to be liable for the party's obligations hereunder. 6.2 Successors and Assigns. The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the successors and permitted assigns of the parties hereto. 6.3 Dispute Resolution. The parties will conduct friendly negotiations to resolve any dispute. Failing resolution, disputes will be finally resolved by arbitration in Las Vegas, Nevada, pursuant to the Commercial rules of the American Arbitration Association, by one arbitrator appointed in accordance with such rules. The parties agree that any arbitral award and any matter requiring injunctive or other provisional relief may be instituted and enforced in any court having jurisdiction. In the event of any dispute between the parties relating to this Agreement, the party substantially prevailing will be entitled to recover all cost and expenses of any subsequent proceedings (including trial, arbitration and appellate proceedings), including the attorney fees incurred therein. 6.4 Choice of Law. The interpretation and construction of this Agreement shall be governed by the laws of the State of Nevada. 6.5 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law, the remaining provisions of this Agreement will remain in full force and effect. 6.6 Notice. Any notice required or permitted to be made or given by either party under this Agreement shall be deemed to have been duly given if delivered, postage prepaid, certified mail, return receipt requested: If Licensor to: Charles Brister 505 Ellis Road Amite, Louisiana 70422 If Licensee to: Karts International Incorporated Post Office Box 695 Roseland, Louisiana 70456 and/or to any such person(s) address(es) as either party shall have specified in writing to the other. 6.7 Marking of Products. Licensee shall accordingly affix or cause to be affixed proper statutory patent, trademark and/or copyright notices to each apparatus made by Licensee under this Agreement. 6.8 Entire Agreement. The provisions herein together with the Appendix attached hereto, constitute the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, oral or written, and all other communications relating to the subject matter hereof. No amendment or modification of any provision of this Agreement will be effective unless set forth in a document that purports to amend this Agreement and that is executed by both parties hereto. License Agreement - Page 5 6.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be an original and will be effective as of the date set forth on the first page when signed on behalf of Licensor and Licensee. IN WITNESS WHEREOF, the parties have caused this Agreement to be effective as of the date first set forth above: Charles Brister Karts International Incorporated By: By: ----------------------- ------------------------------ Title: Corporate Secretary ---------------------------- Seal: EX-10.65 25 0025.txt LICENSE AGREEMENT FOR CHARLES BRISTER EXHIBIT 10.65 LICENSE AGREEMENT This Agreement, entered into as effective as of the as of the 10th day of October, 2000, by between Charles Brister, an individual whose address is 505 Ellis Road, Amite, Louisiana 70422 (hereinafter ALICENSOR@), and Karts International, Inc., a Nevada corporation, with offices at 62204 Commercial Street, Roseland, Louisiana 70456 (hereinafter ALICENSEE@). WITNESSETH WHEREAS, LICENSOR owns U.S. Patents and U.S. Patent Applications as fisted on Appendix B, attached hereto and made a part hereof relating to safety fuel tanks and certain technology relating thereto; and WHEREAS, LICENSEE desires to acquire an exclusive license with the right to sublicense under the LICENSOR=s Patents and Patent Applications and the technology for use in the development, manufacture, use, offer to sell and sale of apparatus embodying the inventions described in the Patents and Patent Applications and technology and the licensing of others thereon; WHEREAS, LICENSOR has the power and authority to grant to LICENSEE such license. NOW, THEREFORE, for and in consideration of the covenants and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged by both parties, it is agreed as follows: I. DEFINITIONS 1.1 The term APATENTS@ as used herein shall mean any patent or patent application listed in Appendix B including divisionals, continuations, substitutes and reissues thereof and to any patent(s) which mature from any corresponding applications filed in countries within the LICENSED TERRITORY including any applications for utility models or inventor=s certificates. 1.2 The term "VALID CLAIM(s)" as used herein shall include any claim(s) pending in a patent application or in an unexpired patent included within the PATENTS which has not been held unenforceable, unpatentable, or invalid by a court of competent jurisdiction, is unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue proceedings or disclaimer. 1.3 The term ATECHNOLOGY@ as used herein shall include all know how, including formulas, designs, data, processes, prototypes, or specifications that relate to the PRODUCTS, and was developed prior to or during the term of this Agreement by LICENSOR, either solely or jointly with others, including employees or agents of LICENSEE. 1.4 The term APRODUCTS @ as used herein shall mean safety fuel tank and filler cap apparatus which embodies, or the manufacture of which uses, in the country of manufacture, use, or sale, (a) an invention falling within the scope of a VALID CLAIM of any of the PATENTS, or (b) TECHNOLOGY. -1- 1.5 The term "NET SALES" as used herein shall mean: (1) for sales of PRODUCTS, the total of sales invoices to customers less any deduction for returns, transportation costs, tariffs, and all sales and excise taxes actually paid in the course of selling PRODUCTS; and (2) for uses including the delivery of PRODUCTS to another for less than the usual selling price; the total amounts which would otherwise be invoiced (less the above deductions) had PRODUCTS used by LICENSEE or a sublicensee been sold. 1.6 The term AUNITS@ as used herein shall mean the aggregate numbers of PRODUCTS represented in NET SALES of PRODUCTS. 1.7 The term "LICENSOR IMPROVEMENTS" as used herein shall mean all technology, developments, inventions, discoveries, technical information and data relating to PRODUCTS and process for making same which are hereafter conceived and/or made during the Term of this Agreement from LICENSOR=s and/or LICENSEE's use or evaluation of the TECHNOLOGY, whether conceived by: (i) one or more employees, contractors or agents of LICENSOR; (ii) one or more employees, contractors or agents of LICENSEE; or (iii) jointly by one or more employees, contractors or agents of LICENSOR and one or more employees, contractors or agents of LICENSEE, including all that disclosed or embodied in patents, patent applications, letters patent, related information, software, software applications (including object code, source code and all other media and applications), copyrights, copyright applications, copyright registrations, inventions, and other intellectual property related to the foregoing. II. GRANT 2.1 LICENSOR hereby grants to LICENSEE and LICENSEE hereby accepts a worldwide, exclusive, nontransferable license including the right to grant sublicenses, to make, have made, use, offer to sell and sell PRODUCTS. 2.2 LICENSEE shall have no right to grant any sublicense hereunder without the prior express written consent of LICENSOR, which consent shall not be unreasonably withheld. LICENSEE may have PRODUCTS manufactured for it exclusively for use or resale by LICENSEE to others, all for which royalties shall be paid under Paragraph III of this Agreement. 2.3 LICENSOR hereby grants and LICENSEE hereby accepts a restricted worldwide, exclusive, nontransferable license to LICENSOR IMPROVEMENTS to make, have made, use, offer to sell and sell PRODUCTS in the TERRITORY. 2.4 LICENSEE hereby transfers and assigns to LICENSOR all of right, title and interest in and to LICENSOR IMPROVEMENTS as it shall have by the conception thereof by (i) one or more employees, contractors or agents of LICENSEE; or (ii) jointly by one or more employees, contractors or agents of LICENSOR and one or more employees, contractors or agents of LICENSEE, and any and all rights to patent and copyright included inventions, the same to be held and enjoyed by LICENSOR, for its own use and benefit, and for the use and benefit of its successors, assigns, or other legal representatives and for that purpose LICENSEE shall deliver to LICENSOR no later than thirty (30) days after the -2- development of any such LICENSOR IMPROVEMENTS a full and complete description in writing of the improvements and included inventions and the manner of their use including therein all particulars, instructions, drawings and prototypes. LICENSEE further covenants and agrees that it will, at any time, upon request, execute and deliver any and all papers that may be necessary or desirable to perfect the title of said improvements and included inventions to LICENSOR, its successors, assigns, or other legal representatives and that if LICENSOR, its successors, assigns, or other legal representatives shall desire to secure a patent or copyright on such inventions, upon request, will sign all papers, make all rightful oaths and do all lawful acts requisite for such application and the procuring thereof, and for the filing of such continuations, counterparts divisionals and reissues thereof, without further compensation. 2.5 Upon execution of this Agreement, LICENSOR shall furnish LICENSEE with such TECHNOLOGY licensor possesses relating to PRODUCTS as LICENSEE shall require relating to PRODUCTS. 2.6 During the term of this Agreement, LICENSOR shall provide to LICENSEE technical assistance and advisory services in the field of PRODUCT. Such services shall be provided upon reasonable notice and request of LICENSEE, and subject to LICENSOR=s availability. 2.7 LICENSOR shall have the right to file and prosecute patent applications corresponding to the PATENTS listed in Schedule B and any of LICENSEE IMPROVEMENTS in United States and foreign countries at its discretion. In the event that LICENSEE desires that a corresponding patent application of any other country, territory, or possession be filed in a country, it shall notify Licensor of that desire, and LICENSOR shall thereupon promptly file such other patent application. Such patent application, any patent issuing thereon, and any renewals and extensions thereof shall be added to the aforesaid PATENTS, and LICENSOR shall have the title thereto. Payment of costs for the filing and prosecution of any application or patent which matures from that application including divisionals, continuations, substitutes and reissues thereof and any patent(s) which mature from any corresponding applications filed including applications for utility models or inventor=s certificates and all costs, charges and expenses, including but not limited to any government fees and attorneys=s charges, incurred in connection with the payment of any such taxes, annuities, working fees, maintenance fees, and/or renewal and extension charges shall initially be the responsibility of LICENSOR, however, LICENSEE shall reimburse LICENSOR for such costs within thirty (30) days of a report of such LICENSOR costs submitted to LICENSEE. III. LICENSE FEES AND ROYALTIES 3.1 In consideration of the grant of this License, LICENSEE shall pay LICENSOR an annual License Fee of Two Hundred Fifty Thousand Dollars ($250,000), the first annual installment of which License Fee being due in two equal payments with One Hundred Twenty Five Thousand Dollars ($125,000) upon execution hereof and One Hundred Twenty Five Thousand Dollars being due prior to December 31, 2000, with subsequent annual License Fees being due on the anniversary date of a License Year. For the purposes of this Agreement, the first License Year shall terminate December 31, 2001 and subsequent years on the end of the calendar year. This License Fee shall be non-refundable and not creditable against any royalty called for under this Section. -3- 3.2 LICENSEE shall pay LICENSOR a royalty of one dollar ($1.00) for each unit of all PRODUCTS made, used, sold or otherwise disposed of by LICENSEE after the date of this Agreement. 3.3 The royalties payable shall be due and payable at LICENSOR's office on or before thirty (3 0) days following the end of each calendar quarter after the effective date of this Agreement, and each payment shall cover PRODUCTS manufactured by LICENSEE or used or sold by LICENSEE during the preceding calendar quarter. 