Exhibit 2.1
PRIVATE EQUITY CREDIT AGREEMENT
BY AND BETWEEN
EXECUTE SPORTS, INC.
AND
SKIVA GRAPHICS & SCREEN PRINTING, INC.
THIS PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the ___ day of
March, 2006 (this "AGREEMENT"), by and between SKIVA GRAPHICS & SCREEN PRINTING,
INC., a corporation organized and existing under the laws of the California
("INVESTOR"), and EXECUTE SPORTS, INC., a Nevada corporation (the "COMPANY").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor, from
time to time as provided herein, and Investor shall purchase, up to FOUR HUNDRED
THOUSAND DOLLARS ($400,000) of the Common Stock (as defined below); and
WHEREAS, in the Company shall receive Finished Goods (as defined below)
from the Investor in lieu of Cash for the Common Stock; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) of the Securities Act of 1933, Regulation D, and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS as used in this Agreement, the following terms shall
have the following meanings specified or indicated (such meanings to be equally
applicable to both the singular and plural forms of the terms defined)
"AGREEMENT" shall have the meaning specified in the preamble hereof.
"BID PRICE" shall mean the closing bid price of the Common Stock on the
Principal Market.
"BY-LAWS" shall have the meaning specified in Section 4.8.
"CERTIFICATE" shall have the meaning specified in Section 4.8.
"CLOSING" shall mean one of the closings of a purchase and sale of shares
of Common Stock pursuant to Section 2.3.
"CLOSING DATE" shall mean, as applicable, an Interim Closing Date or a
Remainder Closing Date.
"COMMITMENT PERIOD" shall mean the period commencing on the Effective
Date, and ending on the earlier of (i) the date on which Investor shall have
purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price
of the Maximum Commitment Amount, (ii) the date this Agreement is terminated
pursuant to Section 2.4, or (iii) the date occurring thirty-six (36) months from
the date of commencement of the Commitment Period.
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"COMMON STOCK" shall mean the Company's common stock, $0.001 par value per
share, and any shares of any other class of common stock whether now or
hereafter authorized, having the right to participate in the distribution of
dividends (as and when declared) and assets (upon liquidation of the Company).
"COMMON STOCK EQUIVALENTS" shall mean any securities that are convertible
into or exchangeable for Common Stock or any options or other rights to
subscribe for or purchase Common Stock or any such convertible or exchangeable
securities.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"CONDITION SATISFACTION DATE" shall have the meaning specified in Section
7.2.
"DAMAGES" shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs and expenses of expert witnesses and investigation).
"DISCOUNT" shall mean thirty percent (30%).
"DTC" shall have the meaning specified in Section 2.3.
"DWAC" shall have the meaning specified in Section 2.3.
"EFFECTIVE DATE" shall mean the date on which this Agreement is execute by
the Parties.
"ESCROW AGENT" shall mean Law Offices of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ or his
successor in accordance with the Escrow Instructions.
"ESCROW INSTRUCTIONS" shall mean the Joint Escrow Instructions in the form
attached hereto as Exhibit E.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended
and the rules and regulations promulgated thereunder.
"FAST" shall have the meaning specified in Section 2.3.
"FINISHED GOODS" shall mean apparel and accessories with inclusion of
screen printing and embroidery of all t-shirts, fleece, hats, accessories and
other screen printed materials including wetsuits and other water related
products; provision of pressure sensitive crack and peel dye cut sticker sheets
and decals, including set up materials and costs associated with cutting dyes;
and available cut and sew products.
"FLOOR PRICE" shall have the meaning specified in Section 2.1.
"INVESTMENT AMOUNT" shall mean the aggregate dollar amount (within the
range specified in Section 2.2) to be invested by Investor to purchase Put
Shares with respect to any Put as notified by the Company to Investor in
accordance with Section 2.2.
"INVESTOR" shall have the meaning specified in the preamble to this
Agreement.
"LEGEND" shall have the meaning specified in Section 8.1.
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"MINIMUM COMMITMENT AMOUNT" shall mean Four Hundred Thousand Dollars
($400,000).
"MAXIMUM COMMITMENT AMOUNT" shall mean Four Hundred Thousand Dollars
($400,000).
"MATERIAL ADVERSE EFFECT" shall mean any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company or to the Company and such other entities
controlling or controlled by the Company, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to enter into and perform
its obligations under any of this Agreement.
"MAXIMUM PUT AMOUNT" shall mean, with respect to any Put, Four Hundred
Thousand Dollars ($400,000).
"MINIMUM PUT AMOUNT" shall mean, with respect to any Put, Fifty Thousand
Dollars ($50,000).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean The NASDAQ Stock Market, Inc.
"OTC BB" shall mean the Over the Counter Bulletin Board.
"OUTSTANDING STOCK" shall mean, with respect to the Common Stock, at any
date as of which the number of shares of Common Stock is to be determined, all
issued and outstanding shares of Common Stock, including all shares of Common
Stock issuable in respect of outstanding convertible securities, scrip or any
certificates representing fractional interests in shares of Common Stock;
provided, however, that Outstanding shall not include any shares of Common Stock
then directly or indirectly owned or held by or for the account of the Company.
"PERSON" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"PRINCIPAL MARKET" shall mean the NASDAQ National Market, the NASDAQ
SmallCap Market, the Over the Counter Bulletin Board, the American Stock
Exchange or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
"PURCHASE PRICE" shall mean with respect to Put Shares, the Market Price
less the product of the Discount and the Market Price.
"PUT" shall mean each occasion that the Company elects to exercise its
right to tender a Put Notice requiring Investor to purchase shares of Common
Stock, subject to the terms and conditions of this Agreement.
"PUT DATE" shall mean the Trading Day during the Commitment Period that a
Put Notice is deemed delivered pursuant to Section 2.2(b).
"PUT NOTICE" shall mean a written notice, substantially in the form of
Exhibit B hereto, to Investor setting forth the Investment Amount with respect
to which the Company intends to require Investor to purchase shares of Common
Stock pursuant to the terms of this Agreement.
"PUT SHARES" shall mean the Put Shares.
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"REGISTRABLE SECURITIES" shall mean the (a) Put Shares and (b) any
securities issued or issuable with respect to any of the foregoing by way of
exchange, stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a Registration
Statement has been declared effective by the SEC and such Registrable Securities
have been disposed of pursuant to a Registration Statement, (ii) such
Registrable Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 are met, (iii) such time as such Registrable
Securities have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to Investor, such Registrable Securities
may be sold without registration under the Securities Act the need for an
exemption from any such registration requirements and without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act.
"REGULATION D" shall have the meaning specified in the recitals of this
Agreement.
"REGULATION S" shall have the meaning specified in the recitals of this
Agreement.
"RULE 144" shall mean Rule 144 under the Securities Act or any similar
provision then in force under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"SECTION 4(2)" shall have the meaning specified in the recitals of this
Agreement.
"SECURITIES ACT" shall have the meaning specified in the recitals of this
Agreement.
"SEC DOCUMENTS" shall mean, as of a particular date, all reports and other
documents file by the Company pursuant to Section 13(a) or 15(d) of the Exchange
Act since the beginning of the Company's then most recently completed fiscal
year as of the time in question (provided that if the date in question is within
ninety days of the beginning of the Company's fiscal year, the term shall
include all documents filed since the beginning of the second preceding fiscal
year).
"SUBSCRIPTION DATE" shall mean the date on which this Agreement is
executed and delivered by the Company and Investor.
"TRADING DAY" shall mean any day during which the Principal Market shall
be open for business.
"TRANSACTION DOCUMENTS" means the Private Equity Credit Agreement, and all
exhibits thereto including Closing Certificate, and the Transfer Agent
Instructions.
"TRANSFER AGENT" shall mean the transfer agent for the Common Stock (and
to any substitute or replacement transfer agent for the Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent).
"VALUATION EVENT" shall mean an event in which the Company at any time
during a Valuation Period takes any of the following actions:
(a) subdivides or combines the Common Stock;
(b) pays a dividend in shares of Common Stock or makes any other
distribution of shares of Common Stock;
(c) Issues any options or other rights to subscribe for or purchase
shares of Common Stock other than pursuant to this Agreement and the
price per share for which shares of Common Stock may at any time
thereafter be issuable pursuant to such options or other rights
shall be less than the Bid Price in effect immediately prior to such
issuance;
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(d) Issues any securities convertible into or exchangeable for shares of
Common Stock and the consideration per share for which shares of
Common Stock may at any time thereafter be issuable pursuant to the
terms of such convertible or exchangeable securities shall be less
than the Bid Price in effect immediately prior to such issuance;
(e) issues shares of Common Stock otherwise than as provided in the
foregoing subsections (a) through (d) at a price per share less, or
for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of Common Stock as a dividend in liquidation or by way
of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable
law or any distribution to such holders made in respect of the sale
of all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing subsections
(a) through (e); or takes any action affecting the number of
Outstanding Common Stock, other than an action described in any of
the foregoing of subsections (a) through (f) hereof, inclusive,
which in the opinion of the Company's Board of Directors, determined
in good faith, would have a materially adverse effect upon the
rights of Investor at the time of a Put.
"VALUATION PERIOD" shall mean the period of ten (10) Trading Days
immediately following the date on which the applicable Put Notice is deemed to
be delivered and during which the Purchase Price of the Common Stock is valued;
provided, however, that if a Valuation Event occurs during any Valuation Period,
a new Valuation Period shall begin on the Trading Day immediately after the
occurrence of such Valuation Event and end on the tenth (10th) Trading Day
thereafter.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 INVESTMENTS.
(a) PUTS. Upon the terms and conditions set forth herein (including, without
limitation, the provisions of Article VII), on any Put Date the Company may
exercise a Put by the delivery of a Put Notice.
(b) MINIMUM AMOUNT OF PUTS. The Company shall, in accordance with Section
2.2(a), deliver to Investor during the Commitment Period, Put Notices with an
aggregate Investment Amount at least equal to the Minimum Commitment Amount.
(c) FLOOR PRICE. The minimum market price at which the Company may sell and the
Investor shall purchase the Company's common stock is $0.35 per share.
(d) DISCOUNT. The Equity line shall be drawn against at a 30% discount to the
average closing bid price of the Common Stock over the preceding 10 trading days
from the date in which Company places written purchase order for Finished Goods.
Section 2.2 MECHANICS.
(a) PUT NOTICE. At any time during the Commitment Period, the Company may
deliver a Put Notice to Investor, subject to the conditions set forth in Section
7.2; provided, however, the Investment Amount for each Put as designated by the
Company in the applicable Put Notice shall be neither less than the Minimum Put
Amount nor more than the Maximum Put Amount.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on
(i) the Trading Day it is received by facsimile or otherwise by Investor if such
notice is received on or prior to 12:00 noon Pacific Coast time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 12:00 noon Pacific Coast time on a Trading Day or at anytime on a day
which is not a Trading Day.
