PROMISSORY NOTE
FACE AMOUNT
$132,000
PRICE
$110,000
INTEREST RATE
12% per annum
NOTE NUMBER
April-2007-101
ISSUANCE DATE
April 9, 2007
MATURITY DATE
April 9, 2008
FOR VALUE
RECEIVED, Execute Sports, Inc., a Nevada corporation, and all of
its subsidiaries (the “ Company ”) (OTC BB:
EXCS) hereby promises to pay to the order of DUTCHESS PRIVATE
EQUITIES FUND, LTD., a Cayman Island exempted company (the
“ Holder ”), by the Maturity Date, or earlier,
the Face Amount of One Hundred and Thirty-two Thousand Dollars
($132,000) plus accrued interest U.S., (this “
Note ”) in such amounts, at such times and on such
terms and conditions as are specified herein. The Company and
the Holder are sometimes hereinafter collectively referred to as
the “ Parties ” and each a “ Party
” to this Agreement.
Article 1
Method of Payment/Interest
Section 1.1
Payments made to the Holder by the
Company in satisfaction of this Note (referred to as a "Payment,"
or "Payments") shall be drawn from each Put under the Equity Line
of Credit provided by the Investor to the Company. The
Company shall make payments to the Holder in the amount of the
greater of a) one hundred percent (100%) of each Put (as defined in
the Investment Agreement between the Company and the Investor dated
June 28, 2005) given to the Investor from the Company; or, b)
eleven thousand seven hundred twenty-one dollars and 39/100
($11,721.39) (the “Payment Amount”) until the Face
Amount is paid in full, minus any fees due. The First Payment
will be due on May 1, 2007 and each subsequent Payment will be made
at the Closing of each Put ("Payment Date" or "Payment Dates")
until this Note is paid in full, with a minimum amount of eleven
thousand seven hundred twenty-one dollars and 39/100 ($11,721.39)
per month. Notwithstanding any provision to the contrary in
this Note, the Company may pay in full to the Holder the Face
Amount, or any balance remaining thereon, in readily available
funds at any time and from time to time without penalty.
Payments made during a month that exceed the Payment
Amount due shall reduce the unpaid Face Amount of the Note
accordingly.
Section 1.2
If before Maturity the Company raises any
funds from a third-party, whether involving the issuance of debt or
equity, including any equity line agreements with the Holder or a
third party (a “ Financing ”), then the Company
shall pay to the Holder one hundred percent (100%) of the net
proceeds therefrom as prepayment of the Face Amount of this Note,
Interest and penalties, if any, then due. A Financing
will also include the sale by the Company of any of its assets
which are deemed to be material to the Company (excluding assets
sold in the normal course of business). All prepayments
described in this Section 1.2 shall be made to the Holder
within three (3) business day of the Company’s receipt of
proceeds from the
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Financing. Failure to comply with this
Section 1.2 shall constitute an Event of Default (as
described in Article 4 hereof). The Holder may, but is
not required to, waive all or part of this Section 1.2 upon
request from the Company and any such waiver shall not be
unreasonably withheld.
Section 1.3
The Company shall pay twelve percent
(12%) annual coupon on the unpaid Face Amount of this Note,
commencing on the Issuance Date (the “ Interest
”). The Interest shall compound daily, pro rata for
partial periods.
Article 2
Collateral
Section 2.1
The Company does hereby agree to issue to
the Holder for use as Collateral thirty (30) signed Put Notices
consistent with the conditions set forth in Article 12. The
Collateral Put Notices shall be utilized only in the Event of
Default (as hereinafter defined). In the event the Holder uses the
Collateral in full, the Company shall immediately deliver to the
Holder additional Put Notices to the extent of the outstanding Face
Amount as requested by the Holder.
Section 2.2
Upon the completion of the Company's
obligation to the Holder of the Face Amount of this Note, the
Company will not be under any further obligation to complete
additional Puts. All remaining Put sheets shall be marked
“VOID” by the Holder and returned to the Company at the
Company’s request.
