THIS PURCHASE OPTION HAS BEEN ACQUIRED FOR INVESTMENT. THIS PURCHASE OPTION AND
THE SHARES ISSUABLE UPON EXERCISE OF THIS PURCHASE OPTION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS. THIS PURCHASE OPTION AND THE SHARES ISSUABLE
UPON EXERCISE OF THIS PURCHASE OPTION MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION
THEREFROM UNDER THE ACT AND SUCH LAWS, SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
THIS PURCHASE OPTION MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR
ENTITY THAT IS NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501,
PROMULGATED UNDER THE ACT.
PURCHASE OPTION
For the Purchase of
100 shares of 10% Series A Convertible Preferred Stock
and
200,000 Warrants
of
Giant Motorsports, Inc.
(A Nevada Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $10.00 and other good and
valuable consideration duly paid by or on behalf of HCFP/Xxxxxxx Securities, LLC
("Holder"), as registered owner of this Purchase Option, to Giant Motorsports,
Inc. ("Company"), Holder is entitled, at any time or from time to time
commencing on the date hereof ("Commencement Date") and at or before 5:00 p.m.,
Eastern Time, September 16, 2010 ("Expiration Date"), but not thereafter, to
subscribe for, purchase and receive, in whole or in part, up to (i) 100 shares
of the 10% Series A Convertible Preferred Stock of the Company ("Preferred
Stock"), which is convertible into shares of the common stock ("Common Stock")
of the Company, and/or (ii) 200,000 Warrants to purchase shares of Common Stock
of the Company at an exercise price of $0.50 per share ("Warrants," together
with the Preferred Stock, the "Securities"). If the Expiration Date is a day on
which banking institutions are authorized by law to close, then this Purchase
Option may be exercised on the next succeeding day that is not such a day in
accordance with the terms herein. During the period ending on the Expiration
Date, the Company agrees not to take any action that would terminate the
Purchase Option.
This Purchase Option is being issued in connection with the issuance and
sale by the Company of its Preferred Stock and common stock purchase warrants
("Warrants") to investors in a private placement under the terms of a
subscription/registration rights agreement of even date herewith ("Securities
Purchase Agreement") and the offering contemplated thereby for which
HCFP/Xxxxxxx Securities, LLC ("HCFP") has acted as placement agent ("Private
Placement").
This Purchase Option is initially exercisable at a price per share of
Preferred Stock equal to $1,000 ("Preferred Stock Exercise Price") and a price
per Warrant equal to $0.00 ("Warrant Exercise Price," the Preferred Stock
Exercise Price and Warrant Exercise Price, as the case may be, the "Exercise
Price"); provided, however, that upon the occurrence of any of the events
specified in Section 6 hereof, the rights granted by this Purchase Option,
including the exercise price and the number of Securities to be received upon
such exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean the initial exercise price or, if adjustments thereto have been made,
the adjusted exercise price to purchase one share of Preferred Stock or one
Warrant, as applicable.
1
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the exercise
form attached hereto must be duly executed and completed and delivered to the
Company, together with this Purchase Option and payment of (i) the Preferred
Stock Exercise Price multiplied by the number of shares of Preferred Stock,
and/or (ii) the Warrant Exercise price multiplied by the number of Warrants, for
which this Purchase Option is then being exercised (except as provided in
Section 2.3 hereof) in cash or by certified check or official bank check for the
Securities being purchased. If the subscription rights represented hereby shall
not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date,
except as otherwise provided in Section 1 hereof, this Purchase Option shall
become null and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. The Securities purchased under this Purchase Option shall bear
the legends contained on the Securities issued to investors in the Private
Placement. Each certificate for Securities purchased under this Purchase Option
shall bear a legend substantially as follows unless the issuance of such
Securities by the Company have been registered under the Securities Act of 1933,
as amended ("Securities Act"):
These Securities have been acquired for investment and have not been
registered under the Securities Act of 1933, as amended, (the "Act")
or applicable state securities laws. The securities may not be sold,
pledged or transferred in the absence of such registration or an
exemption therefrom under said Act and such laws, supported by an
opinion of counsel, reasonably satisfactory to the Company and its
counsel, that such registration is not required.
