STOCK WARRANT
This Stock Warrant ("Warrant") is issued this 8th day of March, 1999, by KARTS
INTERNATIONAL INCORPORATED, a Nevada corporation (the "Company"), to KBK
FINANCIAL, INC., a Delaware corporation (KBK FINANCIAL, INC and any subsequent
assignee or transferee hereof are hereinafter referred to collectively as
"Holder").
AGREEMENT:
1. Issuance of Warrant. For and in consideration of (i) KBK Financial, Inc.
("KBK") waiving various events of default under that certain Loan Agreement
dated September 28, 1998 (the "Loan Agreement") between KBK Financial, Inc.
and the Company (as such Loan Agreement is amended from time to time), (ii)
KBK continuing to finance the Company under the Loan Agreement (such
financing being more fully evidenced by the Notes, as defined in the Loan
Agreement), and (iii) other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company hereby grants
to Holder the right to purchase 100,000 shares of the Company's $.001 par
value common stock (the "Common Stock"), which the Company represents
equals 1.8% of the issued and outstanding capital stock of the Company on
the date hereof, calculated on a fully diluted basis after full exercise of
this Warrant (the "Base Amount"); provided, however, the Base Amount shall
be reduced to 50,000 shares of the Common Stock if on or before the
ninetieth (90th) day from the date hereof all indebtedness owing under the
Notes is fully repaid to KBK and there are no further obligations on KBK to
provide loans or advances to Borrower under the Loan Agreement (the "Pay
Off Reduction"). If and only if there is no Pay Off Reduction of the Base
Amount, the Base Amount of the shares subject to this Warrant will be as
follows if the Borrower achieves the Net Income targets set forth below for
the Company's 1999 fiscal year:
Net Income Base Amount
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$975,000 50,000
$877,500 60,000
$780,000 75,000
As used herein, "Net Income" shall mean net income before taxes, as
determined by generally accepted accounting principals, as reflected on the
Borrower's audited financial statements for the Company's 1999 fiscal year.
The shares of Common Stock issuable on exercise of this Warrant are
hereafter referred to as the "Shares". This Warrant shall be exercisable at
any time and from time to time for four (4) years from the date issued. For
purposes of this Warrant, the term "fully diluted basis" shall be
determined in accordance with generally accepted accounting principles as
of the date hereof
2. Exercise Price. The per share exercise price (the "Exercise Price") for
which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be $0.54.
3. Exercise. This Warrant may be exercised by the Holder hereof (but only on
the conditions hereinafter set forth) as to all or a portion of such
Shares, upon delivery of written notice of intent to exercise to the
Company at the following address: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other address as the Company shall designate by
written notice to the Holder hereof, together with this Warrant and payment
to the Company of the aggregate Exercise Price of the Shares so purchased.
The Exercise Price shall be payable, at the option of the Holder, (i) by
certified or cashier's check, or (ii) by the surrender of the Note or
portion thereof having an outstanding principal balance equal to the
aggregate Exercise Price. Upon exercise of this Warrant as aforesaid, the
Company shall as promptly as practicable, and in any event within fifteen
(15) days thereafter, execute and deliver to the Holder of this Warrant a
certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are
requested by such Holder. If this Warrant shall be exercised with respect
to less than all of the Shares, the Holder shall be entitled to receive a
new Warrant covering the number of Shares in respect of which new Warrant
shall not have been exercised, which new Warrant shall in all other
respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which
may be payable in respect of the issuance of this Warrant or the issuance
of any Shares upon exercise of this Warrant.
4. Representations, Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and
may not be pledged, hypothecated sold, made subject to a security
interest, or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act and
such applicable Blue Sky Laws, or (ii) an opinion of counsel which
opinion and counsel shall be reasonably satisfactory to the Company
and its counsel that registration is not required under the Securities
Act or under any applicable Blue Sky Laws (the Company hereby
acknowledges that Louke, Liddell & ▇▇▇▇, LLP is acceptable counsel).