Section 2.3
The above collateral Put Notices come
into effect only in the Event of Default (as hereinafter defined).
The Company shall not be obligated to deliver any shares of its
common stock related to the collateral Put Notices unless an Event
of Default has occurred. The Company may, at its discretion, place
all such collateral Put Notices in escrow to be released in the
Event of Default pursuant to instructions by the
Company.
Article 3
Unpaid Amounts
Section 3.1
In the event that the Company has not
repaid the Face Amount by the Maturity Date (the “
Residual Amount ”), then as liquidated damages (the
“ Liquidated Damages ”), the Face Amount shall
be increased by ten percent (10.0%) as an initial penalty
and an additional two and one-half percent
(2.5%) per month (pro rata for partial periods), compounded daily,
for each month until the Face Amount is paid in full.
Further, if a Residual Amount remains at Maturity, it shall
constitute an Event of Default hereunder. The Parties acknowledge
that the Liquidated Damages are not interest under this Note and
shall not constitute a penalty.
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Article 4
Defaults and Remedies
Section 4.1
Events of Default.
An “ Event of Default
” occurs if any one of the following occur:
(a)
The Company does not make a Payment
within three (3) business days of a Payment Date, or a Residual
Amount on the Note exists on the Maturity Date;
(b)
The Company, pursuant to or within the
meaning of any Bankruptcy Law (as defined below): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as defined below) of the Company or for
its property; (iv) makes an assignment for the benefit of its
creditors; or (v) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that: (A) is for relief against
the Company in an involuntary case; (B) appoints a Custodian of the
Company or for its property; or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for
sixty (60) calendar days;
(c)
The Company’s $0.001 par value
common stock (the “Common Stock”) is suspended or is no
longer listed on any recognized exchange, including an electronic
over-the-counter bulletin board, in excess of two (2) consecutive
trading days (excluding suspensions of not more than one (1)
trading day resulting from business announcements by the
Company);
(d)
The registration statement for the shares
underlying the current Equity Line of Credit is not effective for
any reason;
(e)
The Company breaches a material term of
this Agreement or any of the Company’s representation or
warranties hereunder were false when made;
(f)
The Company fails to carry out Puts,
including any paperwork needed, in a timely manner;
(g)
An event of default occurs under any
agreement given as security for the obligations and liabilities
under this Note.
(h)
The occurrence of any event which is
described elsewhere in this Note as constituting an Event of
Default hereunder.
As used in
this Section 4.1 , the term “ Bankruptcy Law
” means Title 11 of the United States Code or any similar
federal or state law for the relief of debtors, and the term
“ Custodian ” means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy
Law.
Section 4.2
Remedies. Upon the occurrence of each and every Event of
Default, the Holder may seek any or all of the following remedies
to the extent of the Residual Amount:
(a)
The Holder may elect to execute the Puts
in an amount that will repay the Holder and fully enforce the
Holder’s rights under the Pledge Agreement and the Security
Agreement as
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well as the Secured Continuing Unconditional Guaranty
of even date herewith among the subsidiaries as outlined between
Company and the Holder (the “ Guaranty
”)
(b)
The Holder may increase the Face Amount
of the Note by ten percent (10.0%) as an initial penalty and an
additional two and one-half percent (2.5%) per month (pro rata for
partial periods), compounded daily, until such Event of Default is
cured (if capable of being cured) or this Note, together with all
interest thereon, is repaid in full (i.e., exercise the Liquidated
Damages option). The Parties acknowledge that the Liquidated
Damages are not interest under this Note and shall not constitute a
penalty.
(c)
The Holder may elect to stop any further
funding to the Company excluding the Equity Line of
Credit.
(d)
As more fully described herein, the
Holder may also do either (i) or (ii) below, but not both;
provided, however, that the Holder may only utilize (i) below in
the event of default pursuant to Section 4.1 and such default is
not cured by the Company within fifteen (15) business
days:
(i)
Switch the Residual Amount to a
three-year (“ Convertible Maturity Date ”),
eighteen percent (18%) interest bearing convertible debenture at a
floating rate discount of twenty-five percent (25%) to the
prevailing market price during conversion, and with such other
terms described hereinafter (the “ Convertible
Debenture ”). The Convertible Debenture shall be
considered closed (“ Convertible Closing Date ”)
as of the date of the Event of Default .