2.3 Conversion Right.
2.3.1 Determination of Amount. In lieu of the payment of the
Preferred Stock Exercise Price multiplied by the number of shares of Preferred
Stock for which this Purchase Option is exercisable in the manner required by
Section 2.1, the Holder shall have the right (but not the obligation) to convert
any exercisable but unexercised portion of this Purchase Option into shares of
Preferred Stock ("Conversion Right") as follows: upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any of the Preferred Stock Exercise Price in cash) that number of shares of
Preferred Stock equal to the quotient obtained by dividing (x) the "Value" (as
defined below) of the portion of the Purchase Option being converted by (y) the
Current Market Value (as defined below). The "Value" of the portion of the
Purchase Option being converted shall equal the remainder derived from
subtracting (a) (i) the Preferred Stock Exercise Price, multiplied by (ii) the
number of shares of Preferred Stock, underlying the portion of this Purchase
Option being converted from (b) the Current Market Value of a share of Preferred
Stock multiplied by the number of shares of Preferred Stock, underlying the
portion of the Purchase Option being converted. As used herein, the term
"Current Market Value" of a share of Preferred Stock at any date means (i) if
the Preferred Stock, any security into which the Preferred Stock is convertible,
or such other security is not registered under the Securities Exchange Act of
1934, as amended ("Exchange Act"), (A) the value of the Preferred Stock, any
security into which the Preferred Stock is convertible, or such other security
as determined in good faith by the Board of Directors and certified in a board
resolution, based on the most recently completed arm's-length transaction
between the Company and a person other than an affiliate of the Company or
between any two such persons and the closing of which occurs on such date or
shall have occurred within the six-month period preceding such date, or (B) if
no such transaction shall have occurred on such date or within such six-month
period, the value of the Preferred Stock, any security into which the Preferred
Stock is convertible, or such other security as determined in good faith by
resolution of the Board of Directors, based on the best information available,
or (ii) if the Preferred Stock, any security into which the Preferred Stock is
convertible, or such other security is registered under the Exchange Act, the
average of the daily closing sale prices of the Preferred Stock, any security
into which the Preferred Stock is convertible, or such other security for each
trading day during the period commencing 10 trading days before such date and
ending on the date one day prior to such date; provided, however, that if the
closing bid price is not determinable for at least three trading days in such
period, the "Current Market Price" of the Preferred Stock, any security into
which the Preferred Stock is convertible, or such other security shall be
determined as if the Common Stock or such other security was not registered
under the Exchange Act.
2
2.3.2 Mechanics of Conversion Right. The Conversion Right may be
exercised by the Holder on any business day on or after the Commencement Date
and not later than the Expiration Date, except as otherwise provided in Section
1 hereof, by delivering to the Company this Purchase Option with a duly executed
exercise form attached hereto with the conversion section completed exercising
the Conversion Right.
3. Transfer.
3.1 General Restrictions. On and after the Commencement Date, the Holder
of this Purchase Option may sell, transfer or assign or hypothecate this
Purchase Option or the Securities only upon compliance with, or pursuant to
exemptions from, applicable securities laws and in accordance with Section 3.2
below. In order to make any permitted assignment of this Purchase Option, the
Holder must deliver to the Company the assignment form attached hereto duly
executed and completed both by the Holder and the transferee as applicable,
together with this Purchase Option. The Company shall immediately transfer this
Purchase Option on the books of the Company and shall execute and deliver a new
Purchase Option or Purchase Options of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the aggregate number of Securities
purchasable hereunder or such portion of such number as shall be contemplated by
any such assignment.
3.2 Restrictions Imposed by the Securities Act. This Purchase Option and
the Securities underlying this Purchase Option shall not be transferred unless
and until (i) the Company has received the opinion of counsel for the Holder
that this Purchase Option or the Securities, as the case may be, may be
transferred pursuant to an exemption from registration under the Securities Act
and applicable state law, the availability of which is established to the
reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Purchase Option or Securities, as the case may be, has been
filed by the Company and declared effective by the Securities and Exchange
Commission (the "SEC") and remains effective and current and is in compliance
with applicable state law.
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. This Purchase Option may be exercised or
assigned in whole or in part. In the event of the exercise or assignment hereof
in part only, upon surrender of this Purchase Option for cancellation, together
with the duly executed exercise or assignment form and funds sufficient to pay
any Exercise Price, the Company shall cause to be delivered to the Holder
without charge a new Purchase Option of like tenor to this Purchase Option in
the name of the Holder evidencing the right of the Holder to purchase the
aggregate number of Securities purchasable hereunder as to which this Purchase
Option has not been exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Purchase Option and
of reasonably satisfactory indemnification, the Company shall execute and
deliver a new Purchase Option of like tenor and date. Any such new Purchase
Option executed and delivered as a result of such loss, theft, mutilation or
destruction shall constitute a substitute contractual obligation on the part of
the Company.