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Section 2.3 CLOSINGS. On or prior to each Closing Date for a Put, (a) the
Company shall deliver to the Escrow Agent one or more certificates representing
the Put Shares, as applicable, to be purchased by Investor pursuant to Section
2.1 herein, registered in the name of Investor and (b) Investor shall deliver to
the Company the Finished Goods, as applicable. In lieu of delivering physical
certificates representing the Common Stock issuable in accordance with clause
(a) of this Section 2.3, and provided that the Transfer Agent then is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of Investor, the Company shall use its
commercially reasonable efforts to cause the Transfer Agent to electronically
transmit, prior to the applicable Closing Date the applicable Put Shares by
crediting the Escrow Agent's account of the Investor's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system, and provide
proof satisfactory to the Escrow Agent of such delivery. In addition, on or
prior to such Closing Date, each of the Company and Investor shall deliver to
the Escrow Agent all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. On or
before the applicable Closing Date, and provided all conditions to Closing have
been satisfied by the Company, the Escrow Agent shall wire transfer to the
Company, the Remaining Investment Amount, or Interim Investment Amount, as
applicable, less escrow fees and any applicable fees and expenses specified in
the Registration Rights Agreement, and shall deliver the Put Shares to the
Investor, as provided in and subject to the terms and conditions of the Escrow
Instructions.
Section 2.4 TERMINATION OF INVESTMENT OBLIGATION. The obligation of Investor
pursuant to this Agreement to purchase shares of Common Stock shall, at
Investor's option, terminate (including with respect to a Closing Date that has
not yet occurred) in the event that the Company shall at any time fail to comply
with the requirements of Section 6.3 or 6.5 and such failure shall continue for
more than thirty (30) days.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 INTENT. Investor is entering into this Agreement for its own account
and Investor has no present arrangement (whether or not legally binding) at any
time to sell the Common Stock to or through any person or entity; provided,
however, Investor reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 SOPHISTICATED INVESTOR. Investor is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as
defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Common Stock. Investor acknowledges that an
investment in the Common Stock is speculative and involves a high degree of
risk. In addition, the Investor is an "accredited investor" as that term is
defined in Rule 501 of Regulation D
Section 3.3 AUTHORITY. (a) Investor has the requisite power and authority to
enter into and perform its obligations under this Agreement and the transactions
contemplated hereby in accordance with its terms; (b) the execution and delivery
of this Agreement and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action and no
further consent or authorization of Investor or its partners is required; and
(c) this Agreement has been duly authorized and validly executed and delivered
by Investor and is a valid and binding agreement of Investor enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
or similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application.
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Section 3.4 NOT AN AFFILIATE. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 ORGANIZATION AND STANDING. Investor is a corporation duly organized,
validly existing and in good standing under the laws of California, and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Investor is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a material adverse effect on Investor.
Section 3.6 ABSENCE OF CONFLICTS. The execution and delivery of this Agreement
and any other document or instrument contemplated hereby, and the consummation
of the transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof, will not (a) violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, (b)
violate any provision of any indenture, instrument or agreement to which
Investor is a party or is subject, or by which Investor or any of its assets is
bound, or conflict with or constitute a material default thereunder, (c) result
in the creation or imposition of any lien pursuant to the terms of any such
indenture, instrument or agreement, or constitute a breach of any fiduciary duty
owed by Investor to any third party, or (d) require the approval of any
third-party (that has not been obtained) pursuant to any material contract,
instrument, agreement, relationship or legal obligation to which Investor is
subject or to which any of its assets, operations or management may be subject
Section 3.7 DISCLOSURE; ACCESS TO INFORMATION. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that has been requested by Investor. Investor has
reviewed or received copies of the SEC Documents.
Section 3.8 MANNER OF SALE. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.9 FINANCIAL CAPABILITY. Investor presently has the financial capacity
and the necessary capital to perform its obligations hereunder.
Section 3.10 Investor is not an underwriter of or dealer in, the Securities, and
Investor is not participating, pursuant to a contractual agreement, in the
distribution of Put Shares. The Investor does not, as of the date of this
Agreement, have any current short position in the Company's stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor that, except as disclosed in the
SEC Documents:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Nevada, and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The Company
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
Section 4.2 AUTHORITY. (a) The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and to
issue the Put Shares, if any; (b) the execution and delivery of this Agreement
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required; and (c) this Agreement has been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
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Section 4.3 CAPITALIZATION. As of March 3 __, 2006, the authorized capital stock
of the Company consisted of __________shares of Common Stock, of which
___________ shares were issued and outstanding. As of February ___, 2006, there
were __________ options, warrants, or rights to subscribe to, securities, rights
or obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.
Section 4.4 COMMON STOCK. The Company has registered the Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing or quotation of the Common Stock, and
such Common Stock is currently listed or quoted on the Principal Market. As of
the date of this Agreement, the Principal Market is the Over the Counter
Bulletin Board Market.
Section 4.5 SEC DOCUMENTS. The Company has delivered or made available to
Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). To the best of
Company's knowledge, the Company has not provided to Investor any information
that, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company, but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. In the opinion of management, the financial statements of the
Company included in the SEC Documents comply as to form and substance in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (a) as may be otherwise indicated in such financial
statements or the notes thereto or (b) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 4.6 EXEMPTION FROM REGISTRATION; VALID ISSUANCES. To the best of
Company's knowledge, the sale and issuance of the Put Shares in accordance with
the terms and on the bases of the representations and warranties set forth in
this Agreement, may and shall be properly issued by the Company to Investor
pursuant to Section 4(2), Regulation D and/or any applicable state law. When
issued and paid for as herein provided, the Put Shares shall be duly and validly
issued, fully paid, and nonassessable. Neither the sales of the Put Shares
pursuant to, nor the Company's performance of its obligations under, this
Agreement shall (a) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Sharesor any of the assets of the
Company, or (b) entitle the holders of Outstanding Common Stock to preemptive or
other rights to subscribe to or acquire the Common Stock or other securities of
the Company. The Put Shares shall not subject Investor to personal liability for
obligations of the Company by reason of the ownership thereof.
Section 4.7 NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor any person acting
on its or their behalf (a) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to any of the Put Shares or (b) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock under the
Securities Act.
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Section 4.8 CORPORATE DOCUMENTS. The Company has furnished or made available to
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and in effect on the date hereof (the "CERTIFICATE"), and the
Company's By-Laws, as amended and in effect on the date hereof (the "BY-LAWS").
Section 4.9 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put Shares
do not and will not (a) result in a violation of the Certificate or By-Laws or
(b) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (c) result in a violation of any federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations)applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect) nor is the Company otherwise in violation of, conflict with or
in default under any of the foregoing; provided, however, that for purposes of
the Company's representations and warranties as to violations of foreign law,
rule or regulation referenced in clause (c), such representations and warranties
are made only to the best of the Company's knowledge insofar as the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby are or may be affected by
the status of Investor under or pursuant to any such foreign law, rule or
regulation. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock in accordance with the terms hereof
(other than any SEC, NASD or state securities filings that may be required to be
made by the Company subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Over The Counter
Bulletin Board); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Investor herein.
Section 4.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 2005, no event has
occurred that would have a Material Adverse Effect on the Company, except as
disclosed in the SEC Documents.
Section 4.11 NO UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since December
31, 2005 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
Section 4.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31, 2005, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 LITIGATION AND OTHER PROCEEDINGS. Except as may beset forth in the
SEC Documents, there are no lawsuits or proceedings pending or to the best
knowledge of the Company threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which would have a Material Adverse Effect. Except as set forth
in the SEC Documents, no judgment, order, writ, injunction or decree or award
has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would have a Material Adverse
Effect.
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Section 4.15 NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any Person
representing the Company, and, to the knowledge of the Company, any other Person
selling or offering to sell the Put Shares in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading.
Section 4.16 MATERIAL NON-PUBLIC INFORMATION. The Company is not in possession
of, nor has the Company or its agents disclosed to Investor, any material
non-public information that (a) if disclosed, would reasonably be expected to
have a materially adverse effect on the price of the Common Stock or (b)
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW. Investor's trading activities with respect to
shares of the Common Stock will be in compliance with all applicable state and
federal securities laws, rules and regulations and the rules and regulations of
the NASD and the Principal Market on which the Common stock is listed.
Section 5.2 TRADING IN SECURITIES. The Company specifically acknowledges that,
except to the extent specifically provided herein or in any of the other
Transaction Documents (but limited in each instance to the extent so specified),
the Investor retains the right (but is not otherwise obligated) to buy, sell,
engage in hedging transactions or otherwise trade in the Securities at any time
after the delivery of a Put Notice pursuant to this Agreement as permitted by
applicable federal and state securities laws. Notwithstanding the preceding
sentence, the Investor warrants that it will only sell shares of Company common
stock for which it has received a Put Notice from the Company. The Investor, its
affiliates, agents and representatives shall not cause, engage in, in any manner
whatsoever, and direct or indirect short-selling or hedging of the securities of
the Company. Any sales subsequent to delivery of a Put Notice shall not be
deemed a short sale or hedging transaction.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
available and the Company shall reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue the Put Shares; such amount of shares
of Common Stock to be reserved shall be up to One Million One Hundred and Forty
Two Thousand, Eight Hundred and Fifty Seven (1,142,857) for the Put Shares under
the terms and conditions of this Agreement that will need to be issued. The
number of shares so reserved from time to time, as theretofore increased or
reduced as hereinafter provided, may be reduced by the number of shares actually
delivered hereunder.
Section 6.2 LISTING OF COMMON STOCK. The Company shall use its best efforts to
maintain the listing of the Common Stock on a Principal Market, and will cause
the Put Shares to be listed on the Principal Market. The Company further shall,
if the Company applies to have the Common Stock traded on any other Principal
Market, include in such application the Put Shares and shall take such other
action as is necessary or desirable in the reasonable opinion of Investor to use
its best efforts to cause the Common Stock to be listed on such other Principal
Market as promptly as possible. The Company shall use its commercially
reasonable efforts to continue the listing and trading of the Common Stock on
the Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and the
Principal Market.
10
Section 6.3 LEGENDS. The certificates evidencing the Put Shares shall be free of
legends, except as provided for in Article VIII.
Section 6.4 CORPORATE EXISTENCE. The Company shall take all commercially
reasonable steps necessary to preserve and continue the corporate existence of
the Company.
Section 6.5 ADDITIONAL SEC DOCUMENTS. The Company shall deliver to Investor,
promptly after the originals thereof are submitted to the SEC for filing, copies
of all SEC Documents so furnished or submitted to the SEC.
Section 6.6 NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT
TO MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities: (a) receipt of
any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration
statement for amendments or supplements to the registration statement or related
prospectus; (b) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(c) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (d) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
registration statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (e) the Company's reasonable
determination that a post-effective amendment to the registration statement
would be appropriate, and the Company shall promptly make available to Investor
any such supplement or amendment to the related prospectus. The Company shall
not deliver to Investor any Put Notice during the continuation of any of the
foregoing events.