3.4 Subject to the provisions of Paragraph V, hereafter, Royalties shall be payable for the use of TECHNOLOGY under this Paragraph III for a period often (10) years commencing on the execution hereof whether any additional patent application be filed, or for the life of any of PATENTS for PRODUCTS or the manufacture thereof coming within the scope of VALID CLAIMS, including any extension, reissue or regrant of any of PATENTS, whichever is longer unless this Agreement is earlier terminated as a result of a breach. Upon the expiration of the last of any of PATENTS, the license to LICENSEE of all PATENTS and TECHNOLOGY shall be deemed fully paid, subject to the provisions of Section 3.7 below, and no further royalties or payments shall be due hereunder. 3.5 Payments provided for in this Agreement, when overdue, shall bear interest at a rate per annum equal to three percent (3%) in excess of the APRIME RATE@ published by AThe Wall Street Journal@ at the time such payment is due, and for the time period until payment is received by LICENSOR. 3.6 If this Agreement is for any reason terminated before all of the payments herein provided for have been made, LICENSEE shall immediately submit a terminal report and pay to LICENSOR any remaining unpaid balance even though the due date as above provided has not been reached. 3.7 Under this Agreement PRODUCTS shall be considered to be sold when shipped or when an invoice is sent out, whichever occurs first, except that upon expiration of any patent covering PRODUCTS, or upon any termination of a license or sublicense, all PRODUCTS made by LICENSEE or a sublicensee, on or prior to the date of such expiration or termination that have not been shipped or invoiced prior thereto shall be subject to royalty and reported to LICENSOR in the Post Termination Report called for in Section 3.6. Royalties paid on PRODUCTS that are not accepted by a purchaser or user shall be credited to LICENSEE. 3.8 In order to maintain the exclusivity of the License granted, LICENSEE shall pay to LICENSOR royalties as required under Paragraph 3.3, but in no event shall royalties for a calendar year for practice of the PATENTS and TECHNOLOGY be less than the following minimum royalties, for the License Years indicated: -4- License Years U.S. Dollars per License Year 1 $500,000 2 $500,000 3 and thereafter $1,000,000 In the event that royalties under this Paragraph 3.8 for a License Year do not aggregate the sums above required, LICENSOR may, at its option, convert the exclusive license granted to a nonexclusive license without the fight to sublicense, by thirty (30) days notice in writing to LICENSEE, served on LICENSEE within thirty (30) days after receipt of the last report for such License Year, unless LICENSEE shall within thirty (30) days from the receipt of such notice by it, pay LICENSOR such additional sums as may be necessary to bring the payment of royalties for PRODUCTS to the specified minimum. 3.9 LICENSEE=s right to grant sublicenses to others shall be for fees or at royalty rates to be determined by LICENSEE, subject to the provisions of this Agreement and at License Fees and Royalties no less than contained herein. Any sublicense shall make reference to this Agreement including those rights retained by LICENSOR A copy of any sublicense shall be furnished to LICENSOR promptly after its execution. It is understood and agreed that any such sublicense shall include the requirement that the sublicensee shall do all things necessary to effectuate LICENSEE=S compliance with the terms of this Agreement. Further, sublicense fees shall be due and payable on PRODUCTS which had been made, sold, leased, or otherwise used or put into commerce by the sublicensee. 3.10 LICENSEE shall pay over to LICENSOR as sublicense income, fifty percent (50%)of all License Fees, royalties, advance royalties, minimum royalties or other payments accrued or received in respect to the granting or maintaining of sublicenses, provided however, in no instance shall the amount paid to LICENSOR be less than one dollar ($1.00) for each unit of all PRODUCTS made, used, sold or otherwise disposed of by a sublicensee after the date of this Agreement. For any sublicense granted, LICENSEE shall guarantee the timely payment of LICENSOR=s share of sublicense income. 3.11 Termination under any of the provisions of Paragraph V of the license granted to LICENSEE in this Agreement shall not terminate any sublicenses which may have been previously granted by LICENSEE. In the event of such Termination, LICENSEE shall assign such sublicenses to LICENSOR. IV. ACCOUNT AND AUDIT 4.1 On or before thirty (30) days following the end of each calendar quarter after the effective date of this Agreement, LICENSEE shall provide to LICENSOR a complete written report setting forth the NET SALES and UNITS of PRODUCTS manufactured by or for LICENSEE that have been used or sold by LICENSEE during the preceding calendar quarter. Such written report shall also include the NET SALES and UNITS of PRODUCTS manufactured by or for each sublicensee that have been used or sold by a sublicensee required to be reported during the preceding calendar quartet. -5- 4.2 LICENSEE shall keep true and correct books of account adequate to verify a reports and payments due LICENSOR under this Agreement, and such books of account shall be available for examination or inspection by a certified public accountant or similarly qualified individual, on reasonable notice, and at regular business hours to the extent and only to the extent necessary to verify said reports and payments. 4.3 LICENSEE=s obligations under Paragraph III hereof to pay royalties to LICENSOR, or under Paragraph IV hereof to report to LICENSOR with respect to any products used or sold hereunder shall cease when all of PATENTS have expired and/or adjudged to be invalid or unenforceable by a judgment of a court of competent jurisdiction. V. TERM AND TERMINATION 5.1 Unless sooner terminated as herein provided, this Agreement shall continue for a Term of three (3) years from the date hereof and shall be automatically renewed annually thereafter unless either of the parties provides at least sixty (60) days notice of non-renewal prior to an anniversary date hereof, unless earlier terminated in accordance with the provisions of this Paragraph. 5.2 If LICENSEE shall fail to pay a License Fee or any royalties in accordance with the terms of this Agreement, or if LICENSEE shall otherwise fi@ to comply with any terms of this Agreement, LICENSOR shall have the right to terminate this Agreement upon giving sixty (60) days written notice to LICENSEE. If LICENSEE shall fail to pay all royalties in arrears, or otherwise fail to comply with the terms of the Agreement within such sixty-day period, LICENSOR shall have the right to terminate this Agreement by sending LICENSEE written notice to that effect, 5.3 If LICENSEE is adjudicated as bankrupt, or makes a general assignment, or goes out of business, or takes the benefit of any solvency act, or if a receiver or trustee is appointed, or if any attachment or legal process is levied or attempted to be levied on the interest of LICENSEE hereunder, and such attachment or process is not forthwith bonded by LICENSEE, then, and in that event, this Agreement shall terminate at the option of LICENSOR, The word Atermination@ and cognate words, such as Aterm@ and Aterminate, @ used in this Article IX and elsewhere in this Agreement are to be read, except where the contrary is specifically indicated, as omitting from their effect the following rights and obligations, all of which survive any termination to the degree necessary to permit their complete fulfillment or discharge: a. LICENSEE=s obligation to supply a terminal report as specified in Section 3.6 of this Agreement; b. LICENSOR=s right to receive or recover and LICENSEE=s obligation to pay royalties (including minimum royalties) accrued or accruable for payment at the time of any termination; c. LICENSEE=s obligation to maintain records under Paragraph IV of this Agreement; -6- d. Licenses, releases, and agreements of non-assertion running in favor of customers or transferees of LICENSEE in respect to products sold or transferred by LICENSEE prior to any termination and on which License Fees and royalties shall have been paid as provided in Sections 3.1 and 3.2 of this Agreement; e. Any cause of action or claim of LICENSOR accrued, or to accrue, because of any breach or default by LICENSEE; and f. The representation and disclaimer of warranties of Section 7.8. VI. PATENT ENFORCEMENT 6.1 LICENSOR and LICENSEE shall notify each other promptly in writing of any infringement of the PATENTS, which becomes known to either of them LICENSEE shall notify LICENSOR promptly of any action taken in accordance with this Paragraph VI to abate or eliminate such infringement. LICENSEE shall have the right to abate the infringement by grant of sublicense in accordance with the provisions of Paragraph III, or to sue for the infringement in LICENSEE=s own name and expense, and to collect for its own use all damages, profits, and awards of whatever nature recovered for such infringement, however, such damages, profits and awards shall be included as income for royalty calculations less reasonable legal fees incurred in the enforcement of said PATENTS. 6.2 In the event LICENSOR shall bring to the attention of LICENSEE any infringement of the LICENSED PATENT, and LICENSEE shall not, within six (6) months: a) Secure abatement or cessation of the infringement; b) Enter suit against the infringer; or c) Provide LICENSOR with evidence of the pendency of a bona fide negotiation for the acceptance by the infringer of a sublicense under the PATENTS, LICENSOR shall thereafter have the right to sue for the infringement at LICENSOR'S own expense, and to collect for its own use all damages, profits, and awards of whatever nature recoverable for such infringement. 6.3 LICENSOR and LICENSEE mutually agree to furnish technical and other necessary assistance to each other in conducting any litigation necessary to enforce the PATENTS against others. Out of pocket expenses for such assistance will be paid by the party requesting such assistance. -7- VII. MISCELLANEOUS 7.1 LICENSEE agrees to assume all financial and service obligations for PRODUCTS manufactured and sold by it hereunder, and LICENSOR shall be absolved of all liability or responsibility to LICENSEE or to any others for any failure in production, design, operation or otherwise of PRODUCTS manufactured and sold by LICENSEE and hold LICENSOR harmless from any claim or threat of claim by a third party. 7.2 This Agreement and the license herein granted shall not be assigned by LICENSEE without the written consent of LICENSOR, including if a part of a sale of its business to which this Agreement pertains, whether by merger, sale of assets or otherwise, but LICENSOR may assign or otherwise dispose of its rights and obligations under this Agreement at its sole option. Subject to the provisions of this Paragraph 7.2, this Agreement shall be binding on and inure to the benefit of the parties hereto, their successors and assigns. 7.3 Any waiver by LICENSOR of any rights arising from the breach of any terms of this Agreement shall not be construed as a continuing waiver of any other breaches of the same or other terms of this Agreement. 7.4 Should any part, term or provision of this Agreement be, by a court, decided to be illegal or in conflict with any law, judicial decision or rule of law, the validity of the remaining portions or provisions shall not be affected thereby. 