3
5. Registration Obligation.
5.1 The Holder of this Purchase Option shall be entitled to the same
registration rights with respect to the resale of the Securities underlying this
Purchase Option (the "Registrable Shares") as the Company has granted to
investors in the Private Placement with respect to the Securities underlying the
Preferred Stock and Warrants, as provided in the Securities Purchase Agreement
including, without limitation and subject to the limitations and obligations set
forth therein, the mandatory and piggyback registration obligations set forth
therein; provided, however, that the Holder shall not be entitled to any of the
delinquent filing and effectiveness cash penalties afforded such investors
thereunder.
5.2 Successors and Assigns. The registration rights granted to the Holders
inure to the benefit of all the Holders' successors, heirs, pledges and
permitted assignees.
6. Adjustments.
6.1 Adjustment of Preferred Stock.
6.1.1 Stock Dividends - Recapitalization, Reclassification,
Split-Ups. If after the date hereof, and subject to the provisions of Section
6.2 below, the number of outstanding shares of Preferred Stock is increased by a
split-up, recapitalization or reclassification of shares of Preferred Stock or
other similar event, then, on the effective date thereof, the number of shares
of Preferred Stock issuable upon exercise of the Purchase Option shall be
increased in proportion to such increase in outstanding shares of Preferred
Stock. 6.1.2 Aggregation of Securities. If after the date hereof, and subject to
the provisions of Section 6.2, the number of outstanding shares of Preferred
Stock is decreased by a consolidation, combination or reclassification of shares
of Preferred Stock or other similar event, then, upon the effective date
thereof, the number of shares of Preferred Stock issuable upon exercise of the
Purchase Option shall be decreased in proportion to such decrease in outstanding
shares of Preferred Stock.
6.1.3 Adjustments in Exercise Price. Whenever the number of shares
of Preferred Stock purchasable upon the exercise of this Purchase Option is
adjusted, as provided in this Section 6.1, the Preferred Stock Exercise Price
shall be adjusted (to the nearest cent) by multiplying such Preferred Stock
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Preferred Stock purchasable
upon the exercise of this Purchase Option immediately prior to such adjustment,
and (y) the denominator of which shall be the number of shares of Preferred
Stock so purchasable immediately thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc. In case of
any reclassification or reorganization of the outstanding shares of Preferred
Stock other than a change covered by Section 6.1.1 hereof or which solely
affects the par value of such shares of Preferred Stock, or in the case of any
merger or consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or reorganization
of the outstanding shares of Preferred Stock), or in the case of any sale or
conveyance to another corporation or entity of the property of the Company as an
entirety or substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Purchase Option shall have the right thereafter
(until the expiration of the right of exercise of this Purchase Option) to
receive upon the exercise hereof, for the same aggregate Preferred Stock
Exercise Price payable hereunder immediately prior to such event, the kind and
amount of shares of stock or other securities or property (including cash)
receivable upon such reclassification, reorganization, merger or consolidation,
or upon a dissolution following any such sale or other transfer, by a Holder of
the number of shares of Preferred Stock issuable upon exercise of this Purchase
Option immediately prior to such event; and if any reclassification also results
in a change in shares of Preferred Stock covered by Section 6.1.1, then such
adjustment shall be made pursuant to Sections 6.1.1, 6.1.3 and this Section
6.1.4. The provisions of this Section 6.1.4 shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
4
6.1.5 Changes in Form of Purchase Option. This form of Purchase
Option need not be changed because of any change pursuant to this Section, and
Purchase Options issued after such change may state the same Exercise Price and
the same number of Securities as are stated in the Purchase Options initially
issued pursuant to this Agreement. The acceptance by any Holder of the issuance
of new Purchase Options reflecting a required or permissive change shall not be
deemed to waive any rights to a prior adjustment or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Preferred Stock upon
the exercise or transfer of the Purchase Option, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up or down to the nearest whole number of shares of Preferred Stock.
7. Notices of Record Date. Nothing herein shall be construed as conferring upon
the Holders the right to vote or consent as a stockholder for the election of
directors or any other matter, or as having any right whatsoever as a
stockholder of the Company. In case:
(a) the Company shall take a record of the holders of its Preferred Stock
(and/or other stock or securities at the time deliverable upon the exercise of
this Purchase Option) for the purpose of entitling or enabling them to receive
any dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of any class or any other securities, or to receive any
other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will deliver or cause to be delivered
to the Holder of Preferred Stock a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Preferred Stock (or such other stock or securities at
the time deliverable upon the exercise of this Purchase Option) shall be
entitled to exchange their shares of Preferred Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least ten (10) days (or such lesser number of days as may be
practicable (but in no event less than five (5) business days) based on the date
on which the Board of Directors acts to set such record date or transfer book
closing) prior to the record date or effective date for the event specified in
such notice, provided that the failure to mail such notice shall not affect the
legality or validity of any such action.