Section 6.7 EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days after the
commencement of each calendar quarter occurring subsequent to the commencement
of the Commitment Period, the Company undertakes to notify Investor as to its
reasonable expectations as to the dollar amount it intends to raise during such
calendar quarter, if any, through the issuance of Put Notices. Such notification
shall constitute only the Company's good faith estimate with respect to such
calendar quarter and shall in no way obligate the Company to raise such amount
during such calendar quarter or otherwise limit its ability to deliver Put
Notices during such calendar quarter. The failure by the Company to comply with
this provision can be cured by the Company's notifying Investor at any time as
to its reasonable expectations with respect to the current calendar quarter.
Section 6.9 CONSOLIDATION; MERGER. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to Investor such shares
of Common Stock and/or securities as Investor is entitled to receive pursuant to
this Agreement.
Section 6.10 ISSUANCE OF PUT SHARES. The sale of the Put Shares shall be made in
accordance with the provisions and requirements of Regulation D and any
applicable state law.
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Section 6.11 DILUTION. The number of shares of Common Stock issuable as Put
Shares may increase substantially in certain circumstances, but never more than
One Million One Hundred and Forty Two Thousand, Eight Hundred and Fifty Seven
(1,142,857), the Floor Price for the aggregate shares. The Company's executive
officers and directors have studied and fully understand the nature of the
transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Put Shares is binding upon the Company and enforceable regardless of
the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
Section 6.12 USE OF PROCEEDS. The Company will use the proceeds received
hereunder for the production and delivery of the Finished Goods by the Investor.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell the
Put Shares to Investor incident to each Closing is subject to the satisfaction,
at or before each such Closing, of each of the conditions set forth below.
(a) ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Investor shall be true and correct in all material respects as
of the date of this Agreement and as of the date of each such Closing as though
made at each such time, except for changes which have not had a Material Adverse
Effect.
(b) PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by Investor at or
prior to such Closing.
Section 7.2 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A PUT
NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of the
Company to deliver a Put Notice and the obligation of Investor hereunder to
acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on (a) the date of delivery of such Put Notice and (b) the
applicable Closing Date (each a "CONDITION SATISFACTION DATE"), of each of the
following conditions:
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of each Condition Satisfaction Date as though made at each
such time (except for representations and warranties specifically made as of a
particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or Investor.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to each Condition Satisfaction Date
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(c) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or adopted by any
court or governmental authority of competent jurisdiction that prohibits or
directly and materially adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(d) ADVERSE CHANGES. Since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a Material Adverse
Effect has occurred.
(e) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the
Common Stock shall not have been suspended by the SEC, the Principal Market or
the NASD and the Common Stock shall have been approved for listing or quotation
on and shall not have been de-listed from the Principal Market.
(f) LEGAL OPINION. The Company shall have caused to be delivered to Investor and
to the Company's transfer agent, within two (2) Trading Days of the effective
date of the Initial Registration Statement and each subsequent Registration
Statement, an opinion of the Company's legal counsel in the form of Exhibit B
hereto, addressed to Investor.
(g) SHAREHOLDER VOTE. The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(h) NO VALUATION EVENT. No Valuation Event shall have occurred since the Put
Date.
(i) OTHER. On each Condition Satisfaction Date, Investor shall have received and
been reasonably satisfied with such other certificates and documents as shall
have been reasonably requested by Investor in order for Investor to confirm the
Company's satisfaction of the conditions set forth in this Section 7.2.,
including, without limitation, a certificate in substantially the form and
substance of Exhibit C hereto, executed by an executive officer of the Company
and to the effect that all the conditions to such Closing shall have been
satisfied as at the date of each such certificate.
Section 7.3 DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall make available for inspection and review by Investor,
advisors to and representatives of Investor (who may or may not be affiliated
with Investor and who are reasonably acceptable to the Company), any
Underwriter, any Registration Statement or amendment or supplement thereto or
any blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by Investor or any such representative,
advisor or Underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of such Registration. This is subject to SEC
Regulation FD.
(b) Each of the Company, its officers, directors, employees and agents shall in
no event disclose non-public information to Investor, advisors to or
representatives of Investor.
(c) Nothing herein shall require the Company to disclose non-public information
to Investor or its advisors or representatives, and the Company represents that
it does not disseminate non-public information to any investors who purchase
stock in the Company in a public offering, to money managers or to securities
analysts; provided, however, that notwithstanding anything herein to the
contrary, the Company shall, as hereinabove provided, immediately notify the
advisors and representatives of Investor and any Underwriters of any event or
the existence of any circumstance(without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting
13
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in a Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean that such
persons or entities other than Investor (without the written consent of Investor
prior to disclosure of such information) may not obtain non-public information
in the course of conducting due diligence in accordance with the terms and
conditions of this Agreement and nothing herein shall prevent any such persons
or entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, any Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in such Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1 LEGENDS. Unless otherwise provided below, each certificate
representing Registerable Securities will bear the following legend (the
"LEGEND"):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933 (the "Securities Act") or qualified under applicable
state securities laws. These securities may not be offered, sold, pledged,
hypothecated, transferred or otherwise disposed of except pursuant to (I) an
effective registration statement and qualification in effect with respect
thereto under the Securities Act and under any applicable state securities law,
(ii) to the extent applicable, Rule 144 under the Securities Act, or (iii) an
opinion of counsel reasonably acceptable to the Company that such registration
and qualification is not required under applicable federal and state securities
laws."
As soon as practicable after the execution and delivery hereof, the Company
shall issue to the Transfer Agent Instructions in substantially the form of
Exhibit D hereto. Such instructions shall be irrevocable by the Company from and
after the date thereof or from and after the issuance thereof. It is the intent
and purpose of such instructions, as provided therein, to require the Transfer
Agent to issue to Investor certificates evidencing shares of Common Stock
incident to a Closing, free of the Legend, without consultation by the transfer
agent with the Company or its counsel and without the need for any further
advice or instruction or documentation to the Transfer Agent by or from the
Company or its counsel or Investor; provided that (a) Investor confirms to the
Transfer Agent and the Company that it has or intends to sell such Common Stock
to a third party which is not an affiliate of Investor or the Company and
Investor agrees to redeliver the certificate representing such shares of Common
Stock to the Transfer Agent to add the Legend in the event the Common Stock is
not sold, and (b) if reasonably requested by the transfer agent or the Company,
Investor confirms to the transfer agent and the Company that Investor has
complied with the prospectus delivery requirement under the Securities Act. At
any time after the Effective Date, upon surrender of one or more certificates
evidencing Common Stock that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered.
Section 8.2 INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall affect in
any way Investor's obligations under any agreement to comply with all applicable
securities laws upon resale of the Common Stock.
ARTICLE IX
NOTICES
Section 9.1 NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (a) personally served,(b) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
14
(c) delivered by reputable air courier service with charges prepaid, or (d)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (i) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (ii) on the second business day
following the date of mailing by express courier service or on the fifth
business day after deposited in the mail, in each case, fully prepaid, addressed
to such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to the Company: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile:
With a copy (which
shall not constitute
notice to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Law Offices of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Investor: Skiva Graphics & Screen Printing, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (which
shall not constitute
notice to): ▇▇▇▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇ & Associates, APLC
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 9.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflicts of law. Each of the Company and Investor
hereby submit to the exclusive jurisdiction of the United States Federal and
state courts located in New York with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
15
Section 10.2 JURY TRIAL WAIVER. The Company and the Investor hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other in respect of any matter arising out of or in
connection with the Transaction Documents.
Section 10.3 SPECIFIC ENFORCEMENT. The Company and the Investor acknowledge and
agree that irreparable damage would occur to the Investor in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Investor shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 10.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and Investor and their respective successors and
permitted assigns. Neither this Agreement nor any rights of Investor or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the Common
Stock purchased or acquired by Investor hereunder with respect to the Common
Stock held by such person, and (b) Investor's interest in this Agreement may be
assigned at any time, in whole but not in part, to any affiliate of Investor.
Section 10.5 THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Company and Investor and their respective successors and
permitted assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person, other than as contemplated under Section 6.10.
Section 10.6 TERMINATION; PRIOR AGREEMENTS TERMINATED. This Agreement shall
terminate at the end of Commitment Period or as otherwise provided herein
(unless extended by the agreement of the Company and Investor); provided,
however, that the provisions of Article VI, VIII, and Sections 9.1,10.2, 10.3
and 10.4 shall survive the termination of this Agreement.
Section 10.7 ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the
instruments referenced herein contain the entire understanding of the Company
and Investor with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
Section 10.8 FEES AND EXPENSES. Each of the Company and Investor agrees to pay
its own expenses in connection with the preparation of this Agreement and
performance of its obligations hereunder. In addition, the Company shall pay all
reasonable fees and expenses incurred by the Investor in connection with any
amendments, modifications or waivers of this Agreement, or incurred in
connection with the enforcement of this Agreement, including, without
limitation, all reasonable attorneys fees and expenses. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Shares pursuant hereto.
Section 10.9 NO BROKERS. Each of the Company and Investor represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company agrees to indemnify the Investor against and hold the other harmless
from any and all liabilities to any persons claiming brokerage commissions or
finder's fees on account of services purported to have been rendered on behalf
of the indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 10.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the Company and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the parties so delivering this
Agreement.
16
Section 10.11 SURVIVAL; SEVERABILITY. The representations, warranties, covenants
and agreements of the Company hereto shall survive each Closing hereunder for a
period of one (1) year thereafter. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.12 FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 10.13 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 10.14 EQUITABLE RELIEF. The Company recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to Investor. The
Company therefore agrees that Investor shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages
Section 10.15 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.16 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price of the Common Stock on any given
Trading Day for the purposes of this Agreement shall be Bloomberg L.P. or any
successor thereto. The written mutual consent of Investor and the Company shall
be required to employ any other reporting entity.
Section 10.17 PUBLICITY. The Company and Investor shall consult with each other
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Investor acknowledges that
this Agreement and all or part of the Transaction Documents may be deemed to be
"material contracts" as that term is defined by Item 601(b)(10) of Regulation
S-K, and that the Company may therefore be required to file such documents as
exhibits to reports or registration statements filed under the Securities Act or
the Exchange Act. Investor further agrees that the status of such documents and
materials as material contracts shall be determined solely by the Company, in
consultation with its counsel.
17
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
EXECUTE SPORTS, INC.
By:
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
SKIVA GRAPHICS & SCREEN PRINTING, INC.
By:
--------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
EXHIBITS
EXHIBIT A Put Notice
EXHIBIT B Opinion
EXHIBIT C Closing Certificate
EXHIBIT D Transfer Agent Instructions
EXHIBIT E Escrow Instructions
18
EXHIBIT A TO PRIVATE EQUITY CREDIT AGREEMENT
PUT NOTICE
TO:
We refer to the Private Equity Credit Agreement dated as of February ___, 2006
(the "Agreement") made between ourselves as the issuer and you as the Investor.
Expressions defined or to which a meaning is assigned in the Agreement shall,
unless the context otherwise requires, bear the same meaning when used herein.
We hereby:
1. give you notice that we require you to subscribe for $_______________
in Common Stock of Execute Sports, Inc. (the "Investment Amount"); and
furthermore that the Floor Price for this Put Notice shall be $0.35.