Transfer of the Shares issued upon the exercise of this Warrant shall
be restricted in the same manner and to the same extent as this
Warrant and the certificates representing such Shares shall bear
substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERED UNTIL
(i) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(11) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH I SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other
documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of this Warrant and
any shares of Common Stock issued upon exercise hereof with applicable
federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be issued
upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid
and
nonassessable, free from all taxes, liens, charges and preemptive
rights, if any, with respect thereto or to the issuance thereof. The
Company shall at all times reserve and keep available for issuance
upon the exercise of this Warrant such number of authorized but
unissued shares of Common Stock as will be sufficient to permit the
exercise in full of this Warrant.
(c) The Company represents and warrants to Holder the following:
(1) As of tile date hereof, the authorized capital stock of the
Company consists solely of 14,000,000 shares of Common
Stock, of which 5,457,560 shares are issued and outstanding
and 100,000 shares of which shall be reserved for issuance
upon exercise of this Warrant; provided, however, that the
number of shares reserved for issuance upon exercise of this
Warrant may be increased from time to time in accordance
with the terms of this Warrant;
(ii) As of the date hereof, the Company shall not have
outstanding any stock or securities convertible or
exchangeable for any shares of its Common Stock or
containing any profit participation features, nor shall it
have outstanding any rights or options to subscribe for or
to purchase its Common Stock or any stock or securities
convertible into or exchangeable for its Common Stock or any
stock appreciation rights or phantom stock plans, except as
set forth on Schedule A and for this Warrant.
(iii)Schedule A accurately sets forth the following with respect
to all outstanding options and rights to acquire Common
Stock from Borrower: (i) the total number of shares issuable
upon exercise of all outstanding options, (ii) the range of
exercise prices for all such outstanding options, (iii) the
number of shares issuable, the exercise price, for each such
outstanding option and (iv) with respect to all outstanding
options, warrants and rights to acquire the Company's
capital stock other than this Warrant, the number of shares
covered, the exercise price;
(iv) As of the date hereof, the Company shall not be subject to
any obligation (contingent or otherwise) to repurchase,
redeem, retire or otherwise acquire any shares of its
capital stock or any warrants, options or other rights to
acquire its capital stock, except as set forth in this
Warrant or on Schedule A attached hereto;
(v) As of the date hereof, all of the outstanding shares or the
Company's capital stock shall be validly issued. fully paid
and nonassessable. There are not statutory or contractual
preemptive rights, rights of first refusal, anti-dilution
rights or any similar rights, held by stockholders or option
holders of the Company, with respect to the issuance of this
Warrant or the issuance of the Common Stock upon exercise of
this Warrant.
5. Transfer of Warrant. Subject to the provisions of Section 4 hereof, this
Warrant may be transferred, in whole or in part, to any person or entity, by
presentation of this Warrant to the Company with written instructions for such
transfer. Upon such presentation for transfer, the Company shall promptly
execute and deliver a new Warrant or Warrants in the form hereof in the name of
the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights;
Preference Rights. Except as otherwise provided herein, this Warrant does
not confer upon the Holder, as such, any right whatsoever as a shareholder
of the Company. Notwithstanding the foregoing, if the Company should offer
to all of the Company's shareholders the right to purchase any securities
of the Company, then all shares of Common Stock that are subject to this
Warrant shall be deemed to be outstanding and owned by the Holder and the
Holder shall be entitled to participate in such rights offering. The
Company shall not grant any preemptive rights with respect to any of its
capital stock without the prior written consent of the Holder.
7. Adjustment Upon Changes in Stock.
(a) If all or any portion of this Warrant shall be exercised subsequent to
any stock split, stock dividend, recapitalization, combination of
shares of the Company, or other similar event, occurring after the
date hereof, then the Holder exercising this Warrant shall receive,
for the aggregate price paid upon such exercise, the aggregate number
and class of shares which such Holder would have received if this
Warrant had been exercised immediately prior to such stock split,
stock dividend, recapitalization, combination of shares, or other
similar event. If any adjustment under this Subsection would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
tile number of shares subject to this Warrant shall be the next higher
number of shares, rounding all fractions upward. Whenever there shall
be an adjustment pursuant to this Subsection, the Company shall
forthwith notify the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised subsequent to
any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event,
occurring after the date hereof, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares
of the same or another class or classes of securities of the Company
or another entity, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the
aggregate number and class of shares which such Holder would have
received if this Warrant had been exercised immediately prior to such
merger, consolidation, exchange of shares, separation, reorganization
or liquidation, or other similar event. If any adjustment under this
Subsection would create a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares
subject to this Warrant shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be an adjustment
pursuant to this Subsection, the Company shall forthwith notify the
Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated.