8.1 Transmittal of Notices. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally,
by courier, by facsimile or sent by overnight courier service (such as federal
express), with acknowledgment of receipt to the party to whom notice is given,
or on the fifth day after mailing if mailed to the party to whom notice is to be
given, by registered or certified mail, return receipt requested, postage
prepaid and properly addressed as follows: (i) if to the registered Holder of
the Purchase Option, to the address of such Holder as shown on the books of the
Company, or (ii) if to the Company, to its principal executive office,
attention: Chief Financial Officer.
5
8. Miscellaneous.
8.1 Amendments. The Company and HCFP may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
that the Company and HCFP may deem necessary or desirable and that the Company
and HCFP deem shall not adversely affect the interest of the Holders. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
8.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Purchase Option.
8.3 Entire Agreement. This Purchase Option (together with the registration
rights provisions in the Securities Purchase Agreement referred to in this
Purchase Option) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
8.4 Binding Effect. This Purchase Option shall inure solely to the benefit
of and shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Purchase Option or any provisions herein
contained.
8.5 Governing Law; Submission to Jurisdiction. This Purchase Option shall
be governed by and construed and enforced in accordance with the laws of the
State of New York, without giving effect to conflict of laws. Each of the
Company and the Holder hereby agrees that any action, proceeding or claim
against it arising out of, or relating in any way to this Purchase Option shall
be brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. Each of the Company
and the Holder hereby waives any objection to such exclusive jurisdiction and
that such courts represent an inconvenient forum. Any process or summons to be
served upon the Company may be served by transmitting a copy thereof by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at its principal business offices. Such mailing shall be deemed
personal service and shall be legal and binding upon the Company in any action,
proceeding or claim. The prevailing party(ies) in any such action shall be
entitled to recover from the other party(ies) all of its reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
8.6 Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Purchase Option shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment.
6
8.7 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Xxxxxx agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and HCFP
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options will be exchanged for securities or cash or a
combination of both, then Holder shall agree to such exchange and become a party
to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase Option to be
signed by its duly authorized officer as of the 16th day of September, 2005.
GIANT MOTORSPORTS, INC.
By:
--------------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and Chief Operating Officer
7
Notice of Exercise
To Be Executed by the Registered Holder
In Order to Exercise this Purchase Option
The undersigned registered Holder hereby irrevocably elects to exercise
the attached Purchase Option and to purchase ___ shares of Preferred Stock
and/or ______ Warrants of Giant Motorsports, Inc. and hereby makes payment of
$________ (at the rate of $1,000 per share of Preferred Stock and $0.00 per
Warrant) in payment of the Exercise Price pursuant thereto. Please issue the
securities comprising the shares as to which this Purchase Option is exercised
in accordance with the instructions given below. The undersigned acknowledges
that upon exercise of this Purchase Option, the Company will issue certificates
evidencing the shares.
or
--
The undersigned Registered Holder hereby irrevocably elects to exercise
the attached Purchase Option and to purchase ___ shares of Preferred Stock of
Giant Motorsports, Inc. by surrender of the unexercised portion of the attached
Purchase Option. Please issue the securities to which this Purchase Option is
exercised in accordance with the instructions given below.
PLEASE ISSUE CERTIFICATES AS FOLLOWS:
_____________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
and be delivered to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
and if such number of Securities exercised shall not be all the Securities
evidenced by the attached Purchase Option, that a new Purchase Option for the
balance of such Purchase Option be registered in the name of, and delivered to,
the registered Holder at the address stated below.
Dated:______________________ ______________________________________
(Signature of Registered Holder)
______________________________________
______________________________________
(Address)
______________________________________
(Taxpayer Identification Number)
______________________________________
Signature Guaranteed
8
ASSIGNMENT FORM
To be executed by the Registered Holder
In order to Assign Purchase Option
FOR VALUE RECEIVED,____________________________________ hereby sell, assigns and
transfer unto
_____________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name and address)
______________________ of the Purchase Options represented by the attached
instrument, and hereby irrevocably constitutes and appoints
________________________ Attorney to transfer these Purchase Options on the
books of Giant Motorsports, Inc., with full power of substitution in the
premises.
Dated:________________ X__________________________________
(Signature of Registered Holder)
___________________________________
(Signature Guaranteed)
THE SIGNATURE ON THE ASSIGNMENT OR THE PURCHASE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS PURCHASE OPTION CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
CERTIFICATION OF STATUS OF TRANSFEREE
TO BE EXECUTED BY THE TRANSFEREE OF THIS PURCHASE OPTION
The undersigned transferee hereby certifies to the registered Holder and
to Giant Motorsports, Inc that the transferee is an "accredited investor" within
the meaning of Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended.
Dated:________________ X__________________________________
(Signature of Transferee)
9