2. certify that the conditions stipulated in Section 7.2 of the Agreement
have been fulfilled and satisfied.
Date: _________, 2006 EXECUTE SPORTS, INC.
By:
--------------------
Name:
Title:
19
EXHIBIT B TO PRIVATE EQUITY CREDIT AGREEMENT
FORM OF OPINION OF THE COMPANY'S COUNSEL
February __, 2006
To Skiva
Ladies and Gentlemen:
We have acted as counsel for Execute Sports Inc., a Nevada corporation
(the "Company"), in connection with the execution and delivery by the Company of
that certain Private Equity Credit Agreement, dated as of February __, 2006 (the
"Equity Credit Agreement"), between you and the Company.
The shares of the Company's Common Stock issuable pursuant to the Equity
Credit Agreement are referred to herein collectively as the "Common Stock." The
Equity Credit Agreement is referred to herein as the "Transaction Document." Our
opinion is limited to the Transaction Document as expressly described above, and
we render no opinion with respect to the other agreements to be entered into
between the Company and the you pursuant to the terms thereof. Unless defined
herein, capitalized terms have the meaning given them in the Transaction
Documents.
In rendering this opinion, we have examined such matters of law as we
considered necessary for the purpose of rendering this opinion. As to matters of
fact material to the opinions expressed herein, we have relied upon the
representations and warranties as to factual matters contained in, and made by
the Company pursuant to, the Equity Credit Agreement and on the certificate of
the Company delivered in connection with our delivery hereof (the "Opinion
Certificate"), and upon certificates and statements of government officials and
of officers of the Company. In addition, we have examined originals or copies of
documents, corporate records and other writings that we consider relevant for
the purposes of this opinion. In such examination, we have assumed that the
signatures on documents and instruments examined by us are authentic, that each
is what it purports to be, and that all documents and instruments submitted to
us as copies or facsimiles conform with the originals, which facts we have not
independently verified.
In making our examination of documents, we have further assumed that (a)
each party to such documents (other than the Company in connection with its
corporate power and authority in executing, delivering and performing the
Transaction Document) had the power, legal competence and capacity to enter into
and perform all of such party's obligations thereunder, (b) each party to such
document (other than the Company in connection with the Transaction Document)
has duly authorized, executed and delivered such document, (c) each of such
documents is enforceable against and binding upon the parties thereto (other
than the Transaction Document against the Company), (d) the representations and
warranties of you set forth in the Transaction Document are accurate and
complete, and (e) there is no fact or circumstance relating to you or your
business that might prevent you from enforcing any of your rights provided for
in the Transaction Document. We have also assumed (i) that there are no
extrinsic agreements or understandings among the parties to the Transaction
Document that would modify or interpret the terms of the Transaction Document or
the respective rights or obligations of the parties thereto, and (ii) the
Company's receipt in full of Finished Goods by the purchasers of the Company's
securities.
20
Notwithstanding the examination described above, the expressions "to our
knowledge" or words of similar import when used in this opinion letter, refer to
the current actual knowledge of attorneys within the firm principally
responsible for handling current matters for the Company and indicate that we
have not undertaken any independent investigation with respect to the statements
being qualified by such knowledge limitation.
We express no opinion as to matters governed by any laws other than the
laws of the State of California and the federal law of the United States of
America, including the rules and regulations promulgated by governmental
authorities thereunder, but, other than as expressly set forth in paragraph 9
below, excluding laws, rules and regulations concerning the offer or sale of
securities (referred to collectively herein as "Applicable Laws"). We express no
opinion as to whether the laws of any particular jurisdiction apply, or to the
extent that the laws of any jurisdiction other than those identified above are
applicable to the Transaction Documents or the transactions contemplated
thereby.
In rendering the opinion set forth in paragraph 2 below as to the good
standing of the Company as to its qualification to do business in California, we
have relied exclusively on certificates of public officials.
Our opinion in paragraph 5 below as to the validity, binding effect and
enforceability of the Transaction Documents is premised upon the result that
would be obtained if a California court were to apply the internal laws of the
State of California to the interpretation and enforcement of the Transaction
Document.
In connection with the opinion set forth in paragraph 5 below, this
opinion is qualified by, and we render no opinion respect to, or as to the
effect of, the following:
(a) bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting the relief of debtors or the rights
and remedies of creditors generally, including without limitation
the effect of statutory or other law regarding fraudulent
conveyances, preferential transfers and equitable subordination;
(b) general principles of equity, including but not limited to judicial
decisions holding that certain provisions are unenforceable when
their enforcement would violate the implied covenant of good faith
and fair dealing, or would be commercially unreasonable or involve
undue delay, whether or not such principles or decisions have been
codified by statute;
(c) Section 1670.5 of the California Civil Code or any other California
or United States federal law or provision of the DGCL or equitable
principle which provides that a court may refuse to enforce, or may
limit the application of, a contract or any clause thereof that the
court finds to have been unconscionable at the time it was made,
unconscionable in performance or contrary to public policy;
(d) any provision of any Transaction Document purporting to (i) exclude
conflict of law principles under any law or (ii) select certain
courts as the venue, or establish a particular jurisdiction as the
forum, for the adjudication of any controversy;
(e) judicial decisions, that may permit the introduction of extrinsic
evidence to modify the terms or the interpretation of the
Transaction Document;
(f) the tax or accounting consequences of any transaction contemplated
in connection with the sale of the Common Stock under applicable tax
laws and regulations and under applicable accounting rules,
regulations, releases, statements, interpretations or technical
bulletins;
(g) applicable antifraud statutes, rules or regulations of United States
federal or applicable state laws concerning the issuance or sale of
securities, including, without limitation, (i) the accuracy and
completeness of the information provided by the Company to you in
connection with the offer and sale of the Common Stock, and (ii) the
accuracy or fairness of the past, present or future fair market
value of any securities;
(h) any provision of any Transaction Document purporting to (i) waive
rights to trial by jury, service of process or objections to the
laying of venue or forum in connection with any litigation arising
out of or pertaining to the Transaction Documents, (ii) change or
waive the rules of evidence, make determinations conclusive or fix
the method or quantum of proof (iii) limit the effect of waivers by
trade practice or course of conduct or (iv) waive the statute of
limitations;
(i) statutes or public policy principles that limit waivers of broadly
or vaguely stated rights, the benefits of statutory, regulatory or
constitutional rights, unknown future defenses or rights to damages;
(j) provisions stating that rights set forth in the Transaction Document
may only be waived in writing if an implied agreement by trade
practice or course of conduct has given rise to a waiver;
21
(k) any provisions of the Transaction Document providing that (i) rights
or remedies are not exclusive, (ii) rights or remedies may be
exercised without notice, (iii) every right or remedy is cumulative
and may be exercised in addition to or with any other right or
remedy, (iv) the election of a particular remedy or remedies does
not preclude recourse to one or more other remedies, (v) liquidated
damages are to be paid upon the breach of the Transaction Document
or (vi) the failure to exercise, or any delay in exercising, rights
or remedies available under the Transaction Document will not
operate as a waiver of any such right or remedy; and
(l) the indemnification and contribution provisions of any Transaction
Document to the extent enforcement of such provisions are contrary
to public policy or indemnify a party against liability for future
conduct or the party's own fraud or wrongful or negligent acts or
omissions.
In rendering the opinion in paragraph 5 and paragraph 8 below relating
to consents, approvals, authorizations, designations, declarations and filings
under, or pursuant to, Applicable Laws, such opinions are limited to Applicable
Laws that in our experience are typically applicable to transactions of the
nature provided for in the Transaction Document.
In rendering the opinion expressed in paragraphs 8 and 9 below, we
have assumed the accuracy of, and have relied upon, the Company's
representations to us that the Company has made no offer to sell the Common
Stock by means of any general solicitation or publication of any advertisement
therefor and we have assumed that the offer and sale of the Common Stock is not
integrated with any future securities offering of the Company.
In accordance with Section 95 of the American Law Institute's
Restatement (Third) of the Law Governing Lawyers (2000), this opinion letter is
to be interpreted in accordance with customary practices of lawyers rendering
opinions to third parties in transactions of the type provided for in the
Transaction Documents.
Based upon and subject to the foregoing, and except as set forth in the
Equity Credit Agreement, as of the date of this letter we are of the following
opinion.
(1) The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Nevada, and has all corporate
power and authority necessary to own its properties and to conduct its business
as, to our knowledge, it is presently conducted.
(2) The Company is qualified to do business as a foreign corporation in,
and is in good standing under laws of the States of California.
(3) The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Transaction Document.
(4) All corporate action has been taken on the part of the Company's Board
of Directors that is necessary for the authorization, execution and delivery of
the Transaction Document by the Company and the performance of by the Company of
the obligations to be performed by the Company as of the date hereof under the
Transaction Document.
(5) Each of the Transaction Document constitutes valid and binding
obligations of the Company, enforceable by you against the Company in accordance
with its terms.
(6) The Common Stock to be issued pursuant to the Equity Credit Agreement,
has been duly and validly reserved for issuance and, when and if issued in
accordance with the terms of, and assuming no change in, the Equity Credit
Agreement, the Company's Certificate of Incorporation and applicable law, will
be validly issued, fully paid and nonassessable.
(7) The execution, delivery and performance of the Transaction Document
does not, as of the date of this letter, result in a violation of the Company's
Certificate of Incorporation or Bylaws of the Company.
(8) No consent, approval or authorization of or designation, declaration
or filing with, any governmental authority pursuant to any Applicable Law is
required on the part of the Company in connection with the valid execution,
delivery and performance, as of the date of this letter, of the Transaction
Document.
(9) Based in part upon the representations made by you in the Equity
Credit Agreement, the offer, sale and issuance of the Common Stock to you in
accordance with the terms of the Equity Credit Agreement, assuming no change in
the Equity Credit Agreement, the Company's Certificate of Incorporation or
applicable law, constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended.
22
In addition to the foregoing, we supplementally inform you that, to our
knowledge and except as set forth on the SEC Documents, there is no action,
suit, proceeding or investigation pending or threatened in writing against the
Company that questions the validity of the Transaction Document or the right of
the Company to enter into the Transaction Document. Please note that we have not
conducted a docket search in any jurisdiction with respect to litigation that
may be pending against the Company or any of its affiliates, officers or
directors, nor, other than to request the Opinion Certificate from the Company,
have we undertaken any further inquiry whatsoever in connection with the
existence any such action, suit, proceeding or investigation.
This opinion is rendered as of the date first written above solely for
your benefit pursuant to the Equity Credit Agreement and may not be relied on
by, nor may any copy be delivered to, any other person without our prior written
consent. Our opinion is expressly limited to the matters set forth above and we
render no opinion, whether by implication or otherwise, as to any other matters
relating to the Company. We assume no obligation to inform you of any fact,
circumstance, event or change in the law or the facts that may hereafter be
brought to our attention that may alter, affect or modify the opinions expressed
herein.
