This Lock-up
Agreement (this “ Agreement ”), dated as of May
___, 2006 (the “Effective Date”) by and among Dirt
Motor Sports, Inc., a Delaware corporation (the “
Company ”), and Paul A. Kruger (the “
Shareholder ”).
WHEREAS ,
to induce certain investors (the “ Investors ”)
to enter into that certain Series D Convertible Preferred
Stock Purchase Agreement dated as of the date hereof (the “
Purchase Agreement ”) by and among the Company and the
Investors, the Shareholder has agreed not to sell any shares of the
common stock, par value $.0001 per share, of the Company that the
Shareholder presently owns (the “ Common Stock
”), except in accordance with the terms and conditions set
forth herein. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Purchase
Agreement.
NOW,
THEREFORE, in consideration of the covenants and conditions
hereinafter contained, the parties hereto agree as
follows:
1.
Restriction on Transfer; Term .
(a) From
the Effective Date through the period of twenty-four
(24) months following the Effective Date (the “
Initial Period ”), the Shareholder hereby agrees with
the Company that the Shareholder will not offer, sell, contract to
sell, assign, transfer, hypothecate, pledge or grant a security
interest in, or otherwise dispose of (each, a “
Transfer ”), or enter into any transaction which is
designed to, or might reasonably be expected to, result in the
disposition of (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise by the Company or
any affiliate of the Company or any person in privity with the
Company or any affiliate of the Company), directly or indirectly,
any of such Shareholder’s shares of Common Stock;
provided , however , that (i) if the Company
undertakes an underwritten public offering within twelve months of
the Effective Date, Shareholder may sell up to one half of
Shareholder’s Common Stock in the underwritten public
offering, (ii) if the Company does not complete an
underwritten public offering within six months of the Effective
Date, then if the Company undertakes a private placement of shares
of its common stock, Shareholder shall also have the right, but not
the obligation, to participate in such private placement and sell,
upon the same terms and conditions, up to one third (1/3) of the
number of shares of common stock to be sold by the Company in the
private placement, and (iii) the Shareholder may Transfer up
to one twelfth (1/12) of such Shareholder’s shares of Common
Stock per month, on a non-cumulative basis, beginning with the
first month following the one year anniversary of the Effective
Date. Following the Initial Period, the Shareholder may freely
Transfer all of his shares of Common Stock in accordance with
applicable securities laws.
(b) Notwithstanding
the foregoing, the restrictions set forth in Section 1 above:
(i) may be waived in whole or in part by the consent of the
holders of at least seventy five percent (75%) of the
Company’s outstanding shares of preferred stock, par value
$.01 per share; and (ii) shall not apply to a block trade by
Shareholder if Shareholder provides the Company’s financial
advisor at least five days written notice to match the terms of
sale of such block trade.
Notwithstanding
anything in this Agreement to the contrary; the parties acknowledge
that Shareholder has pledged 1,500,000 shares of Common Stock to
F&M Bank as collateral for a credit facility (the
“F&M Loan”), and that F&M Bank, or its
successors and assigns, shall not be bound by the terms and
conditions of this Agreement. Shareholder shall, within three
business day after the Effective Date, provide F&M Bank with
the names of the Company’s financial advisors to assist
F&M Bank in selling any of the above pledged shares in the
event of the default by Shareholder on the F&M Loan
2.
Ownership . Notwithstanding anything to the contrary in this
Agreement, the Shareholder shall retain all rights of ownership in
the Common Stock, including, without limitation, voting rights and
the right to receive any dividends, if any, that may be declared in
respect thereof.
3.
Notification of Transfer Agent . The Company is hereby
authorized to disclose the existence of this Agreement t
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