7.5 This Agreement shall be governed by and construed according to the laws of the state of Nevada and the United States Patent Laws. 7.6 Any notice or other communication required or permitted by this Agreement shall be deemed to have been received by the receiving party if mailed by registered or certified mail, or an equivalent form of mailing, with postage prepaid and addressed to the proper party, at the following address: if to LICENSEE: Karts International Incorporated 62204 Commercial Street Post Office Box 695 Roseland, Louisiana 70456 Attention: President If to LICENSOR: Charles Brister 505 Ellis Road Amite, Louisiana 70422 with a copy to: Charles C. Garvey, Jr., Esq. Garvey, Smith, Nehrbass & Doody, L.L.C. 3838 North Causeway Blvd. Suite 3290 Metairie, Louisiana 70002-1767 -8- 7.7 The parties agree that, in the event of any disputes arising out of or connection with this Agreement, both parties will use their best efforts to reach an amicable and prompt resolution of such dispute. Failing amicable resolution, Disputes will be settled by arbitration. The settlement of the dispute and arbitration will be conducted in compliance with the procedures set out in Appendix A, attached hereto and made a part hereof, and a decision by the arbitrator will be binding on both parties. The cost of the arbitration shall be borne as follows: fifty percent (50%) by LICENSEE and fifty percent (50%) by LICENSOR. Written notice given by one party to the other requiring a dispute to be submitted to arbitration shall be deemed to constitute a joint submission to arbitration by both parties. 7.8 NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO BE A REPRESENTATION OR WARRANTY BY LICENSOR OF THE VALIDITY OF ANY OF THE PATENTS. LICENSOR SHALL HAVE NO LIABILITY WHATSOEVER TO LICENSEE OR ANY OTHER PERSON FOR OR ON ACCOUNT OF ANY INJURY, LOSS, OR DAMAGE, OF ANY KIND OR NATURE SUSTAINED BY, OR ANY DAMAGE ASSESSED OR ASSERTED AGAINST, OR ANY OTHER LIABILITY INCURRED BY OR IMPOSED UPON LICENSEE OR ANY OTHER PERSON, ARISING OUT OF OR IN CONNECTION WITH OR RESULTING FROM (A) THE PRODUCTION, USE, OR SALE OF ANY PRODUCT, OR THE PRACTICE OF THE LICENSED INVENTION OR PATENTS; OR (B) ANY ADVERTISING OR OTHER PROMOTIONAL ACTIVITIES WITH RESPECT TO ANY OF THE FOREGOING, AND LICENSEE SHALL DEFEND, INDEMNIFY, AND HOLD LICENSOR, AND ITS OFFICERS, DIRECTORS, AGENTS, AND EMPLOYEES, HARMLESS AGAINST ALL COSTS, EXPENSES, AND LOSSES (INCLUDING REASONABLE ATTORNEY FEES AND COSTS) INCURRED THROUGH CLAIMS OF THIRD PARTIES AGAINST LICENSOR BASED ON (A) THE PRODUCTION, USE, OR SALE OF ANY PRODUCT, OR THE PRACTICE OF THE LICENSED TECHNOLOGY OR PATENTS; OR (B) ANY ADVERTISING OR OTHER PROMOTIONAL ACTIVITIES WITH RESPECT TO ANY OF THE FOREGOING,. LICENSEE shall, throughout the Term of the Agreement, obtain and maintain at its own cost and expense from a qualified insurance company licensed to do business in Louisiana and having a Moody's rating of B+ or better, standard Product Liability Insurance naming LICENSOR, and its officers, directors, employees, agents, and shareholders, as an additional insured. Such policy shall provide protection against all claims, demands, and causes of action arising out of any defects or failure to perform, alleged or otherwise, of the PRODUCTS or any material used in connection therewith or any use thereof. The amount of coverage shall be a minimum of Two Million Dollars ($2,000,000) combined single limit, with a deductible amount not to exceed One Hundred Thousand Dollars ($100,000), for each single occurrence for bodily injury and/or for property damage The policy shall provide for thirty (30) days notice to Licensor from the insurer by registered or certified mail, return receipt requested, in the event of any modification, cancellation, or termination thereof. LICENSEE agrees to furnish LICENSOR a certificate of insurance evidencing same within sixty (60) days after execution of this Agreement and, in no event, shall LICENSEE manufacture, distribute, or sell the PRODUCTS prior to receipt by LICENSOR of such evidence of insurance. -9- 7.9 LICENSOR shall have the sole right to file, prosecute, and maintain all of the PATENTS that are the property of LICENSOR and shall have the right to determine whether or not, and where, to file a patent application, to abandon the prosecution of any patent or patent application, or to discontinue the maintenance of any patent or patent application. 7.10 LICENSEE shall place in a conspicuous location on PRODUCTS a patent notice in accordance with 35 U.S.C. `287. LICENSEE agrees to mark any products made using a process covered by any PATENT with the number of each such patent and, with respect to such PATENTS, to respond to any request for disclosure under 35 U. S.C. `287(b)(4)(B) by only notifying LICENSEE of the request for disclosure. IN WITNESS WHEREOF, the parties, intending to be legally bound, have executed this Agreement as of the day and year first above written. KARTS INTERNATIONAL INCORPORATED Attest: ________________________________ By:________________________________ Witness Chairman of the Board CHARLES BRISTER Attest: ________________________________ By:________________________________ Witness Charles Brister -10- Appendix A 1. In the event of an anticipated need for arbitration under Paragraph 7.7, the parties agree that, prior to submitting the dispute to arbitration, a preliminary attempt will be made to resolve the dispute in the following way; (a) A designated representative of LICENSEE and LICENSOR shall meet and participate in a good faith discussion of the item(s) in dispute with a view toward achieving a compromise resolution of such item(s). Both individuals shall have sufficient decision making authority to resolve the dispute. In the event that these two individuals agree upon a compromise resolution of the matter, that resolution shall be reduced to writing and signed by both individuals and the. decision shall be binding upon the Parties to the Agreement. (b) In the event that the two above-named individuals fail to reach agreement regarding how the disputed item(s) should be resolved within thirty (30) days after such meeting, then the matter shall be submitted to formal arbitration under Paragraph 7.7 of the Agreement and this Appendix A. 2. If the preliminary attempt to resolve the dispute as described in Paragraph 1 above fails, the two individuals shall attempt to agree upon a joint statement of the question at issue, said statement to define the scope of the matter to be referred to arbitration. The two individuals shall also reduce to writing their respective best proposals for resolution of the matter. 3. In the event of an arbitration under Paragraph 7.7 and this Appendix A, a single arbitrator shall be appointed jointly by the parties. The arbitrator shall be limited in the scope of his/her powers in the following manner: the arbitrator shall request a formal written proposal from each party to resolve the dispute. Having received such written proposals, the arbitrator shall accept one proposal or the other. The arbitrator shall not be free to impose any other decision upon the parties without the specific written consent of both parties. If the parties are unable to agree upon the appointment, the sole arbitrator shall be chosen based upon the rules of and with assistance from, the American Arbitration Association. 4. The arbitrator shall not be free to refer matters, including matters of law, to any court. 5. In any arbitration, the decision of the arbitrator shall be in writing and shall be binding upon the parties to the Agreement. Such decision shall be final and the parties shall have no form of appeal from the decision of the arbitrator. 6. Prior to rendering a final decision, the arbitrator shall call a settlement conference with the parties and attempt to mediate the dispute and affect a settlement. If no settlement is possible at such conference, the arbitrator shall render the decision. 7. Any arbitration hereunder shall take place in New Orleans, Louisiana. -11- APPENDIX B Schedule of Patents and Patent Applications Patent/Application Title Date of Issue/ - ------------------ ----- -------------- Number Filing ------ ------ 6,112,714 Safety Fuel Tank And Filler Apparatus Sept. 5, 2000 09/452,653 Safety Fuel Tank And Filler Apparatus Dec. 1, 1999 09/655,033 Safety Fuel Tank And Filler Apparatus Sept. 5, 2000 PCT/US 00/24281 Safety Fuel Tank And Filler Apparatus Sept. 1, 2000 -12- EX-10.66 26 0026.txt LICENSE AGREEMENT FOR POLARIS INDUSTRIES, INC. EXHIBIT 10.66 Polaris Industries Inc. Karts International Incorporated Page 1 LICENSE AGREEMENT ----------------- This license agreement ("Agreement") is entered into by and between Polaris Industries Inc. ("Polaris" or "Licensor"), a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 1225 Highway 169 North, Plymouth, Minnesota 55441 and Karts International Incorporated, ("Karts" or "Licensee"), a corporation organized and existing under the laws of the State of Nevada with its principal place of business at 62204 Commercial Street, Roseland, LA 70456. WHEREAS, the licensor is in the business of manufacturing and marketing snowmobiles, personal watercraft, all terrain vehicles, motorcycles, and related parts, garments and accessories under the brand name Polaris, and owns certain trademark rights and other intellectual property rights with respect to this brand name and its products; WHEREAS, the licensee is in the business of manufacturing and marketing gas powered fun karts and mini-bikes and related parts and accessories and desires to obtain from the Licensor a license under said trademark rights and other intellectual property rights owned by the Licensor to develop the "Articles" as hereinafter defined below; NOW, THEREFORE, the parties do hereby agree and covenant as follows: 1. MEANING OF TERMS ---------------- A. "Licensed Material" means the graphic representations of the following: POLARIS, VICTORY and such other related marks as are registered by Polaris in the authorized territories, and artwork as may be designated by Licensor. B. "Trademarks" means "POLARIS," "VICTORY," and other trademarks as identified by Licensor and the representations of Licensed Material included in Subparagraph 1.A. above. C. "Articles" means the following items on or in connection with which the Licensed Material and/or the Trademarks are reproduced or used, and includes each and every stock keeping unit ("SKU") of each Article: Four gas powered Fun Karts originally identified as Eagle 11, Tracker, Trail Runner and Trail Sport, "Victory Jr." mini-bike and other SKUs as may be agreed upon in writing by the parties. D. "Minimum Per Article Royalty" means for each Article identified herein which is sold the sum indicated herein: None. E. "Term" means the period commencing December 30, 1999 and ending April 30, 2003. Polaris Industries Inc. Karts International Incorporated Page 2 F. "Territory" means USA and Canada. G. "Royalties" means a royalty in the amounts set forth below: (1) A royalty of 5% of Licensee's Net Invoiced Billings for each Article sold during the Term of the Agreement. (2) The sums paid to Polaris as Royalties on any sales to Licensee's Affiliates shall be no less than the sums paid on sales to customers not affiliated with Licensee. (3) The full Royalty percentage shall be payable on close out or other deep discount sales of Articles, including sales to employees. (4) Royalties reported on sales of Articles which have been returned to Licensee for credit or refund and on which a refund has been made or credit memo issued may be credited against Royalties due up to 20% of Net Invoiced Billings. The credit shall be taken in the Royalty Payment Period in which the refund is given or credit memo issued. Unused credits may be carried forward, but in no event shall Licensee be entitled to a refund of Royalties. (5) The Royalties are payable in U.S. dollars. Foreign currency billings shall be converted to U.S. dollars at the conversion rate in effect and published in the Wall Street Journal on the last -------------------- business day of the relevant Guarantee or Royalty Payment Period. H. "Net Invoiced Billings" means the following: (1) Actual invoiced billings (i.e., sales quantity multiplied by Licensee's selling price) for Articles sold, and all other receivables of any kind whatsoever, received in payment for the Articles, whether received by Licensee or any of Licensee's Affiliates, except as provided in Subparagraph 1.H.