Very truly yours,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Attorney at Law
By:
--------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
23
EXHIBIT C TO PRIVATE EQUITY CREDIT AGREEMENT
CLOSING CERTIFICATE
----------
The undersigned hereby certifies, with respect to the shares of Common
Stock of Execute Sports, Inc. (the "Company") issuable in connection with the
Put Notice, dated __________________, 20__ (the "Notice"), delivered to Skiva
Graphics & Screen Printing, Inc. (the "Investor") pursuant to Article II of the
Private Equity Credit Agreement, dated as of February __, 2006, by and between
the Company and the Investor (the "Agreement"), as follows:
1. The undersigned is the duly elected __________________________ of the
Company.
2. Except for the provisions of Section 4.3 of the Agreement, the
representations and warranties of the Company set forth in the Agreement are
true and correct in all material respects as though made on and as of the date
hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The number of shares of Common Stock remaining registered in an
effective registration statement on behalf of the Investor as of this date
equals or exceeds the number of shares of Common Stock issuable in connection
with the Notice.
The undersigned has executed this Certificate this ___day of __________,
200__.
EXECUTE SPORTS, INC.
By:
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
24
EXHIBIT D TO PRIVATE EQUITY CREDIT AGREEMENT
_____________, 20___
[Transfer Agent]
[Address]
Ladies and Gentlemen:
Reference is made to that certain Private Equity Credit Agreement (the
"Agreement") dated as of February ___, 2006, between Execute Sports, Inc., a
Nevada corporation (the "Company"), and Skiva Graphics & Screen Printing, Inc.
(the "Investor"). Pursuant to the Agreement, and subject to the terms and
conditions set forth in the Agreement, the Investor has agreed to purchase from
the Company and the Company has agreed to sell to the Investor from time to time
during the term of the Agreement, shares of Common Stock of the Company, $.001
par value per share (the "Common Stock"). As a condition to the effectiveness of
the Agreement, the Company has agreed to issue to you, as the transfer agent for
the Common Stock (the "Transfer Agent"), these instructions relating to the
Common Stock to be issued to the Investor (or a permitted assignee) pursuant to
the Agreement. All terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement. The shares of Common Stock issuable to the
Investor pursuant to the Agreement are referred to herein as "Underlying
Shares."
This letter shall serve as our irrevocable authorization and direction to
you (provided that you are the transfer agent of the Company at such time) to
issue shares of Common Stock upon a request from the Company for the issuance of
certificates.
So long as you have previously received an opinion of the Company's
counsel substantially in the form of Exhibit 1 attached hereto (which the
Company shall direct be delivered to you by such counsel upon the effectiveness
of the registration statement covering Underlying Shares) stating that a
registration statement covering resales of Underlying Shares has been declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended, and that Underlying Shares may be resold without any
restrictive legend (the "Opinion"), certificates representing Underlying Shares
shall not bear a legend provided that:
(a) in connection with such event, the Investor (or its permitted
assignee) shall confirm in writing to the Transfer Agent that (i) the Investor
confirms to the Transfer Agent that it has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Common Stock in
a bona fide transaction to a transferee that is not an affiliate of the Company;
and (ii) the Investor confirms to the Transfer Agent that the Investor has
complied, or will comply with the prospectus delivery requirement;
(b) the Investor (or its permitted assignee) shall represent that it is
permitted to dispose thereof with limitation as to amount of manner of sale
pursuant to Rule 144(k) under the Securities Act.
Provided, however, that if you have not previously received a copy of the
Opinion, then the certificates for Underlying Shares shall bear the following
legend:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") or
qualified under applicable state securities laws. These securities may not
be offered, sold, pledged, hypothecated, transferred or otherwise disposed
of except pursuant to (i) an effective registration statement and
qualification in effect with respect thereto under the Securities Act and
under applicable state securities law, (ii) to the extent applicable, Rule
144 under the Securities Act, or (iii) an opinion of counsel reasonable
acceptable to the Company that such registration and qualification is not
required under applicable federal and state securities laws."
25
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for Underlying Shares in
the event a registration statement covering Underlying Shares is subject to
amendment for events then current.
If the Company then is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of
Investor, the Transfer Agent shall use its commercially reasonable efforts to
electronically transmit the Put Shares by crediting the account of the holder's
prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system, and provide proof satisfactory to the Investor or the Escrow Agent of
such delivery.
Please be advised that the Investors have relied upon this letter as
an inducement to enter into the Agreement and, accordingly, the Investor is a
third party beneficiary to these instructions.
Very truly yours,
EXECUTE SPORTS, INC.
By:
---------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
26
EXHIBIT E TO PRIVATE EQUITY CREDIT AGREEMENT
ESCROW INSTRUCTIONS
Dated as of the date of the
Private Equity Credit Agreement
To Which These Joint Escrow
Instructions Are Attached
Law Offices of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------
---------------------
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Dear ▇▇▇▇▇▇▇:
As escrow agent for EXECUTE SPORTS, INC., a Nevada corporation (the
"Company"), in connection with Puts relating to of shares of Common Stock of the
Company, pursuant to the Private Equity Credit Agreement between the Company and
the Investor (the "Agreement") to which a copy of these Joint Escrow
Instructions is attached as Exhibit F (capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided in the
Agreement), you (the "Escrow Agent") are hereby authorized and directed to hold
the documents delivered to the Escrow Agent pursuant to the terms of the
Agreement in accordance with the following instructions:
1. The parties shall forward to the Escrow Agent any Put Notice or other
notice under the Agreement and related documentation simultaneously with
delivery to any other party.
2. The Escrow Agent shall, as promptly as feasible, notify the Company
orally or in writing of receipt of the Purchase Price for the applicable
Remainder Put Shares or Interim Put Shares from or on behalf of the Investor,
and notify the Investor (or such agent as the Investor may designate in writing)
orally or in writing of receipt of the certificates for Common Stock described
in the Put Notice ("Certificates") with restrictive legends to the Escrow
Agent's account of the Investor's prime broker with DTC (for purposes of this
Agreement the Certificates and the shares of Common Stock delivered through DTC
shall be designated the "Shares"). As promptly as feasible (and in any event
within One Trading Day) upon receipt of notice (whether oral or in written form)
from the Company and the Investor that the respective conditions precedent to a
Closing have been satisfied (which notice shall not be unreasonably withheld or
delayed beyond the applicable Closing Date), the Escrow Agent shall retain
escrow fees in the amount of $2,000 per Put Notice and all reasonable accrued
and unpaid out of pocket fees and expenses, if any, of the Escrow Agent ("the
Escrow Agent Fees"), shall remit the balance of the applicable Purchase Price to
the Company, and shall deliver the applicable Shares to the Investor.
3. If the Shares are not deposited with the Escrow Agent (or the Escrow
Agent's designee) within, with respect to the Put Shares five (5) days after
delivery of a Put Notice or, with respect to the Remainder Put Shares, eleven
(11) days after delivery of a Put Notice, the Escrow Agent shall notify the
Investor and the Investor shall be entitled to cancel the purchase of the Put
Shares and demand repayment of the funds for the Finished Goods. If the Finished
Goods are not delivered to the Company within, with respect to the Put Shares
five (5) days after delivery of a Put Notice or, with respect to the Put Shares,
eleven (11) days after delivery of a Put Notice, the Escrow Agent shall notify
the Company and the Company shall be entitled to cancel the sale of the Put
Shares and demand return of the Shares. If the Company or the Investor notifies
the Escrow Agent that on the Closing Date the conditions precedent to the
obligations of the Company or the Investor, as the case may be, under the
Agreement with respect to the purchase and sale of Common Stock to be effected
that date were not satisfied or waived, then the Escrow Agent shall return the
applicable Purchase Price to the Investor and shall return the applicable Shares
to the Company. The Escrow Agent shall deposit all funds received hereunder and
hold all Shares received hereunder in the Escrow Agent's attorney escrow
brokerage account at _____________; Account # _____________.
27
3. The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, the Investor and the Escrow
Agent.
4. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, and any act done or omitted by the Escrow Agent pursuant
to the advice of the Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith.
5. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
6. The Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder, or in respect of any calculation or date
related to a Put Notice supplied by any party and relied upon in good faith by
the Escrow Agent.
7. The Escrow Agent has acted as legal counsel for the Investor and may
continue to act as legal counsel for such party, from time to time,
notwithstanding its duties as the Escrow Agent hereunder. The Company consents
to the Escrow Agent acting in such capacity as legal counsel for the Investor
and waives any claim that such representation represents a conflict of interest
on the part of the Escrow Agent. The Company understands that the Investor and
the Escrow Agent are relying explicitly on the foregoing provision in entering
into these Escrow Instructions. 8. The Escrow Agent's responsibilities as escrow
agent hereunder shall terminate if the Escrow Agent shall resign by written
notice to the Company and the Investor. In the event of any such resignation,
the Investor and the Company shall appoint a successor Escrow Agent.
9. If the Escrow Agent reasonably requires other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
10. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the Shares, documents
or the Escrow Funds held by the Escrow Agent hereunder ("Escrow Dispute"), the
Escrow Agent is authorized and directed to retain in the Escrow Agent's
possession without liability to anyone all or any part of said documents or the
Escrow Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by arbitration as set forth below,
but the Escrow Agent shall be under no duty whatsoever to institute or defend
any such proceedings.
In the event of any Escrow Dispute, Investor and the Company will submit
such Escrow Dispute to voluntary mediation. The Chief Executive Officer, Chief
Operating Officer or another executive officer designated by the same of each
party will participate in such mediation and will use reasonable good faith
efforts to seek resolution of such Escrow Dispute within 60 days following the
initial notice delivered by a party of such Escrow Dispute.
28
If, and to the extent that, any such Escrow Dispute has not been settled
pursuant to the mediation within 60 days following the initial notice delivered
by a party of such Escrow Dispute, upon the filing of a request for arbitration
("Request") by either party, the Escrow Dispute will be referred to and finally
determined by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("Rules"). The terms set forth in this
Agreement will control in the event of any inconsistency between such terms and
the Rules. The arbitration will be conducted by a sole arbitrator selected by
mutual agreement of the parties. If the parties fail to select the arbitrator
within thirty (30) days following the date of either party's Request, then an
arbitrator will be appointed by the AAA pursuant to the Rules. The place of
arbitration shall be San Diego County, California.
The parties will use reasonable efforts to conclude the arbitration within
ninety (90) days following the appointment of the arbitrator. The award of the
arbitrator will be in writing setting forth findings of fact and conclusions of
law. Judgment on the arbitrator's award will be final and binding upon the
parties and may be entered in any court having jurisdiction thereof. The
arbitrator's fees will be shared equally by the parties and each party will bear
its own costs and attorneys' fees. All papers, documents, or evidence, whether
written or oral, filed with or presented in connection with the arbitration
proceeding will be deemed by the parties and by the arbitrator to be
confidential information of both parties.
11. The Company and the Investor agree jointly and severally to indemnify
and hold harmless the Escrow Agent from any and all claims, liabilities, costs
or expenses in any way arising from or relating to the duties or performance of
the Escrow Agent hereunder other than any such claim, liability, cost or expense
to the extent the same shall (a) have been tax obligations in connection with
Escrow Agent's fee hereunder, or (b) have resulted from the gross negligence or
willful misconduct of the Escrow Agent.