8. Registration.
(a) The Company and the holders of the Shares agree that if at any time
the Company shall propose to file a registration statement with
respect to any of its Common Stock on a form suitable for a secondary
offering, it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to
such filing, and, at the written request of any such registered
holder, made within ten (10) days after the receipt of such notice,
will include therein at the Company's cost and expense (excluding
underwriting discounts, and commissions and filing fees attributable
to the Shares included therein) such of the Shares as such holder(s)
shall request; provided, however, that if the offering being
registered by the Company is underwritten and if the representative of
the underwriters certifies in writing that the inclusion therein of
the Shares would materially and adversely affect the sale of the
securities to be sold by the Company thereunder, then the Company
shall be required to include in the offering, only that number of
securities, including the Shares, which the underwriters determine in
their sole discretion will not jeopardize the success of the offering
(the securities so included to be apportioned pro rata among all
selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder).
(b) Whenever the Company in its sole discretion undertakes to effect the
registration of any of the Shares, the Company shall, as expeditiously
as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement covering such Shares and
use its reasonable to cause such registration statement to be
declared effective by the Commission as expeditiously as possible
and to keep such registration effective until the earlier of (A)
the date when all Shares covered by the registration statement
have been sold or (B) one hundred eighty (180) days from the
effective date of the registration statement; provided, however,
that nothing in this Section 8 shall be construed to prohibit or
limit the Company's authority to abandon the registration
statement at any time if it determines, in its sole discretion,
that to do so would be in the Company's best interest.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may
be necessary to keep such registration statement effective during
the period referred to in Subsection 8(b)(i) and to comply with
the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement, and cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be
filed with the Commission pursuant to Rule 424 under the
Securities Act.
(iii)Furnish to the selling holder(s) such numbers of copies of such
registration statement, each amendment thereto, the prospectus
included in such registration statement (including each
preliminary prospectus), each supplement thereto and such other
documents as they may reasonably request in order to facilitate
the disposition of the Shares owned by them.
(iv) Provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration statement.
(v) In the event an underwriter is engaged by the Company, enter into
such customary agreements (including underwriting agreements in
customary form for a primary offering) and take all such other
actions as the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Shares
(including, without limitations effecting a stock split or a
combination of shares).
(vi) Make available for inspection by any selling holder or any
underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other
agent retained by any such selling holder or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company which is information that is available
to the public, and cause the officers, directors, employees and
independent accountants of the Company to supply all publicly
available information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with
such registration statement.
(vii)Promptly notify the selling holder(s) and the underwriters, if
any, of the following events and (it' requested by any such
person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective supplement thereto
and, with respect to the registration statement or any
post-effective amendment thereto, the declaration of the
effectiveness of such documents; (B) any requests by the
Commission for amendments or supplements to the registration
statement or the prospectus or for additional information; (C)
the issuance or threat of issuance by the Commission of any stop
order suspending the effectiveness of the registration statement
or the initiation of any proceedings for that purpose; and (D)
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(viii) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered,
(ix) Cooperate with the selling holder(s) and the underwriters, if
any, to facilitate the timely preparation and delivery of
certificates representing the Shares to be sold and not bearing
any restrictive
11. Severability. If any provision(s) of this Warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to
any extent, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by law.
12. Counterparts. This Warrant may be executed in any number of counterparts
and by different parties to this Warrant in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Warrant.
13. WAIVER OF JURY TRIAL. THE COMPANY AND HOLDER 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 WARRANT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first
above written.
KARTS INTERNATIONAL INCORPORATED,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title:
President & C.E.O.
KBK FINANCIAL, INC., a Delaware corporation
By:
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Senior Vice President & General Counsel