(2), less "Allowable Deductions" as hereinafter defined. (2) The following are not part of Net Invoiced Billings: invoiced charges for transportation of Articles within the Territory which are separately identified on the sales invoice, and sales taxes. I. "Allowable Deductions" means the following: (1) volume discounts, and other discounts from the invoice price (or post-invoice credits) provided in the regular course of business by Licensee's customers, including markdown allowances as well as allowances or discounts relating to advertising, but which advertising discounts shall be capped at three percent (3%) of gross invoice, and so long as Licensee documents all such discounts (or credits) to Polaris's satisfaction. Polaris Industries Inc. Karts International Incorporated Page 3 (2) The following are not Allowable Deductions, whether granted on sales invoices or as discounts or as post-invoice credits: cash discounts granted as terms of payment; early payment discounts; new store allowances; defective goods allowances or allowances taken by customers in lieu of returning goods; costs incurred in manufacturing, importing, selling, distributing or advertising Articles; freight costs incorporated in the selling price; and uncollectible accounts. J. "Royalty Payment Period" means each calendar quarterly period during the Term and during the sell-off period, if granted. K. "Advance" means the following sum(s) plus Goods and Services Tax ("GST") if applicable, payable by the following date(s) as an advance on Royalties to accrue in the following period(s): $300,000, of which $30,000 is payable upon Licensee executing the Polaris Terms Sheet and the remaining $270,000 payable upon Licensee signing of this Agreement. L. "Guarantee" means the following sum(s) which Licensee guarantees to pay as minimum Royalties on Licensee's cumulative sales in the following period(s): $1,800,000 guarantee all of which is payable as follows to the extent actual royalties earned do not exceed the total guarantee set forth herein; (1) $600,000 for the first period December 15, 1999 to April 30, 2001 of which the Advance of $300,000 set forth in Paragraph 1.K shall be credited against the guarantee for this first period. (2) $600,000 for the second period May 1, 2001 to April 30, 2002. (3) (3) $600,000 for the third period May 1, 2002 to April 30, 2003. M. "Sample" means two (2) samples of each SKU of each Article, scheduled from the first production run of each supplier of each SKU of each Article shipped to Polaris (1 unit to Polaris Corporate Headquarters in Minneapolis, MN and 1 unit to Polaris facility in Roseau, MN) at Licensee's expense including shipping. N. "Promotion Commitment" means the following minimum sum(s) which Licensee agrees to spend in the following way(s): As part of its overall annual advertising/marketing budget, Licensee shall promote the Articles in the same manner as its other product lines. O. "Marketing Date" means the following date(s) by which the following Article(s) shall be marketed and advertised to the public: no later than March 1, 2000 for all Articles for which Licensor has approved for marketing. Polaris Industries Inc. Karts International Incorporated Page 4 P. "Ship Date" means the following dates(s) by which the following Articles shall be shipped and available for purchase by the public: June 1, 2000 for all Articles for which Licensor has approved for sale Q. "Affiliate" means with regard to Licensee, any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Licensee. With regard to Polaris, "Affiliate" means any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Polaris. "Control" of an entity shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of such entity, whether through ownership of voting securities, by contract or otherwise. R. "Laws" mean any and all applicable laws, rules, and regulations, including but not limited to, local and national laws, rules and regulations, treaties, voluntary industry standards, association laws, codes or other obligations pertaining to any of Licensee's activities under this Agreement, including but not limited to those applicable to the manufacture, pricing, sale and/or distribution of the Articles. S. "Manufacturer" means any of Licensee's third-party manufacturers and suppliers (and their sub-manufacturers and suppliers) which reproduce or use the Licensed Material and/or Trademarks on Articles, or components thereof, and/or which assemble such Articles. 2. RIGHTS GRANTED -------------- A. (1) In consideration for Licensee's promise to pay and Licensee's payment of all Royalties, Advances and Guarantees required hereunder, Polaris grants Licensee the exclusive right for the Articles during the Term, and only within the Territory and within the defined distribution channels as set forth in Subparagraph 2A (3), to reproduce the Licensed Material only on or `in connection with the Articles, to use such Trademarks and uses thereof as may be approved when each SKU of the Articles is approved and only on or in connection with the Articles, and to manufacture, distribute for sale and sell the Articles. During the term of this Agreement, as long as Licensee is in compliance with all provisions of this Agreement, Polaris will not license any other party to produce gas powered Fun Karts or gas powered mini-bikes, nor will Polaris enter those categories on their own. (2) Licensee will not sell the Articles to any customer whom Polaris advises Licensee is not carrying on its business in such a manner as Polaris feels is consistent with offering Polaris-related products to the public. (3) Licensee may only sell the Articles via wholesale to Licensor's dealers and Licensee's dealers as mutually agreed between Licensor and Licensee in writing. Licensee shall pay Royalties on such sales at the rate specified for customers in Subparagraph 1.G. Polaris Industries Inc. Karts International Incorporated Page 5 (4) All rights not expressly granted to Licensee herein are reserved to Polaris. B. Unless Polaris consents in writing, Licensee shall not sell or otherwise provide Articles for use as premiums or promotions (including those in purchase-with-purchase promotions), give-aways, fund-raisers, or entries in sweepstakes, or through unapproved direct marketing methods, including but not limited to, home shopping television programs, 6r to customers for inclusion in another product. Polaris will approve or disapprove Licensee's written request within fourteen (14) business days of receipt of said request. C. Unless Polaris consents in writing, Licensee shall not give away or donate Articles to Licensee's accounts or other persons for the purpose of promoting sales of Articles, except for minor quantities or samples which are not for onward distribution. D. Nothing contained herein shall preclude Licensee from selling Articles to Polaris or to any of Polaris's Affiliates, or to Licensee's or Polaris's employees, subject to the payment to Polaris of Royalties on such sales. E. Polaris further grants Licensee the right to reproduce the Licensed Material and to use the approved Trademarks, only within the Territory, during the Term and the sell-off period, if granted, on containers, packaging and display material for the Articles, and in advertising for the Articles. F. Nothing contained in this Agreement shall be deemed to imply any restriction on Licensee's freedom and that of Licensee's customers to sell the Articles at such prices as Licensee or they shall determine. 3. ADVANCE ------- A. Licensee agrees to pay the Advance, plus any taxes if applicable, which shall be on account of Royalties to accrue during the Term only, and only with respect to sales in the Territory. If said Royalties should be less than the Advance, no part of the Advance shall be repayable. B. Royalties accruing during any sell-off period or extension of the Term shall not be offset against the Advance. C. There shall be no refund of any Advance paid to Polaris. D. Royalties accruing by reason of any sales to Polaris or any of Polaris's Affiliates for internal use shall be offset against the Advance or any subsequent advance. Polaris Industries Inc. Karts International Incorporated Page 6 4. GUARANTEE --------- A. Royalties continue to accrue and are payable quarterly even if the total guarantee in Subparagraph 1.L. is exceeded. B. Advances applicable to Royalties due on sales in the period to which the Guarantee relates apply towards meeting the Guarantee. C. Royalties paid with respect to sales to Polaris or to any of Polaris's Affiliates shall apply towards the meeting of the Guarantee or any subsequent guarantee. D. There shall be no refund of any amount of the Guarantee paid to Polaris. 5. PRE-PRODUCTION APPROVALS ------------------------ A. As early as possible, and in any case before commercial production of any Article, Licensee shall submit to Polaris for Polaris's review and written approval three copies of all concepts, and all preliminary and proposed final artwork which are to appear on or in any and all SKUs of the Articles. Thereafter, Licensee shall submit to Polaris for Polaris's written approval a preproduction prototype of each SKU of each Article. Polaris shall endeavor to respond to such requests within a reasonable time, but such approvals should be sought as early as possible in case of delays. Licensee acknowledges that Polaris may not approve concepts or artwork submitted near the end of the Term. Any pre-production approval Polaris may give will not constitute or imply a representation or belief by Polaris that such materials comply with any applicable Laws. B. Approval or disapproval shall lie solely in Polaris's discretion, and any SKU of any Article not so approved in writing shall be deemed unlicensed and shall not be manufactured or sold. If any unapproved SKU of any Article is being sold, Polaris may, together with other remedies available to Polaris, including but not limited to, immediate termination of this Agreement, by written notice require such SKU of such Article to be immediately -withdrawn from the market. C. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Polaris will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Polaris in writing is intended to make the Article safer or more durable. 6. APPROVAL OF PRODUCTION SAMPLES ------------------------------ A. Before shipping an Article to any customer, Licensee agrees to furnish to Polaris, from the first production run of each supplier of each of the Articles, for Polaris's approval of all aspects of the Article in question, two (2) Samples with packaging, which shall conform to the approved artwork and prototypes. Approval or disapproval of the artwork as it appears on any SKU of the Article, as well as of the quality of the Article, shall he in Polaris's sole discretion and may, Polaris Industries Inc. Karts International Incorporated Page 7 among other things, be based on unacceptable quality of the artwork or of the Article as manufactured. Any SKU of any Article not so approved shall be deemed unlicensed, shall not be sold and, unless otherwise agreed by Polaris in writing, shall be destroyed. Such destruction shall be attested to in a certificate signed by one of Licensee's officers. Production Samples of Articles for which Polaris has approved a pre-production sample shall be deemed approved, unless within twenty (20) business days of Polaris's receipt of such production Sample Polaris notifies Licensee to the contrary. Any approval of a production Sample attributable to Polaris will not constitute or imply a representation or belief by Polaris that such production Sample complies with any applicable Laws. B. Licensee agrees to make available at no charge such additional Samples of any or all SKU'S of each Article as Polaris may from time to time reasonably request and to permit Polaris to inspect Licensee's manufacturing operations and testing records (and those of Licensee's Manufacturers) for the Articles in accordance with Paragraphs 10 and 23. C. Licensee acknowledges that Polaris may disapprove any SKU of an Article or a production run of any SKU of an Article because the quality is unacceptable to Polaris. D. No modification of an approved production Sample shall be made without Polaris's further prior written approval. All SKU'S of Articles being sold must conform in all respects to the approved production Sample. It is understood that if in Polaris's reasonable judgment the quality of any SKU of an Article originally approved has deteriorated in later production tuns, or if the SKU has otherwise been altered, Polaris may, in addition to other remedies available to Polaris, by written notice require such SKU of the Article to be immediately withdrawn from the market. E. The rights granted hereunder do not permit the sale of "seconds" or "irregulars." All Articles not meeting the standard of approved Samples shall be destroyed or all Licensed Material and Trademarks shall be removed or obliterated therefrom. F. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Polaris will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Polaris in writing is intended to make the Article safer or more durable. G. Polaris shall have the right, by written notice to Licensee, to require modification of any SKU of any Article approved by Polaris. Polaris Industries Inc. Karts International Incorporated Page 8 H. If Polaris notifies Licensee of a required modification under Subparagraph 6. G. with respect to any SKU of a particular Article, such notification shall advise Licensee of the nature of the changes required, and Licensee shall not accept any order for any such SKU until the subject SKU has been resubmitted to Polaris with such changes and Licensee has received Polaris's written approval of the SKU as modified. However, Licensee may continue to distribute Licensee's inventory of the previously approved Articles until such inventory is exhausted. I. Licensee agrees to give Polaris written notice of the first ship date for each Article pursuant to Subparagraph 1.P. J. If Polaris has inadvertently approved a concept, of a product or a product which is not included in the Articles under this Agreement, or if Polaris has inadvertently approved an Article using artwork and/or trademarks not included in the Agreement, or not registered in the Territory, such approval may be revoked at any time without any obligation whatsoever on Polaris's part to Licensee. Any such product as to which Polaris's approval is revoked shall be deemed unauthorized and shall not be distributed or sold by or for Licensee. 7. APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL AND ADVERTISING ----------------------------------------------------------- All containers, packaging, display material, promotional material, web sites, catalogs, and all advertising, including but not limited to, television advertising and press releases, for Articles must be submitted to Polaris and receive Polaris's written approval before use. To avoid unnecessary expense if changes are required, Polaris's approval thereof should be procured when such is still in rough or storyboard format. Approval or disapproval shall lie in Polaris's sole discretion, and the use of unapproved containers, packaging, display material, promotional material, catalogs or advertising is prohibited. Polaris's approval of any containers, packaging, display material, promotional material, catalogs or advertising under this Agreement will not constitute or imply a representation or belief by Polaris that such materials comply with any applicable Laws. Whenever Licensee prepares catalog sheets or other printed matter containing illustrations of Articles, Licensee will furnish to Polaris six (6) copies thereof when they are published. 8. PRINT, RADIO OR TV ADVERTISING ------------------------------ Licensee will obtain all approvals necessary in connection with print, radio or television advertising, if any, which Polaris may authorize. Licensee represents and warrants that all advertising and promotional materials shall comply with all applicable Laws. Polaris's approval of copy or storyboards for such advertising will not constitute or imply a representation or belief by Polaris that such copy or storyboards comply with any applicable Laws. Polaris Industries Inc. Karts International Incorporated Page 9 9. LICENSEE NAME AND ADDRESS ON ARTICLES ------------------------------------- A. Licensee's name, trade name (or Licensee's trademark which Licensee has advised Polaris in writing that Licensee is using) and Licensee's address (at least city and state) will appear on permanently affixed labeling on each Article or, if the Article is sold to the public in packaging or a container, printed on such packaging or a container so that the public can identify the supplier of the Article. B. Licensee shall advise Polaris in writing of all trade names or trademarks Licensee wishes to use on Articles being sold under this license. Licensee may sell the Articles only under mutually agreed upon trade names or trademarks. 10. COMPLIANCE WITH APPROVED SAMPLES AND APPLICABLE LAWS AND STANDARDS ------------------------------------------------------------------ A. Licensee covenants that each Article and component thereof distributed hereunder shall be of good quality and free of defects in design, materials and workmanship, and shall comply with all applicable Laws, and such specifications, if any, as may have been specified in connection with this Agreement, and shall conform to the Sample thereof approved by Polaris. Licensee covenants that it will comply with all applicable Laws in performing this Agreement, including but not limited to, those pertaining to the manufacture, pricing, sale and distribution of the Articles. B. Without limiting the foregoing, Licensee covenants on behalf of Licensee's -own manufacturing facilities, and agrees to require all Manufacturers to covenant by signing the Consent/Manufacturer's Agreement (referenced in Paragraph 23), as follows: (1) Licensee and the Manufacturers agree not to use child labor in the manufacturing, packaging or distribution of Polaris merchandise. (2) Licensee and the Manufacturers agree only to employ persons whose presence is voluntary. Licensee and the Manufacturers agree not to use any forced or involuntary labor, whether prison, bonded, indentured or otherwise. (3) Licensee and the Manufacturers agree to treat each employee with dignity and respect, and not to use corporal punishment, threats of violence, or other forms of physical, sexual, psychological or verbal harassment or abuse. (4) Licensee and the Manufacturers agree not to discriminate in hiring and employment practices, including salary, benefits, advancement, discipline, termination, or retirement, on the basis of race, religion, age, nationality, social or ethnic origin, sexual orientation, gender, political opinion or disability. Polaris Industries Inc. Karts International Incorporated Page 10 (5) Licensee and the Manufacturers recognize that wages are essential to meeting employees' basic needs. Licensee and the Manufacturers agree to comply, at a minimum, with all applicable wage and hour Laws, including minimum wage, overtime, maximum hours, piece rates and other elements of compensation, and to provide legally mandated benefits. If local Laws do not provide for overtime pay, Licensee and Manufacturers agree to pay at least regular wages for overtime work. Licensee and the Manufacturers agree that, where local industry standards are higher than applicable legal requirements, they will meet the higher standards. (6) Licensee and the Manufacturers agree to provide employees with a safe and healthy workplace in compliance with all applicable Laws, ensuring, at a minimum, reasonable access to potable water and sanitary facilities, fire safety, and adequate fighting and ventilation. (7) Licensee and the Manufacturers agree to respect the rights of employees to associate, organize and bargain collectively in a lawful and peaceful manner, without penalty or interference, in accordance with applicable Laws. (8) Licensee and the Manufacturers agree to comply with all applicable environmental Laws. (9) Licensee and the Manufacturers agree to comply with all applicable Laws, including those pertaining to the manufacture, pricing, sale and distribution of the Articles. 11. OWNERSHIP OF RIGHTS IN LICENSED MATERIAL ---------------------------------------- Licensee acknowledges that the copyrights and all other proprietary rights in and to Licensed Material are exclusively owned by and reserved to Polaris. Licensee shall neither acquire nor assert copyright ownership or any other proprietary rights in the Licensed Material or in any derivation, adaptation, variation or name thereof Without limiting the foregoing, Licensee hereby assigns to Polaris all Licensee's worldwide right, title and interest in the Licensed Material and in any material objects consisting of or incorporating drawings, paintings, animation cells, or sculptures of Licensed Material, or other derivations, adaptations, compilations, collective works, variations or names of Licensed Material, heretofore or hereafter created by or for Licensee or any of Licensee's Affiliates. All such new materials shall be included in the definition of "Licensed Material" under this Agreement. If any third party makes or has made any contribution to the creation of any new materials which are included in the definition of Licensed Material under this Paragraph 11, Licensee agrees to obtain from such party a full assignment of rights so that the foregoing assignment by Licensee shall vest full rights to such new materials in Polaris. Licensee further covenants that any such new materials created by Licensee or by any third party Licensee has engaged are original to Licensee or such third party and Polaris Industries Inc. Karts International Incorporated Page 11 do not violate the rights of any other person or entity; this covenant regarding originality shall not extend to any materials Polaris supplies to Licensee, but does apply to all materials Licensee or Licensee's third party contractors may add thereto. The foregoing assignment to Polaris of material objects shall not include that portion of Licensee's displays, catalogs or promotional material not containing Licensed Material, or the physical items constituting the Articles, unless such items are in the shape of the Licensed Material; provided, however, such assignment shall include any and all design elements incorporated into the Articles which convey the spirit and theme of the Licensed Material, and which were developed for the first time by or for Licensee for use with the Articles. 12. COPYRIGHT AND TRADEMARK NOTICES ------------------------------- A. As a condition to the grant of rights hereunder, each Article and any other matter containing Licensed Material shall bear a properly located permanently affixed trademark and copyright notices as Polaris specifies to Licensee in writing. Licensee will comply with such instructions as to form, location and content of the notices as Polaris may give from time to time. Licensee will not, without Polaris's prior written consent ` affix to any Article or any other matter containing Licensed Material notices in any other name. If through inadvertence or otherwise a notice on any Article or other such matter should appear in Licensee's name or the name of a third party, Licensee hereby agrees to assign to Polaris the trademark or copyright represented by any such notice in Licensee's name and, upon request, cause the execution and delivery to Polaris of whatever documents are necessary to convey to Polaris that trademark or copyright represented by any such notice. If by inadvertence a proper trademark or copyright notice is omitted from any Article or other matter containing Licensed Material, Licensee agrees at Licensee's expense to use all reasonable efforts to correct the omission on all such Articles or other matter in process of manufacture or in distribution. Licensee agrees to advise Polaris promptly and in writing of the steps being taken to correct any such omission and to make the corrections on existing Articles which can be located. B. At the request of Licensor, Licensee shall execute such form(s) of assignment of copyright in any amendments or derivative works based in whole or part on the Licensed Property as Licensor may reasonably request. 13. NON-ASSOCIATION OF OTHER LICENSED PROPERTIES WITH LICENSED MATERIAL ------------------------------------------------------------------- To preserve Polaris's identification with the Licensed Material `and to avoid confusion of the public, Licensee agrees not to associate other licensed properties with the Licensed Material or the Trademarks either on the Articles or in their packaging, or, without Polaris's written permission, on advertising, promotional or display materials. Licensee may use its own trademarks on the Articles as provided in Subparagraph 16.C. Polaris Industries Inc. Karts International Incorporated Page 12 14. ACTIVE MARKETING OF ARTICLES ---------------------------- Licensee agrees to manufacture (or have manufactured for Licensee) and actively offer for sale all the Articles and to actively exercise the rights granted herein. Licensee agrees that by the Marketing Date applicable to a particular Article, or the date of any applicable amendment, shipments to customers of such Article will have taken place in sufficient time that such Article shall be available for purchase in commercial quantities by the public at the retail outlets authorized pursuant to Subparagraph 2.A. In any case in which such sales have not taken place or when the Article is not then and thereafter available for purchase in commercial quantities by the public, Polaris may either invoke Polaris's remedies under Paragraph 27, or withdraw such Article from the list of Articles licensed in this Agreement without obligation to Licensee other than to give Licensee written notice thereof 15. PROMOTION COMMITMENT -------------------- Licensee agrees to carry out the Promotion Commitment as defined above. 