If the Holder chooses to convert the Residual Amount to
a Convertible Debenture, then the Company shall have ten (10)
business days after notice of default from the Holder (the “
Notice of Convertible Debenture ”) to file a
registration statement covering an amount of shares equal to three
hundred percent (300%) of the Residual Amount, plus interest
thereon and any Liquidated Damages due at such time. In the
event the Company does not file such registration statement within
such period of time, or such registration statement is not declared
by the Commission to be effective under the Securities Act within
sixty (60) business days of the Convertible Closing Date, then the
Residual Amount shall increase by five thousand dollars ($5,000)
per day. In the event the Company is given the option for
accelerated effectiveness of the registration statement, the
Company will cause such registration statement to be declared
effective as soon as reasonably practicable and will not take any
action to delay the registration to become effective. In the
event that the Company is given the option for accelerated
effectiveness of the registration statement, but chooses not to
cause such registration statement to be declared effective on such
accelerated basis, the Residual Amount shall increase by five
thousand dollars ($5,000) per day commencing on the earliest date
as of which such registration statement would have been declared to
be effective if subject to accelerated effectiveness.
(ii)
The Holder may increase the Payment
Amount described under Article 1 hereof to fulfill the
repayment of the Residual Amount. The Company
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shall provide full cooperation to the Holder in
directing funds owed to the Holder on any Put made by the Company
to the Holder. The Company agrees to diligently carry out the
terms outlined in the Equity Line for delivery of any such shares.
In the event the Company is not diligently fulfilling its
obligation to direct funds owed to the Holder from Puts to the
Holder, as reasonably determined by the Holder, the Holder may,
after giving the Company five (5) business days advance notice to
cure same, elect to increase the Face Amount of the Note by two and
one-half percent (2.5%) per day, compounded daily, in addition to
and on top of any additional remedies available to the Holder under
this Note.
Section 4.3
Conversion Privilege
(a)
In the event that a Convertible Debenture
is issued by the Company pursuant to Section 4.2(d)(i), the Holder
shall have the right to convert the Convertible Debenture into
shares of Common Stock at any time following the Convertible
Closing Date and before the close of business on the Convertible
Maturity Date. The number of shares of Common Stock issuable
upon the conversion of the Convertible Debenture shall be
determined pursuant to Section 4.4 hereof, but the number of
shares issuable shall be rounded up to the nearest whole
share.
(b)
In the event all or any portion of the
Convertible Debenture remains outstanding on the Convertible
Maturity Date (the “ Debenture Residual Amount
”), the unconverted portion of such Convertible Debenture
will automatically be converted into shares of Common Stock on such
date in the manner set forth in Section 4.4
hereof.
Section 4.4
Conversion Procedure
(a)
The Holder may elect to convert the
Residual Amount in whole or in part any time and from time to time
following the Convertible Closing Date. Such conversion shall
be effectuated by providing the Company, or its attorney, with that
portion of the Convertible Debenture to be converted together with
a facsimile or electronic mail of the signed notice of conversion
(the “ Notice of Conversion ”). The date
on which the Notice of Conversion is effective (“
Conversion Date ”) shall be deemed to be the date on
which the Holder has delivered to the Company a facsimile or
electronically mailed the Notice of Conversion (receipt being via a
confirmation of the time such facsimile or electronic mail to the
Company as provided by the Holder). The Holder can elect to
either reissue the Convertible Debenture, or continually convert
the remaining Residual Amount under the Debenture.
(b)
C ommon Stock to be
Issued.