12. Any notice required or permitted hereunder shall be given in manner
provided in the Section headed "NOTICES" in the Agreement, the terms of which
are incorporated herein by reference. Notice to the Escrow Agent shall be as
follows:
Law Offices of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Tel No: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No: (▇▇▇) ▇▇▇-▇▇▇▇
13. By signing these Escrow Instructions, the Escrow Agent becomes a party
hereto only for the purpose of these Escrow Instructions; the Escrow Agent does
not become a party to the Agreement. The Company and the Investor have become
parties hereto by their execution and delivery of the Agreement, as provided
therein.
14. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns and shall
be governed by the laws of the State of California without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
15. The rights and obligations of any party hereto are not assignable
without the written consent of the other parties hereto. These Escrow
Instructions constitute the entire agreement amongst the parties with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date of
the Private Equity Credit Agreement.
EXECUTE SPORTS, INC.
By:
--------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
29
FORM OF WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by EXECUTE SPORTS,
INC., a Nevada corporation (the "Company"), ▇▇▇▇ ▇▇▇▇▇▇▇., registered assigns
(the "Holder") is hereby granted the right to purchase at any time, on or after
the Issue Date (as defined below) until 5:00 P.M., San Diego time, on the
Expiration Date (as defined below), Four Hundred Thousand (400,000) fully paid
and nonassessable shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock"), at an exercise price per share (the "Exercise
Price") of $0.25. This Warrant is being issued pursuant to and as a condition on
the Equity Line Agreement entered into by and between the Company and the Holder
on March 3, 2006 (the "Equity Line"), to which the Company and Holder are
parties. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement. This Warrant was originally issued to the
Holder or the Holder's predecessor on _______________, 2006 (the "Issue Date").
2. Exercise of Warrants.
2.1 General.
(a) This Warrant is exercisable in whole or in part at any time and
from time to time commencing on the Issue Date. Such exercise shall be
effectuated by submitting to the Company (either by delivery to the Company or
by facsimile transmission as provided in Section 8 hereof) a completed and duly
executed Notice of Exercise (substantially in the form attached to this Warrant
Certificate) as provided in the Notice of Exercise (or revised by notice given
by the Company as contemplated by the Section headed "NOTICES" in the
Agreement). The date such Notice of Exercise is faxed to the Company shall be
the "Exercise Date," provided that, if such exercise represents the full
exercise of the outstanding balance of the Warrant, the Holder of this Warrant
tenders this Warrant Certificate to the Company within five (5) Trading Days
thereafter. The Notice of Exercise shall be executed by the Holder of this
Warrant and shall indicate (i) the number of shares then being purchased
pursuant to such exercise and (ii) if applicable (as provided below), whether
the exercise is a cashless exercise.
(b) The Exercise Price per share of Common Stock for the shares then
being exercised shall be payable, at the election of the Holder, in cash or by
certified or official bank check or by wire transfer in accordance with
instructions provided by the Company at the request of the Holder.
(c) Upon the appropriate payment of the Exercise Price for the
shares of Common Stock purchased, together with the surrender of this Warrant
Certificate, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The Company shall
deliver such certificates representing the Warrant Shares in accordance with the
instructions of the Holder as provided in the Notice of Exercise (the
certificates delivered in such manner, the "Warrant Share Certificates") within
three (3) Trading Days (such third Trading Day, a "Warrant Share Delivery Date")
of the date the payment of the Exercise Price for the relevant Warrant Shares is
received by the Company.
30
(d) The Holder shall be deemed to be the holder of the shares
issuable to it in accordance with the provisions of this Section 2.1 on the
Exercise Date.
(e) The Holder may elect to exercise a portion of this Warrant
without electing to redeem the balance of this Warrant, unless if (i) the
stock's bid price closes above the "A" warrant exercise price, or $0.80, for
more than 10 consecutive trading days, and (ii) its cumulative trading volume
within that 10 day period is at least 2 times the number of warrant shares
outstanding and unexercised during that period, then warrant holders must
exercise remaining balance of Warrant in its entirety within 60 days from the
first day immediately after the last day of the 10 consecutive trading day
period (the "Mandatory Warrant Exercise").
2.2 Certain Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(a) "Expiration Date" means the date on which the last calendar of
the month in which the second anniversary of the Effective Date occurs.
3. Reservation of Shares. The Company hereby agrees that at all times during the
term of this Warrant there shall be reserved for issuance upon exercise of this
Warrant, the Reservation Percentage of the number of shares of its Common Stock
as shall be required for issuance of the Warrant Shares for the then unexercised
portion of this Warrant. For the purposes of such calculations, the Company
should assume that the outstanding portion of this Warrants were exercisable in
full at any time, without regard to any restrictions which might limit the
Holder's right to exercise any portion of this Warrant held by the Holder.
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. Except as set forth in this Section 5, the Holder shall
not, by virtue hereof, be entitled to any rights of a stockholder in the
Company, either at law or equity, and the rights of the Holder are limited to
those expressed in this Warrant and are not enforceable against the Company
except to the extent set forth herein. Notwithstanding the provisions of this
Warrant, the Agreement or of the other Transaction Agreements, if the Company
shall declare a dividend upon the Common Stock (whether payable out of earnings
or earned surplus or otherwise), then the Company shall pay to the Holder an
amount equal to the dividend payment which would have been paid to the Holder
had all of the Holder's unexercised Warrants outstanding on the record date for
determining the amount of dividend payments to be paid to security holders of
the Company been exercised as of the close of business on the Trading Day
immediately before such record date.
6. Protection Against Dilution and Other Adjustments.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6 (other than pursuant to Section 6.4), the
Holder shall be entitled to purchase such number of shares of Common Stock as
31
will cause (i) (x) the total number of shares of Common Stock Holder is entitled
to purchase pursuant to this Warrant following such adjustment, multiplied by
(y) the adjusted Exercise Price per share, to equal the result of (ii) (x) the
dollar amount of the total number of shares of Common Stock Holder is entitled
to purchase before adjustment, multiplied by (y) the total Exercise Price before
adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation (where the Company is not the surviving entity), the
provisions of this Section 6 shall be applied as if such capital adjustment
event had occurred immediately prior to the date of this Warrant and the
original Exercise Price had been fairly allocated to the stock resulting from
such capital adjustment; and in other respects the provisions of this Section
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights. The Company will not effect any consolidation or
merger, unless prior to the consummation thereof, the successor or acquiring
entity (if other than the Company) and, if an entity different from the
successor or acquiring entity, the entity whose capital stock or assets the
holders of the Common Stock of the Company are entitled to receive as a result
of such consolidation or merger assumes by written instrument the obligations
under this Warrant (including under this Section 6) and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise of
this Warrant in full, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or of a part of its assets in
a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had all
of the Holder's unexercised Warrants outstanding on the record date (the "Record
Date") for determining the amount and number of Spin Off Securities to be issued
to security holders of the Company (the "Outstanding Warrants") been exercised
as of the close of business on the Trading Day immediately before the Record
Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on
the exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares, multiplied
by (y) a fraction, of which (I) the numerator is the amount of the Outstanding
Warrants then being exercised, and (II) the denominator is the amount of the
Outstanding Warrants.
7. Transfer to Comply with the Securities Act; Registration Rights.
7.1 Transfer. This Warrant has not been registered under the Securities
Act of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
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7.2 Registration Rights. Reference is made to the Registration Rights
Agreement. The Company's obligations under the Registration Rights Agreement and
the other terms and conditions thereof with respect to the Warrant Shares,
including, but not necessarily limited to, the Company's commitment to file a
registration statement including the Warrant Shares, to have the registration of
the Warrant Shares completed and effective, and to maintain such registration,
are incorporated herein by reference.
8. Notices. Any notice required or permitted hereunder shall be given in manner
provided herein:
If to Company at: 1284 Puerta del Sol
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Holder at: __________________
__________________
__________________
__________________
9. Supplements and Amendments; Whole Agreement. This Warrant may be amended or
supplemented only by an instrument in writing signed by the parties hereto. This
Warrant contains the full understanding of the parties hereto with respect to
the subject matter hereof and thereof and there are no representations,
warranties, agreements or understandings other than expressly contained herein
and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of California for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the County of San Diego or the state
courts of the State of California sitting in the County of San Diego in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
33
11. JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial by jury
in any action, proceeding or counterclaim brought by either of the Parties
hereto against the other in respect of any matter arising out or in connection
with this Warrant.
12. Counterparts. This Warrant may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
[Balance of page intentionally left blank]
14. Descriptive Headings. Descriptive headings of the several Sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 3rd day of March, 2006.
EXECUTE SPORTS, INC.
By:
-------------------------------
-----------------------------------
(Print Name)
-----------------------------------
(Title)
34
ARTICLE I. ATTACHMENT A REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of the date of
acceptance of the Warrant to which this Agreement is annexed as Attachment A, is
made by and between EXECUTE SPORTS, INC. , a Nevada corporation (the "Company")
and each entity named on a signature page hereto (each, a "Buyer") (each
agreement with an Buyer being deemed a separate and independent agreement
between the Company and such Buyer, except that each Buyer acknowledges and
consents to the rights granted to each other Buyer under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Warrant dated as of
________________ between the Buyer and the Company (terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement), the Company has agreed to issue and sell to the Buyer the Purchased
Shares; and
WHEREAS, to induce the Buyer to execute and deliver the Warrant, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "Securities Act"), with respect to the Securities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyer hereby
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Investor" means the Buyer and any permitted transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 hereof and who holds Registrable Securities.
(b) "Potential Material Event" means any of the following: (i) the possession by
the Company of material information not ripe for disclosure in a registration
statement, which shall be evidenced by determinations in good faith by the Board
of Directors of the Company that disclosure of such information in the
registration statement would be detrimental to the business and affairs of the
Company; (ii) any material engagement or activity by the Company which would, in
the good faith determination of the Board of Directors of the Company, be
adversely affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the registration statement would be materially
misleading absent the inclusion of such information; or (iii) an underwritten
public offering of securities (a "UPO") by the Company.
(c) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
35
(d) "Registrable Securities" means the Securities (including the Purchased
Shares and the Warrant Shares).
(e) "Registration Statement" means a registration statement of the Company under
the Securities Act on Form S-3, if the Company is then eligible to file using
such form, and if not so eligible, on Form SB-2 or other appropriate form or an
amendment to an existing Registration Statement covering the Registrable
Securities.