16. TRADEMARK RIGHTS AND OBLIGATIONS -------------------------------- A. All uses of the Trademarks by Licensee hereunder shall -inure to Polaris's benefit. Licensee acknowledges that Polaris or its licensor is the exclusive owner of all the Trademarks, and of any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses. Without limiting the foregoing, Licensee hereby assigns to Polaris all the Trademarks, and any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such, uses, together with the goodwill attaching to that part of the business in connection with which such Trademarks or trademarks are used. Licensee agrees to execute and deliver to Polaris such documents as Polaris requires to register Licensee as a Registered User or Permitted User of the Trademarks or such trademarks and to follow Polaris's instructions for proper use thereof in order that protection and/or registrations for the Trademarks and such trademarks may be obtained or maintained. B. Licensee agrees not to use any Licensed Material or Trademarks, or any trademark incorporating all or any part of a Trademark or of any Licensed Material, on any business sign, business cards, stationery or forms (except as licensed herein), or to use any Licensed Material or Trademark as the name of Licensee's business or any division thereof, unless otherwise agreed by Polaris in writing. C. Nothing contained herein shall prohibit Licensee from using Licensee's own trademarks on the Articles or Licensee's copyright notice on the Articles when the Articles contain independent material which is Licensee's property. Nothing contained herein is intended to give Polaris any rights to, and Polaris shall not use, any trademark, copyright or patent used by Licensee in connection with the Articles which is not derived or adapted from Licensed Material, Trademarks, or other materials owned by Polaris or its Licensor. Polaris Industries Inc. Karts International Incorporated Page 13 17. REGISTRATIONS ------------- Except with Polaris's written consent, neither Licensee nor any of Licensee's Affiliates will register or attempt in any country to register copyrights in, or to register as a trademark, service mark, design patent or industrial design, or business designation, any of the Licensed Material, Trademarks or derivations or adaptations thereof, or any word, symbol or design which is so similar thereto as to suggest association with or sponsorship by Polaris or any of Polaris's Affiliates. In the event of breach of the foregoing, Licensee agrees, at Licensee's expense and at Polaris's request, immediately to terminate the unauthorized registration activity and promptly to execute and deliver, or cause to be delivered, to Polaris such assignments and other documents as Polaris may require to transfer to Polaris all rights to the registrations, patents or applications involved. 18. UNLICENSED USE OF LICENSED MATERIALS ------------------------------------ A. Licensee agrees that Licensee will not use the Licensed Material, or the Trademarks, or any other material the copyright to which is owned or licensed by Polaris in any way other than as herein authorized (or as is authorized in any other written contract in effect between the parties). In addition to any other remedy Polaris may have, Licensee agrees that all revenues from any use thereof on products other than the Articles (unless authorized by Polaris in writing), and all revenues from the use of any other copyrighted material of Polaris's or its licensor's without written authorization, shall be immediately payable to Polaris. B. Licensee agrees to give Polaris prompt written notice of any unlicensed use by third parties of Licensed Material or Trademarks, and that Licensee will not, without Polaris's written consent, bring or cause to be brought any criminal prosecution, lawsuit or administrative action for infringement, interference with or violation of any rights to Licensed Material or Trademarks. Because of the need for and the high costs of an effective anti-piracy enforcement program, Licensee agrees to cooperate with Polaris, and, if necessary, to be named by Polaris as a sole complainant or co-complainant in any action against an infringer of the Licensed Material or Trademarks and, notwithstanding any right of Licensee to recover same, legal or otherwise, Licensee agrees to pay to Polaris, and hereby waives all claims to, all damages or other monetary relief recovered in such action by reason of a judgment or settlement whether or not such damages or other monetary relief, or any part thereof, represent or are intended to represent injury sustained by Licensee as a licensee hereunder; in any such action against an infringer, Polaris agrees to reimburse Licensee for reasonable expenses incurred at Polaris's request, including reasonable attorney's fees if Polaris has requested Licensee to retain separate counsel, or has approved the retention of separate counsel. Polaris Industries Inc. Karts International Incorporated Page 14 19. STATEMENTS AND PAYMENTS OF ROYALTIES ------------------------------------ A. Licensee agrees to furnish to Polaris by the 30th day after each Royalty Payment Period full and accurate statements on quarterly sales and royalty statement forms Polaris designates for Licensee's use, showing all information requested by such forms, including but not limited to, the quantities, Net Invoiced Billings and applicable Royalty rate(s) of Articles invoiced during the preceding Royalty Payment Period, and the quantities and invoice value of Articles returned for credit or refund in such period. At the same time Licensee will pay Polaris all Royalties due on billings shown by such statements plus taxes if applicable. No deduction or withholding from Royalties payable to Polaris shall be made by reason of any tax. Any applicable tax on the manufacture, distribution and sale of the Articles shall be borne by Licensee. B. Receipt or acceptance by Licensor of any of the statements furnished pursuant to this Agreement or of any sums paid hereunder shall not preclude Licensor from questioning the correctness thereof at any time, and in the event that any inconsistencies or mistakes are discovered in such statements or payments, they shall immediately be rectified and the appropriate payments made by Licensee. Upon demand of Licensor, Licensee shall at its own expense, but not more than one in any twelve (12) month period, furnish to Licensor a detailed statement by an independent certified public accountant showing the number, description of items sold specifying the components of the Licensed Property utilized and nature of Licensed Product(s), gross sales price itemized deductions from gross sales price and net sales price of the Licensed Product(s) covered by this Agreement distributed and/or sold by Licensee up to and including the date upon which Licensor has made such demand. C. Licensee agrees to provide, in the event of a material default in payment, at Licensor's request: (i) a letter of credit issued in favor of Licensor from a financial institution as approved by Licensor in an amount up to the Guaranteed Consideration; and/or (ii) such other form of security acceptable to Licensor. Licensee agrees to execute all documentation as Licensor may require in connection with perfecting such security interests. D. The quarterly sales and royalty statement forms Polaris designates for Licensee's use may be changed from time to time, and Licensee agrees to use the most current form Polaris provides to Licensee. Licensee agrees to fully comply with all instructions supplied by Polaris for completing such forms. E. Licensee's statements and payments, including all Royalties, shall be delivered to the attention of Trademarketing Resources, Inc. at 1191 St. Charles Court, Los Altos, CA 94024. Polaris Industries Inc. Karts International Incorporated Page 15 F. Licensee represents and warrants that its information systems, including without limitation, all its proprietary and all third party hardware and software, process dates correctly prior to, during and after the calendar year 2000 ("Year 2000 Compliance"). Year 2000 Compliance shall include, without limitation, correct century recognition, calculations that properly accommodate same century and multi-century formulas and date ,values, and interface values that reflect the appropriate century. Upon a breach by Licensee of its obligation under this paragraph, Polaris shall be entitled to terminate this Agreement in accordance with the provisions for termination set forth herein. 20. TRADEMARKETING RESOURCES, INC. AS AGENT --------------------------------------- Polaris has retained Trademarketing Resources, Inc. ("TRI") as its agent for processing, administering and monitoring this Agreement. Polaris may delegate any of its duties under this Agreement to TRI, and any obligations of Licensee to Polaris arising out of this Agreement shall be performed through TRI, including but not limited to approval and payments. All payments shall be made in the name of Polaris. 21. CONFIDENTIALITY --------------- Licensee agrees to keep the terms and conditions of this Agreement confidential, and Licensee shall not disclose such terms and conditions to any third party without obtaining Polaris's prior written consent; provided, however, that this Agreement may be disclosed on a need-to-know basis to Licensee's attorneys and accountants who agree to be bound by this confidentiality provision. Polaris hereby consents to Licensee's disclosure of information of a financial nature in this Agreement to its auditors, to financial institutions in the ordinary course of business, or as required by law. In addition, Licensee may have access to information concerning Polaris's and/or its Affiliates' business and operations, and/or other matters relating to Polaris's and/or its Affiliates' creations or business plans, which information may not be accessible or known to the general public. Licensee agrees not to use or disclose such information to any third party without obtaining Polaris's prior written consent. 22. INTEREST -------- Royalties or any other payments due to Polaris hereunder which are received after the due date shall bear interest at the rate of 18% per annum from the due date (or the maximum permissible by law if less than 18%). 