Upon the conversion of the Convertible
Debenture by the Holder, the Company shall instruct its transfer
agent to issue stock certificates without restrictive legends or
stop transfer instructions, if, at that time, the aforementioned
registration statement described in Section 4.2 hereof has
been declared effective (or with proper restrictive legends if the
registration statement has not as yet been declared effective), in
specified denominations representing the number of shares of Common
Stock issuable upon such conversion. In the event that the
Convertible Debenture is deemed saleable under Rule 144 of the
Securities Act, the Company shall, upon a Notice of Conversion,
instruct the transfer agent to issue free trading certificates
without restrictive legends, subject to other applicable
securities
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laws. The Company is responsible to for all costs
associated with the issuance of the shares, including but not
limited to the opinion letter, overnight delivery of the
certificates and any other costs that arise. The Company shall act
as registrar of the Shares of Common Stock to be issued and shall
maintain an appropriate ledger containing the necessary information
with respect to each Convertible Debenture. The Company warrants
that no instructions have been given or will be given to the
transfer agent which limit, or otherwise prevent resale and that
the Common Stock shall otherwise be freely resold, except as may be
set forth herein or subject to applicable law.
(c)
Conversion Rate.
The Holder is entitled to convert
the Convertible Debenture Residual Amount, plus accrued interest
and penalties, anytime following the Convertible Closing Date, at
the lesser of either (i) seventy-five percent (75%) of the lowest
closing bid price during the fifteen (15) trading days immediately
preceding the Notice of Conversion or (ii) 100% of the lowest bid
price for the twenty (20) trading days immediately preceding the
Convertible Closing Date (“ Fixed Conversion Price
”). No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up to the nearest whole
share.
(d)
Nothing contained in the Convertible
Debenture shall be deemed to establish or require the Company to
pay interest to the Holder at a rate in excess of the maximum rate
permitted by applicable law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder
shall be automatically reduced to the maximum rate permitted under
the governing law and such excess shall be returned with reasonable
promptness by the Holder to the Company. In the event this
Section 4.4(d) applies, the Parties agree that the terms of
this Note shall remain in full force and effect except as is
necessary to make the interest rate comply with applicable
law.
(e)
The Holder shall be treated as a
shareholder of record on the date the Company is required to issue
the Common Stock to the Holder. If prior to the issuance of
stock certificates, the Holder designates another person as the
entity in the name of which the stock certificates requesting the
Convertible Debenture are to be issued, the Holder shall provide to
the Company evidence that either no tax shall be due and payable as
a result of such transfer or that the applicable tax has been paid
by the Holder or such person. If the Holder converts any part
of the Convertible Debentures, or will be, the Company shall issue
to the Holder a new Convertible Debenture equal to the unconverted
amount, immediately upon request by the Holder.
(f)
Within four (4) business days after
receipt of the documentation referred to in this Section, the
Company shall deliver a certificate for the number of shares of
Common Stock issuable upon the conversion. In the event the
Company does not make delivery of the Common Stock as instructed by
Holder within four (4) business days after the Conversion Date, the
Company shall pay to the Holder an additional one percent (1.0%)
per day in cash of the full dollar value of the Debenture Residual
Amount then remaining after conversion, compounded daily; provided,
however, that the Company shall not be liable for any amounts under
this Section 4.4(f) in the event that the delay in the issuance of
the Common Stock is as a result of actions by the Holder or outside
of the control of the Company.
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(g)
The Company shall at all times reserve
(or make alternative written arrangements for reservation or
contribution of shares) and have available all Common Stock
necessary to meet conversion of the Convertible Debentures by the
Holder of the entire amount of Convertible Debentures then
outstanding. If, at any time, the Holder submits a Notice of
Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock (or alternative shares of Common
Stock as may be contributed by stockholders of the Company)
available to effect, in full, a conversion of the Convertible
Debentures (a “ Conversion Default ,” the date
of such default being referred to herein as the “
Conversion Default Date ”), the Company shall issue to
the Holder all of the shares of Common Stock which are available.
Any Convertible Debentures, or any portion thereof, which
cannot be converted due to the Company’s lack of sufficient
authorized common stock (the “ Unconverted Debentures
”), may be deemed null and void upon written notice sent by
the Holder to the Company. The Co