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as possible
after the exercise of any of portion of the warrant or the warrant in its
entirety registering for resale by the Investor a sufficient number of shares of
Common Stock for the Buyers to sell the Registrable Securities (or such lesser
number as may be required by the SEC, but in no event less than the number of
shares equal to one hundred percent (100%) of the Purchased Shares). The
Registration Statement shall state that, to the extent permitted by the SEC, in
accordance with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
to prevent dilution resulting from stock splits, or stock dividends.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC a Registration Statement with
respect to not less than the number of Registrable Securities provided in
Section 2(a) above, and thereafter use its reasonable best efforts to cause such
Registration Statement relating to Registrable Securities to become effective by
the Required Effective Date and keep the Registration Statement effective at all
times during the period (the "Registration Period") continuing until the
earliest of (i) the date that is two (2) years after the last day of the
calendar month following the month in which the Effective Date occurs, (ii) the
date when the Investors may sell all Registrable Securities under Rule 144
without volume or other restrictions or limits, or (iii) the date the Investors
no longer own any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) Notify each Investor immediately and (if requested by any such Person)
confirm such notice in writing no later than one (1) business day following the
day (i) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the SEC or
any other Federal or state governmental authority for amendments or supplements
36
to the Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (vi) of the occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Furnish to each Investor (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one (1)
copy of the Registration Statement, each preliminary prospectus and prospectus,
and each amendment or supplement thereto, and (ii) such number of copies of a
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(e) As promptly as practicable after becoming aware thereof, notify each
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time to time after the
date of effectiveness of the Registration Statement, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(e) or 3(f) above, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of such notice until such
Investor receives written notice from the Company that such notice is no longer
in effect;
(h) Use its reasonable efforts to maintain the quotation and trading of its
common stock, and the quotation of the Registrable Securities on the OTCBB; and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. as such with respect to such Registrable Securities;
37
(i) Provide a transfer agent and registrar, which may be a single entity, for
the Registrable Securities not later than the effective date of the Registration
Statement;
(j) Cooperate with the Investors to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(k) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement;
(c) Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(e) or 3(f) above,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. The
Company may provide appropriate stock transfer orders in order to enforce the
provisions of this section; and
(d) Each investor covenants and agrees that it will comply with the prospectus
delivery requirements of the 1934 Act as applicable to it in connection with the
sale of Registrable Securities pursuant to the Registration Statement.
38
5. Expenses of Registration.
(a) All reasonable expenses (other than underwriting discounts and commissions
of the Investor) incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company shall be borne by the
Company.
(b) The Company shall not, as of the date hereof, nor shall the Company on or
after the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Investors in this
Agreement or otherwise conflicts with the provisions hereof.
6. Indemnification. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold harmless
each Investor who holds such Registrable Securities, the directors, if any, of
such Investor, the officers, if any, of such Investor, and each person, if any,
who controls any such Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents (each, an "Indemnified
Person" or "Indemnified Party") against any claims arising out of or based upon
a Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor, expressly
for use in connection with the preparation of the Registration Statement, or a
Violation that arises due to a Securities Act or Exchange Act violation by such
Investor pursuant to the sale of shares of the Company by such Investor, subject
to such limitations and conditions as are applicable to the indemnification
provided by the Company to this Section 6. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
39
(b) Promptly after receipt by an Indemnified Person or Indemnified Party under
this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The Indemnified
Person or Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the Investors
the benefits of Rule 144 promulgated under the Securities Act or any other
similar rule or regulation of the SEC that may at any time permit the Investors
to sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
(a) make and keep public information available, as those terms are understood
and defined in Rule 144;
40
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In the event
of any delay in filing or effectiveness of the Registration Statement as a
result of such assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section 2(c) hereof
arising from such delay.
10. Amendment of Registration Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a sixty-seven (67%)
percent interest of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be given in the
manner contemplated by the Securities Purchase Agreement, (i) if to the Company
or to the Buyer, to their respective address contemplated by the Securities
Purchase Agreement, and (ii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with this Section
11(b).
(c) Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof.
41
(d) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
The parties hereby irrevocably submit to the jurisdiction of the Federal courts
of the United States of America and the state courts located in San Diego, State
of California in respect of the interpretation and enforcement of the provisions
of this Agreement and of the documents referred to in this Agreement, and in
respect of the transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Federal or state court.
(e) If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto.
(g) All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
(j) This Agreement constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
43
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
EXECUTE SPORTS, INC.
Signed:
-----------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
BUYER:
[Print Name of Buyer]
Signed:
-----------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
42
NOTICE OF EXERCISE OF WARRANT
TO: EXECUTE SPORTS, INC. VIA FAX: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
The undersigned hereby irrevocably elects to exercise the right,
represented by the Common Stock Purchase Warrant, dated as of
_____________________, 2006 , to purchase ___________ shares of the Common
Stock, par value $0.001 per share ("Common Stock"), of EXECUTE SPORTS, INC. and
tenders herewith payment in accordance with Section 2 of said Common Stock
Purchase Warrant, as follows:
( ) CASH: $___________________________ = (Exercise Price x Exercise Shares)
Payment is being made by:
( ) enclosed check
( ) wire transfer
( ) other
It is the intention of the Holder to comply with the provisions of Section
2.2 of the Warrant regarding certain limits on the Holder's right to exercise
thereunder. Based on the analysis on the attached Worksheet Schedule, the Holder
believes this exercise complies with the provisions of said Section 2.2.
Nonetheless, to the extent that, pursuant to the exercise effected hereby, the
Holder would have more shares than permitted under said Section, this notice
should be amended and revised, ab initio, to refer to the exercise which would
result in the issuance of shares consistent with such provision. Any exercise
above such amount is hereby deemed void and revoked.
As contemplated by the Warrant, this Notice of Conversion is being sent by
facsimile to the telecopier number and officer indicated above.
If this Notice of Exercise represents the full exercise of the outstanding
balance of the Warrant, the Holder either (1) has previously surrendered the
Warrant to the Company or (2) will surrender (or cause to be surrendered) the
Warrant to the Company at the address indicated above by express courier within
five (5) Trading Days after delivery or facsimile transmission of this Notice of
Exercise.
The certificates representing the Warrant Shares should be transmitted by
the Company to the Holder
|_| via express courier, or
|_| by electronic transfer
after receipt of this Notice of Exercise (by facsimile transmission or
otherwise) to:
-------------------------------------
-------------------------------------
Dated: ---------------------
----------------------------
[Name of Holder]
By: ------------------------
43
FORM OF WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by EXECUTE SPORTS,
INC., a Nevada corporation (the "Company"), ▇▇▇▇ ▇▇▇▇▇▇▇., registered assigns
(the "Holder") is hereby granted the right to purchase at any time, on or after
the Issue Date (as defined below) until 5:00 P.M., San Diego time, on the
Expiration Date (as defined below), Five Hundred Thousand (500,000) fully paid
and nonassessable shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock"), at an exercise price per share (the "Exercise
Price") of $0.35. This Warrant is being issued pursuant to and as a condition on
the Equity Line Agreement entered into by and between the Company and the Holder
on March 3, 2006 (the "Equity Line"), to which the Company and Holder are
parties. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement. This Warrant was originally issued to the
Holder or the Holder's predecessor on _______________, 2006 (the "Issue Date").
2. Exercise of Warrants.
2.1 General.
(a) This Warrant is exercisable in whole or in part at any time and
from time to time commencing on the Issue Date. Such exercise shall be
effectuated by submitting to the Company (either by delivery to the Company or
by facsimile transmission as provided in Section 8 hereof) a completed and duly
executed Notice of Exercise (substantially in the form attached to this Warrant
Certificate) as provided in the Notice of Exercise (or revised by notice given
by the Company as contemplated by the Section headed "NOTICES" in the
Agreement). The date such Notice of Exercise is faxed to the Company shall be
the "Exercise Date," provided that, if such exercise represents the full
exercise of the outstanding balance of the Warrant, the Holder of this Warrant
tenders this Warrant Certificate to the Company within five (5) Trading Days
thereafter. The Notice of Exercise shall be executed by the Holder of this
Warrant and shall indicate (i) the number of shares then being purchased
pursuant to such exercise and (ii) if applicable (as provided below), whether
the exercise is a cashless exercise.
(b) The Exercise Price per share of Common Stock for the shares then
being exercised shall be payable, at the election of the Holder, in cash or by
certified or official bank check or by wire transfer in accordance with
instructions provided by the Company at the request of the Holder.
(c) Upon the appropriate payment of the Exercise Price for the
shares of Common Stock purchased, together with the surrender of this Warrant
Certificate, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The Company shall
deliver such certificates representing the Warrant Shares in accordance with the
instructions of the Holder as provided in the Notice of Exercise (the
certificates delivered in such manner, the "Warrant Share Certificates") within
three (3) Trading Days (such third Trading Day, a "Warrant Share Delivery Date")
of the date the payment of the Exercise Price for the relevant Warrant Shares is
received by the Company.
44
(d) The Holder shall be deemed to be the holder of the shares
issuable to it in accordance with the provisions of this Section 2.1 on the
Exercise Date.
(e) The Holder may elect to exercise a portion of this Warrant
without electing to redeem the balance of this Warrant, unless if (i) the
stock's bid price closes above the "A" warrant exercise price, or $0.80, for
more than 10 consecutive trading days, and (ii) its cumulative trading volume
within that 10 day period is at least 2 times the number of warrant shares
outstanding and unexercised during that period, then warrant holders must
exercise remaining balance of Warrant in its entirety within 60 days from the
first day immediately after the last day of the 10 consecutive trading day
period (the "Mandatory Warrant Exercise").
2.2 Certain Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(a) "Expiration Date" means the date on which the last calendar of
the month in which the second anniversary of the Effective Date occurs.
3. Reservation of Shares. The Company hereby agrees that at all times during the
term of this Warrant there shall be reserved for issuance upon exercise of this
Warrant, the Reservation Percentage of the number of shares of its Common Stock
as shall be required for issuance of the Warrant Shares for the then unexercised
portion of this Warrant. For the purposes of such calculations, the Company
should assume that the outstanding portion of this Warrants were exercisable in
full at any time, without regard to any restrictions which might limit the
Holder's right to exercise any portion of this Warrant held by the Holder.
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. Except as set forth in this Section 5, the Holder shall
not, by virtue hereof, be entitled to any rights of a stockholder in the
Company, either at law or equity, and the rights of the Holder are limited to
those expressed in this Warrant and are not enforceable against the Company
except to the extent set forth herein. Notwithstanding the provisions of this
Warrant, the Agreement or of the other Transaction Agreements, if the Company
shall declare a dividend upon the Common Stock (whether payable out of earnings
or earned surplus or otherwise), then the Company shall pay to the Holder an
amount equal to the dividend payment which would have been paid to the Holder
had all of the Holder's unexercised Warrants outstanding on the record date for
determining the amount of dividend payments to be paid to security holders of
the Company been exercised as of the close of business on the Trading Day
immediately before such record date.