23. AUDITS AND MAINTAINING RECORDS ------------------------------ A. Licensee agrees to keep accurate records of all transactions relating to this Agreement regarding the Licensed Material, including, without limitation, shipments to Licensee of Articles and components thereof, inventory records, records of sales and shipments by Licensee, and records of returns, and to preserve such records for the lesser of seven (7) years or two (2) years after the expiration or termination of this Agreement. Polaris Industries Inc. Karts International Incorporated Page 16 B. Polaris, or Polaris's representatives, shall have the right from time to time to examine and make extracts from all such records to verify the accuracy of Licensee's statements or Licensee's performance hereunder. C. If in an audit of Licensee's records it is determined that there is a short fall of three percent (3%) or more in Royalties reported for any Royalty Payment Period, Licensee shall upon request from Polaris reimburse Polaris for the full out-of-pocket costs of the audit, including the costs of employee auditors calculated at $100 per hour per person for travel time during normal working hours and actual working time. D. If Licensee has failed to keep adequate records, for one or more Royalty Payment Periods, Polaris will assume that the Royalties owed to Polaris for such Royalty Payment Period(s) are equal to a reasonable amount, determined in Polaris's absolute discretion, which may be up to but will not exceed the highest Royalties owed to Polaris in a Royalty Payment Period for which Licensee has kept adequate records; if Licensee has failed to keep adequate records for any Royalty Payment Period, Polaris will assume a reasonable amount of Royalties which Licensee will owe to Polaris, based on the records Licensee has kept and other reasonable assumptions Polaris deems appropriate. Failure to keep adequate records constitutes a material breach and this Agreement is subject to immediate termination under Paragraph 28.B. 24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS ---------------------------------------------------- A. Licensee agrees to supply Polaris with the names and addresses of all of its own manufacturing facilities for the Articles. If Licensee at any time desires to have Articles or components thereof containing Licensed Material manufactured or developed by a third party, Licensee must notify Polaris of the name and address of such Manufacturer/Developer and the Articles or components involved and obtain Polaris's prior written permission to do so. B. If any such Manufacturer/Developer utilizes Licensed Material or Trademarks for any unauthorized purpose, Licensee shall cooperate fully in bringing such utilization to an immediate halt. 25. INDEMNITY --------- A. Licensee shall indemnify Polaris during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Licensee's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of Licensee's activities under this Agreement, including but not limited to, any actual or alleged: (1) negligent acts or omissions on Licensee's part, (2) defect (whether obvious or hidden and whether or not present in any Polaris Industries Inc. Karts International Incorporated Page 17 Sample approved by Polaris) in an Article, (3) personal injury, (4) infringement of any rights of any other person by the manufacture, sale, possession or use of Articles, (5) breach on Licensee's part of any covenant, representation or warranty contained in the Agreement, or (6) failure of the Articles or by Licensee to comply with applicable Laws. The parties indemnified hereunder shall include Polaris and its parent, Affiliates and successors, and its officers, directors, employees and agents including TRI. The indemnity shall not apply to any claim or liability relating to any infringement of the copyright or trademark of a third party caused by Licensee's utilization of the Licensed Material in accordance with the provisions hereof unless such claim or liability arises out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 11. B. Licensee agrees to give Polaris prompt written notice of any claim or suit which may arise under the indemnity provision set forth above. 26. INSURANCE --------- Licensee shall maintain in full force and effect at all times while this Agreement is in effect and for three years thereafter commercial general liability insurance on a per occurrence form, including broad form coverage for "contractual liability," "property damage," "products liability," "bodily injury," advertising injury" and "personal injury" liability as those terms are defined in Insurance Services Office ("ISO") Form CG00-01-01-96 or its equivalent waiving subrogation as to Polaris, with minimum limits of no less than five million dollars (US $5,000,000.00) per occurrence, and naming as additional insureds those indemnified in Paragraph 25 hereof Licensee also agrees to maintain in full force and effect at all times while this Agreement is in effect such Worker's Compensation Insurance as is required by applicable law and Employer's Liability Insurance with minimum limits of one million dollars (US $1,000,000.00) per occurrence. All Licensee insurance shall be deemed primary and not contributory as respects any separate insurance maintained by Polaris regardless of the "Other Insurance" or similar provisions of the respective policies of insurance. Licensee shall deliver to Polaris, within ten (10) business days after the signing of this Agreement, a certificate or certificates of insurance evidencing satisfactory coverage and indicating that Polaris shall receive thirty (30)-days unrestricted prior written notice of cancellation, non-renewal or of any material change in coverage. Licensee's insurance shall be carried by an insurer with BEST Guide rating of B + VII or better. Compliance herewith in no way limits Licensee's indemnity obligations, except to the extent that Licensee's insurance company actually pays Polaris amounts which Licensee would otherwise pay Polaris. 27. WITHDRAWAL OF LICENSED MATERIAL ------------------------------- Licensee agrees that Polaris may, without obligation to Licensee other than to give Licensee written notice thereof withdraw from the scope of this Agreement any Licensed Material which by the Marketing Date or, if such a date is not specified in Subparagraph 1.O., by six (6) months from the commencement of the Term or the date of any applicable amendment, is not being used on or in connection with the Articles. Polaris may also withdraw any Licensed Material or Articles the use or sale of which under this Agreement would infringe or reasonably be claimed to infringe the rights of a third party. In the case of any withdrawal under the preceding sentence, the Advances and Guarantees shall be adjusted to correspond to the time remaining in the Term, or the number of Articles remaining under the Agreement, at the date of withdrawal. Polaris Industries Inc. Karts International Incorporated Page 18 28. TERMINATION ----------- Without prejudice to any other right or remedy available to Polaris: A. Polaris shall have the right at any time to terminate this Agreement by giving Licensee written notice thereof if Licensee fails to manufacture, sell and/or distribute the Articles in accordance with this Agreement, or fails to furnish statements and pay Royalties as herein provided, or fails to notify Polaris of the accurate name and complete address of its own manufacturing facilities or any Manufacturer of the Articles, or if Licensee otherwise breaches the terms of this Agreement, and if any such failure or other breach is not corrected within fifteen (15) days after Polaris sends Licensee written notice thereof. B. Polaris shall have the right at any time to terminate this Agreement immediately by giving Licensee written notice thereof (1) if Licensee delivers to any customer without Polaris's written authorization merchandise containing representations of Licensed Material or other material the copyright or other proprietary rights to which are owned or licensed by Polaris other than Articles fisted herein and approved in accordance with the provisions hereof; (2) if a breach occurs which is of the same nature, and which violates the same provision of this Agreement, as a breach of which Polaris has previously given Licensee written notice; (3) if Licensee breaches any material term of any other license agreement between the parties, and Polaris terminates such agreement for cause; (4) if Licensee shall make any assignment for the benefit of creditor s, or file a petition in bankruptcy, or is adjudged bankrupt, or becomes insolvent, or is placed in the hands of a receiver, or if the equivalent of any such proceedings or acts occurs, though known by some other name or term; (5) if Licensee is not permitted or is unable to operate Licensee's business in the usual manner, or is not permitted or is unable to provide Polaris with assurance satisfactory to Polaris that Licensee will so operate Licensee's business, as debtor in possession or its equivalent, or is not permitted, or is unable to otherwise meet Licensee's obligations under this Agreement or to provide Polaris with assurance satisfactory to Polaris that Licensee will meet such obligations; and/or Polaris Industries Inc. Karts International Incorporated Page 19 (6) if Licensee breaches any covenant set forth in Paragraph 10 of this Agreement. 29. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION ----------------------------------------------------- A. Upon the expiration or termination of this Agreement, all rights herein granted to Licensee shall revert to Polaris, any unpaid portion of the Guarantee shall be immediately due and payable, and Polaris shall be entitled to retain all Royalties and other things of value paid or delivered to Polaris. Licensee agrees that the Articles shall be manufactured during the term in quantities consistent with anticipated demand therefor so as not to result in an excessive inventory build-up immediately prior to the end of the term. Licensee agrees that from the expiration or termination of this Agreement Licensee shall neither manufacture nor have manufactured for Licensee any Articles, that Licensee will deliver to Polaris any and all artwork which may have been used or created by Licensee in connection with this Agreement, and that, except as hereinafter provided, Licensee will cease selling Articles. Any unauthorized distribution of Articles after the expiration or termination of this Agreement shall constitute trademark and/or copyright infringement. B. If Licensee has any unsold Articles in inventory on the expiration or termination date, Licensee shall provide Polaris with a full statement of the kinds and numbers of such unsold Articles. Assuming Licensee has provided such statement, Licensee shall have the right for a limited period of three (3) calendar months from such expiration or earlier termination date to sell off and deliver such Articles as authorized under Subparagraph 2.A. Licensee shall furnish Polaris statements covering such sales and pay Polaris Royalties in respect of such sales. Such Royalties shall not be applied against the Advance or towards meeting the Guarantee. C. Licensee agrees to refrain from "dumping" the Articles in the market during any sell-off period granted to Licensee. "Dumping" shall mean the distribution of product at volume levels significantly above Licensee's prior sales practices with respect to the Articles, and at price levels so far below Licensee's prior sales practices with respect to the Articles as to disparage the Articles; provided, however, that nothing contained herein shall be deemed to restrict Licensee's ability to set product prices at Licensee's discretion. D. Any inventory of final artwork as it appears on any SKU of the Article in Licensee's possession or control after the expiration or termination hereof and of any sell-off period granted hereunder shall either be destroyed or sold to Licensor at Licensee's cost at Licensor's discretion. Polaris Industries Inc. Karts International Incorporated Page 20 30. WAIVERS ------- A waiver by either party at any time of a breach of any provision of this Agreement shall not apply to any breach of any other provision of this Agreement, or imply that a breach of the same provision at any other time has been or will be waived, or that this Agreement has been in any way amended, nor shall any failure by either party to object to conduct of the other be deemed to waive such party's right to claim that a repetition of such conduct is a breach hereof. 31. PURCHASE OF ARTICLES BY POLARIS ------------------------------- If Polaris wishes to purchase Articles, Licensee agrees to sell such Articles to Polaris or any of Polaris's employees at its lowest quoted wholesale price notwithstanding quantities purchased and to pay Polaris Royalties on any such sales. 