6. Protection Against Dilution and Other Adjustments.
45
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6 (other than pursuant to Section 6.4), the
Holder shall be entitled to purchase such number of shares of Common Stock as
will cause (i) (x) the total number of shares of Common Stock Holder is entitled
to purchase pursuant to this Warrant following such adjustment, multiplied by
(y) the adjusted Exercise Price per share, to equal the result of (ii) (x) the
dollar amount of the total number of shares of Common Stock Holder is entitled
to purchase before adjustment, multiplied by (y) the total Exercise Price before
adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation (where the Company is not the surviving entity), the
provisions of this Section 6 shall be applied as if such capital adjustment
event had occurred immediately prior to the date of this Warrant and the
original Exercise Price had been fairly allocated to the stock resulting from
such capital adjustment; and in other respects the provisions of this Section
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights. The Company will not effect any consolidation or
merger, unless prior to the consummation thereof, the successor or acquiring
entity (if other than the Company) and, if an entity different from the
successor or acquiring entity, the entity whose capital stock or assets the
holders of the Common Stock of the Company are entitled to receive as a result
of such consolidation or merger assumes by written instrument the obligations
under this Warrant (including under this Section 6) and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise of
this Warrant in full, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or of a part of its assets in
a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had all
of the Holder's unexercised Warrants outstanding on the record date (the "Record
Date") for determining the amount and number of Spin Off Securities to be issued
to security holders of the Company (the "Outstanding Warrants") been exercised
as of the close of business on the Trading Day immediately before the Record
Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on
the exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares, multiplied
by (y) a fraction, of which (I) the numerator is the amount of the Outstanding
Warrants then being exercised, and (II) the denominator is the amount of the
Outstanding Warrants.
7. Transfer to Comply with the Securities Act; Registration Rights.
7.1 Transfer. This Warrant has not been registered under the Securities
Act of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
46
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
7.2 Registration Rights. Reference is made to the Registration Rights
Agreement. The Company's obligations under the Registration Rights Agreement and
the other terms and conditions thereof with respect to the Warrant Shares,
including, but not necessarily limited to, the Company's commitment to file a
registration statement including the Warrant Shares, to have the registration of
the Warrant Shares completed and effective, and to maintain such registration,
are incorporated herein by reference.
9. Notices. Any notice required or permitted hereunder shall be given in manner
provided herein:
If to Company at: 1284 Puerta del Sol
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Holder at: __________________
__________________
__________________
__________________
9. Supplements and Amendments; Whole Agreement. This Warrant may be amended or
supplemented only by an instrument in writing signed by the parties hereto. This
Warrant contains the full understanding of the parties hereto with respect to
the subject matter hereof and thereof and there are no representations,
warranties, agreements or understandings other than expressly contained herein
and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of California for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the County of San Diego or the state
courts of the State of California sitting in the County of San Diego in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
47
11. JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial by jury
in any action, proceeding or counterclaim brought by either of the Parties
hereto against the other in respect of any matter arising out or in connection
with this Warrant.
12. Counterparts. This Warrant may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
[Balance of page intentionally left blank]
14. Descriptive Headings. Descriptive headings of the several Sections of this
Warrant are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 3rd day of March, 2006.
EXECUTE SPORTS, INC.
By:
-------------------------------
-----------------------------------
(Print Name)
-----------------------------------
(Title)
48
ARTICLE II. ATTACHMENT A REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of the date of
acceptance of the Warrant to which this Agreement is annexed as Attachment A, is
made by and between EXECUTE SPORTS, INC. , a Nevada corporation (the "Company")
and each entity named on a signature page hereto (each, a "Buyer") (each
agreement with an Buyer being deemed a separate and independent agreement
between the Company and such Buyer, except that each Buyer acknowledges and
consents to the rights granted to each other Buyer under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Warrant dated as of
________________ between the Buyer and the Company (terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement), the Company has agreed to issue and sell to the Buyer the Purchased
Shares; and
WHEREAS, to induce the Buyer to execute and deliver the Warrant, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "Securities Act"), with respect to the Securities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyer hereby
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Investor" means the Buyer and any permitted transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 hereof and who holds Registrable Securities.
(b) "Potential Material Event" means any of the following: (i) the possession by
the Company of material information not ripe for disclosure in a registration
statement, which shall be evidenced by determinations in good faith by the Board
of Directors of the Company that disclosure of such information in the
registration statement would be detrimental to the business and affairs of the
Company; (ii) any material engagement or activity by the Company which would, in
the good faith determination of the Board of Directors of the Company, be
adversely affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the registration statement would be materially
misleading absent the inclusion of such information; or (iii) an underwritten
public offering of securities (a "UPO") by the Company.
(c) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
49
(d) "Registrable Securities" means the Securities (including the Purchased
Shares and the Warrant Shares).
(e) "Registration Statement" means a registration statement of the Company under
the Securities Act on Form S-3, if the Company is then eligible to file using
such form, and if not so eligible, on Form SB-2 or other appropriate form or an
amendment to an existing Registration Statement covering the Registrable
Securities.
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as possible
after the exercise of any of portion of the warrant or the warrant in its
entirety registering for resale by the Investor a sufficient number of shares of
Common Stock for the Buyers to sell the Registrable Securities (or such lesser
number as may be required by the SEC, but in no event less than the number of
shares equal to one hundred percent (100%) of the Purchased Shares). The
Registration Statement shall state that, to the extent permitted by the SEC, in
accordance with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
to prevent dilution resulting from stock splits, or stock dividends.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(l) Prepare promptly, and file with the SEC a Registration Statement with
respect to not less than the number of Registrable Securities provided in
Section 2(a) above, and thereafter use its reasonable best efforts to cause such
Registration Statement relating to Registrable Securities to become effective by
the Required Effective Date and keep the Registration Statement effective at all
times during the period (the "Registration Period") continuing until the
earliest of (i) the date that is two (2) years after the last day of the
calendar month following the month in which the Effective Date occurs, (ii) the
date when the Investors may sell all Registrable Securities under Rule 144
without volume or other restrictions or limits, or (iii) the date the Investors
no longer own any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(m) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
50
(n) Notify each Investor immediately and (if requested by any such Person)
confirm such notice in writing no later than one (1) business day following the
day (i) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the SEC or
any other Federal or state governmental authority for amendments or supplements
to the Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (vi) of the occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(o) Furnish to each Investor (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one (1)
copy of the Registration Statement, each preliminary prospectus and prospectus,
and each amendment or supplement thereto, and (ii) such number of copies of a
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(p) As promptly as practicable after becoming aware thereof, notify each
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(q) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(r) Notwithstanding the foregoing, if at any time or from time to time after the
date of effectiveness of the Registration Statement, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(e) or 3(f) above, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of such notice until such
Investor receives written notice from the Company that such notice is no longer
in effect;
(s) Use its reasonable efforts to maintain the quotation and trading of its
common stock, and the quotation of the Registrable Securities on the OTCBB; and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. as such with respect to such Registrable Securities;
51
(t) Provide a transfer agent and registrar, which may be a single entity, for
the Registrable Securities not later than the effective date of the Registration
Statement;
(u) Cooperate with the Investors to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(v) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(e) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(f) Each Investor, by such Investor's acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement;
(g) Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(e) or 3(f) above,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. The
Company may provide appropriate stock transfer orders in order to enforce the
provisions of this section; and
52
(h) Each investor covenants and agrees that it will comply with the prospectus
delivery requirements of the 1934 Act as applicable to it in connection with the
sale of Registrable Securities pursuant to the Registration Statement.
5. Expenses of Registration.
(c) All reasonable expenses (other than underwriting discounts and commissions
of the Investor) incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company shall be borne by the
Company.
(d) The Company shall not, as of the date hereof, nor shall the Company on or
after the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Investors in this
Agreement or otherwise conflicts with the provisions hereof.
6. Indemnification. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold harmless
each Investor who holds such Registrable Securities, the directors, if any, of
such Investor, the officers, if any, of such Investor, and each person, if any,
who controls any such Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents (each, an "Indemnified
Person" or "Indemnified Party") against any claims arising out of or based upon
a Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Investor, expressly
for use in connection with the preparation of the Registration Statement, or a
Violation that arises due to a Securities Act or Exchange Act violation by such
Investor pursuant to the sale of shares of the Company by such Investor, subject
to such limitations and conditions as are applicable to the indemnification
provided by the Company to this Section 6. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
53
(b) Promptly after receipt by an Indemnified Person or Indemnified Party under
this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The Indemnified
Person or Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
54
8. Reports under Exchange Act. With a view to making available to the Investors
the benefits of Rule 144 promulgated under the Securities Act or any other
similar rule or regulation of the SEC that may at any time permit the Investors
to sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
(a) make and keep public information available, as those terms are understood
and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities only if: (a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In the event
of any delay in filing or effectiveness of the Registration Statement as a
result of such assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section 2(c) hereof
arising from such delay.
10. Amendment of Registration Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a sixty-seven (67%)
percent interest of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be given in the
manner contemplated by the Securities Purchase Agreement, (i) if to the Company
or to the Buyer, to their respective address contemplated by the Securities
Purchase Agreement, and (ii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with this Section
11(b).
55
(c) Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof.
(d) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
The parties hereby irrevocably submit to the jurisdiction of the Federal courts
of the United States of America and the state courts located in San Diego, State
of California in respect of the interpretation and enforcement of the provisions
of this Agreement and of the documents referred to in this Agreement, and in
respect of the transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Federal or state court.
(e) If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto.
(g) All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
(j) This Agreement constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
56
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
EXECUTE SPORTS, INC.
Signed:
-----------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
BUYER:
[Print Name of Buyer]
Signed:
-----------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
57
NOTICE OF EXERCISE OF WARRANT
TO: EXECUTE SPORTS, INC. VIA FAX: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
The undersigned hereby irrevocably elects to exercise the right,
represented by the Common Stock Purchase Warrant, dated as of
_____________________, 2006 , to purchase ___________ shares of the Common
Stock, par value $0.001 per share ("Common Stock"), of EXECUTE SPORTS, INC. and
tenders herewith payment in accordance with Section 2 of said Common Stock
Purchase Warrant, as follows:
( ) CASH: $___________________________ = (Exercise Price x Exercise Shares)
Payment is being made by:
( ) enclosed check
( ) wire transfer
( ) other
It is the intention of the Holder to comply with the provisions of Section
2.2 of the Warrant regarding certain limits on the Holder's right to exercise
thereunder. Based on the analysis on the attached Worksheet Schedule, the Holder
believes this exercise complies with the provisions of said Section 2.2.
Nonetheless, to the extent that, pursuant to the exercise effected hereby, the
Holder would have more shares than permitted under said Section, this notice
should be amended and revised, ab initio, to refer to the exercise which would
result in the issuance of shares consistent with such provision. Any exercise
above such amount is hereby deemed void and revoked.
As contemplated by the Warrant, this Notice of Conversion is being sent by
facsimile to the telecopier number and officer indicated above.
If this Notice of Exercise represents the full exercise of the outstanding
balance of the Warrant, the Holder either (1) has previously surrendered the
Warrant to the Company or (2) will surrender (or cause to be surrendered) the
Warrant to the Company at the address indicated above by express courier within
five (5) Trading Days after delivery or facsimile transmission of this Notice of
Exercise.
The certificates representing the Warrant Shares should be transmitted by
the Company to the Holder
|_| via express courier, or
|_| by electronic transfer
after receipt of this Notice of Exercise (by facsimile transmission or
otherwise) to:
-------------------------------------
-------------------------------------
Dated:
----------------------
-----------------------------
[Name of Holder]
By:
-------------------------
58