32. NON-ASSIGNABILITY ----------------- A. Licensee shall not voluntarily or by operation of law assign, sub-license, transfer, encumber or otherwise dispose of all or any part of Licensee's interest in this Agreement (including, but not limited to, any encumbrance of the Articles) without Polaris's prior written consent, to be granted or withheld in Polaris's absolute discretion. Any attempted assignment, sub-license, transfer, encumbrance or other disposal without such consent shall be void and shall constitute a material default and breach of this Agreement. No rights under this Agreement shall devolve by operation of law or otherwise upon any receiver, liquidator, trustee, or other party. B. Licensee agrees to provide Polaris with at least thirty (30) days prior written notice of any desired assignment of this Agreement or other transfer as defined in Subparagraph 32.A. At the time Licensee gives such notice, Licensee shall provide Polaris with the information and documentation necessary to evaluate the contemplated transaction. Polaris's consent (if given) to any assignment of this Agreement or other transfer as defined in Subparagraph 32.A. shall be subject to such terms and conditions as Polaris deems appropriate, including but not limited to the execution of a letter of credit in the amount of the outstanding portion of guaranteed royalties. C. Licensee may, upon Polaris's prior written consent, sublicense Licensee's rights and/or obligations hereunder to any of Licensee's Affiliates, provided that each such Affiliate agrees to be bound by all of the terms and conditions of this Agreement, and provided that each such Affiliate agrees to guarantee Licensee's full performance of this Agreement (including but not limited to Paragraph 24) and to indemnify Polaris for any failure of such performance, and further provided that Licensee and each such Affiliate agree to provide Polaris with satisfactory documentation of such agreement(s), guarantee(s) and indemnification upon Polaris's request therefor. Polaris Industries Inc. Karts International Incorporated Page 21 33. RELATIONSHIP ------------ This Agreement does not provide for a joint venture, partnership, agency, franchise, dealership, distributorship, or employment relationship between the parties, or any other, relationship than that of licensor and licensee. 34. CONSTRUCTION ------------ The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning and not strictly for or against any of the parties. Headings of paragraphs herein are for convenience of reference only and are without substantive significance. 35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT --------------------------------------------- Except as otherwise provided herein, this Agreement can only be extended or modified by a writing signed by both parties; provided, however, that certain modifications shall be effective if signed by the party to be charged and communicated to the other party. 36. NOTICES ------- All notices which either party is required or may desire to serve upon the other party shall be in writing, addressed to the party to be served at the address set forth on page I of this Agreement with a copy to TRI at 1191 St. Charles Court, Los Altos, CA 94024, and may be served personally or by depositing the same addressed as herein provided (unless and until otherwise notified), postage prepaid, in the United States mad. Such notice shall be deemed served upon personal delivery or upon the date of mailing; provided, however, that Polaris shall be deemed to have been served with a notice of a request for approval of materials under this Agreement only upon Polaris's actual receipt of the request and of any required accompanying materials from TRI. 37. PREVIOUS AGREEMENTS ------------------- This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes any pre-existing or contemporaneous agreement and any oral or written communications between the parties. 38. CONSENT TO SERVICE OF PROCESS, VENUE, JURISDICTION -------------------------------------------------- This Agreement and the enforcement hereof shall be subject exclusively to the internal laws (but not the choice or conflicts of law rules) of the State of Minnesota, United States of America. Licensee hereby irrevocably waives any right it may have to assert the application of any other law of any other state or nation. The parties agree that no action or proceeding may be maintained by Licensee against Polaris except either in Minnesota State District Court for the County of Hennepin, or in the United States Federal Court, District of Minnesota, and that these courts shall have exclusive jurisdiction over such Polaris Industries Inc. Karts International Incorporated Page 22 action or proceeding. Licensee hereby irrevocably waives any right it may have to commence any action or proceeding against Polaris in any other court. Licensee further hereby submits to the personal jurisdiction of the aforementioned courts with respect to any claims relating to or arising out of this Agreement or any actions or failures to act related thereto, and irrevocably waives any lights or defenses it may have to the commencement or continuation of an action against it in the aforementioned courts based on lack of personal jurisdiction or improper or inconvenient venue. Licensee hereby further agrees that service of process may be made upon it by certified mail or personal service at the address provided above. This provision shall survive termination or nonrenewal of this Agreement by either party for any reason. 39. EQUITABLE RELIEF ---------------- Licensee acknowledges that Polaris will have no adequate remedy of law if Licensee continues to manufacture, sell, advertise, promote or distribute the Articles upon the expiration or termination of this Agreement. Licensee acknowledges and agrees that, in addition to any and all other remedies available to Polaris, Polaris shall have the fight to have any such activity by Licensee restrained by equitable relief, including, but not limited to, a temporary restraining order, a preliminary injunction, a permanent injunction, or such other alternative relief as may be appropriate, without the necessity of Polaris posting any bond. 40. GOODWILL -------- Licensee acknowledges that the rights and powers retained by Polaris hereunder are necessary to protect Polaris's trademarks, copyrights and property rights, and, specifically, to conserve Polaris's goodwill and good name, and the name "Polaris," and therefore Licensee agrees that Licensee will not allow the same to become involved in matters which will, or could, detract from or impugn the public acceptance and popularity thereof, or impair their legal status. 41. POWER TO SIGN ------------- The parties warrant and represent that their respective representatives signing this Agreement have full power and proper authority to sign this Agreement and to bind the parties. 42. SURVIVAL OF OBLIGATIONS ----------------------- The respective obligations of the parties under this Agreement, which by their nature would continue beyond the termination, cancellation or expiration of this Agreement, including but not limited to indemnification, insurance, and payment of Royalties, shall survive termination, cancellation or expiration of this Agreement. Polaris Industries Inc. Karts International Incorporated Page 23 43. SEVERABILITY OF PROVISIONS -------------------------- The terms of this Agreement are severable and the invalidity of any term of this Agreement shall not affect the validity of any other term. 44. FORCE MAJEURE ------------- If either party is delayed, or interrupted in, or prevented from the performance of its obligations hereunder by reason of an act of God, fire, flood, war, public disaster, strikes or labor difficulties, governmental enactment, regulation or order, or any other cause beyond its control, and if such party has given the other party prompt notice thereof and, on request, such confirmatory documentation as the other party may reasonably request and has in good faith kept the other party apprised of when the delay, interruption or prevention is expected to be resolved, the time for the performance of the party's obligations shall thereupon be extended for a period equal to the duration of the contingency that occasioned the delay, interruption or prevention, but not exceeding sixty (60) days unless otherwise mutually agreed. If the force majeure condition continues for more than sixty (60) days, either party may terminate this Agreement upon written notice to the other party. Please sign below under the word "Agreed". When signed by both parties this shall constitute an agreement between Polaris and Licensee. AGREED: POLARIS INDUSTRIES INC. KARTS INTERNATIONAL INCORPORATED By: ________________________________ By: ________________________________ Title: ________________________________ Title: ________________________________ Date: ________________________________ Date: ________________________________ Polaris Industries Inc. Karts International Incorporated Page 24 EXHIBIT 1 Dated Polaris Industries Inc. 1225 Highway 169 North Plymouth, Minnesota 55441 RE: Approval for Third Party Manufacturer-Developer ----------------------------------------------- Gentlemen: This letter will serve as notice to you that pursuant to Paragraph 23 of the License Agreement dated ___________, 199___ between Polaris Industries Inc. and ___________________ ("Licensee"), we have been engaged as the manufacturer/developer for LICENSEE in connection with the manufacture/development of the Licensed Product(s) as defined in the aforesaid License Agreement. We hereby acknowledge that we may not manufacture/develop Licensed Product(s) for, or sell or distribute Licensed Product(s) to, anyone other than Licensee. We hereby further acknowledge that we have received a copy and are cognizant of the terms and conditions set forth in said License Agreement and hereby agree to observe those provisions of said License Agreement which are applicable to our function as manufacturer/developer of the Licensed Product(s). It is understood that this engagement is on a royalty free basis. We understand that our engagement as the manufacturer/developer for LICENSEE is subject to your written approval. We request, therefore, that you sign in the space below, thereby showing your acceptance of our engagement as aforesaid. Sincerely, _________________________________________ Manufacturer/Developer/Company Name Polaris Industries Inc. Karts International Incorporated Page 25 By: _____________________________________ Signature _____________________________________ Printed Name _____________________________________ Address _____________________________________ _____________________________________ Dated AGREED TO AND ACCEPTED: POLARIS INDUSTRIES INC. By: __________________________ Dated: _________________ EX-10.67 27 0027.txt REGISTRATION RIGHTS AGREEMENT AMENDMENT NO. 1 EXHIBIT 10.67 AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of this 9th day of October, 2000, by and among KARTS INTERNATIONAL INCORPORATED, a Nevada corporation (the "Company"), and THE SCHLINGER FOUNDATION (the "Investor"). W I T N E S S E T H: WHEREAS, the Investor and the Company are parties to that certain Registration Rights Agreement dated May 17, 2000 (the "Registration Rights Agreement"); and WHEREAS, the Investor and the Company desire to amend the Registration Rights Agreement to include the shares of common stock to be issued to Investor upon conversion of the Company's Series B Preferred Stock which is being purchased from the Company by Investor pursuant to that certain Stock Purchase Agreement of even date; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties hereto agree as follows: A. The following amendments to the Registration Rights Agreement are hereby agreed to by Investor and Company: Section 1. Definitions, paragraph (d) is hereby amended to read as follows: "Conversion Shares" shall mean the shares of Common Stock issued or issuable upon conversion of the Series A Preferred and Series B Preferred Stock. Section 1. Definitions, paragraph (i) is hereby amended to read as follows: "Registrable Securities" shall mean the Conversion Shares or shares of any security of the Company issued or issuable upon conversion of the Series A Preferred or Series B Preferred Stock; and (ii) any other securities of the Company distributable on, with respect to, or in substitution of such Registrable Securities, except for those that have been sold or transferred pursuant to an effective registration statement, or pursuant to Rule 144, under the Securities Act. AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT - Page 1 B. All other terms and conditions of the Registration Rights Agreement are hereby reaffirmed by Investor and the Company. WITNESS our signatures this 9th day of October, 2000. KARTS INTERNATIONAL INCORPORATED By:__________________________________________ Charles Brister, President THE SCHLINGER FOUNDATION By:__________________________________________ Evert I. Schlinger Title:_______________________________________ AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT - Page 2 EX-27 28 0028.txt FDS
5 1010077 Karts International Incorporated 1 US Dollars YEAR DEC-31-2000 JAN-01-2000 DEC-31-2000 1 232593 0 2437540 45250 4113038 7395491 3270167 837209 10138628 4539625 0 0 5638 7498 2815989 10138628 8854343 8854343 10918625 3445578 1260703 109709 702907 (6770563) 52304 (6822767) 0 0 0 (6822767) (0.98) (0.98)
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