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EXHIBIT 4.2

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

OF THE

SERIES D CONVERTIBLE PREFERRED STOCK

OF

DIRT MOTOR SPORTS, INC.

     The undersigned, the Chief Executive Officer of Dirt Motor Sports, Inc., a Delaware
corporation (the “Company”), in accordance with the provisions of the Delaware General Corporation
Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Company, the following resolution creating a series of
Series D Convertible Preferred Stock, was duly adopted on May ___, 2006:

     RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of
Directors of the Company by provisions of the Certificate of Incorporation of the Company (the
“Certificate of Incorporation”), there hereby is created out of the shares of Preferred Stock, par
value $.01 per share, of the Company authorized in Article IV of the Certificate of Incorporation
(the “Preferred Stock”), a series of Preferred Stock of the Company, to be named “Series D
Convertible Preferred Stock,” consisting of Twenty Thousand (20,000) shares, which series shall
have the following designations, powers, preferences and relative and other special rights and the
following qualifications, limitations and restrictions:

     1. Designation and Rank. The designation of such series of the Preferred Stock shall
be the Series D Convertible Preferred Stock, par value $.01 per share (the “Series D Preferred
Stock”). The maximum number of shares of Series D Preferred Stock shall be Twenty Thousand
(20,000) shares. The Series D Preferred Stock shall rank pari passu with shares of the Company’s
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock and shall rank senior
to the Company’s common stock, par value $.0001 per share (the “Common Stock”), and to all other
classes and series of equity securities of the Company which by their terms do not rank senior to
the Series D Preferred Stock (“Junior Stock”). The Series D Preferred Stock shall be subordinate
to and rank junior to all indebtedness of the Company now or hereafter outstanding.

     2.  Dividends.

          (a) Payment of Dividends. Commencing twelve (12) months following the date of the
initial issuance (the “Issuance Date”) of the Series D Preferred Stock and subject to Section
5(c)(ii) hereof, the holders of record of shares of Series D Preferred Stock shall be entitled to
receive, out of any assets at the time legally available therefor and as declared by the Board of
Directors, dividends at the rate of four percent (4%) of the stated Liquidation Preference Amount
(as defined in Section 4 hereof) per share per annum and increasing to six percent (6%) of the
stated Liquidation Preference Amount per share per annum commencing twenty-four (24) months
following the Issuance Date (the “Dividend Payment”), and no more, payable semi-annually on the
first business day of June and December of each year. The Company shall pay dividends in
registered shares of Common Stock unless the Company gives notice to the Holders no less than five
(5) trading days prior to the date the Dividend Payment is

 

 

due that it elects to make such Dividend Payment in cash. At any time the Company is required
to or has elected to pay any dividend in registered shares of Common Stock, the number of
registered shares of Common Stock to be issued to the holder shall be an amount equal to the
quotient of (i) the Dividend Payment divided by (ii) ninety percent (90%) of the average of the
Closing Bid Prices for the twenty (20) trading days immediately preceding the date the Dividend
Payment is due. In the case of shares of Series D Preferred Stock outstanding for less than a full
year, dividends shall be pro rated based on the portion of each year during which such shares are
outstanding. Dividends on the Series D Preferred Stock shall be cumulative, shall accrue and be
payable semi-annually. Dividends on the Series D Preferred Stock are prior and in preference to
any declaration or payment of any distribution (as defined below) on any outstanding shares of
Junior Stock. Such dividends shall accrue on each share of Series D Preferred Stock from day to
day whether or not earned or declared so that if such dividends with respect to any previous
dividend period at the rate provided for herein have not been paid on, or declared and set apart
for, all shares of Series D Preferred Stock at the time outstanding, the deficiency shall be fully
paid on, or declared and set apart for, such shares on a pro rata basis with all other equity
securities of the Company ranking on a parity with the Series D Preferred Stock as to the payment
of dividends before any distribution shall be paid on, or declared and set apart for Junior Stock.
Notwithstanding the foregoing, the Company shall be permitted to issue registered shares of Common
Stock pursuant to this Section 2(a) only if (1) the Registration Statement (as defined in Section
5(c)(ii) hereof) is effective and has been effective, without lapse or suspension of any kind, for
a period sixty (60) consecutive calendar days, or the shares of Common Stock into which the Series
D Preferred Stock can be converted may be offered for sale to the public pursuant to Rule 144(k)
(“Rule 144(k)”) under the Securities Act of 1933, as amended, (2) trading in the Common Stock shall
not have been suspended by the Securities and Exchange Commission, the OTC Bulletin Board or The
Nasdaq Capital Market (or other exchange or market on which the Common Stock is trading) at any
time during the sixty (60) day period immediately prior to the applicable data or determination,
and (3) the Company is in material compliance with the terms and conditions of this Certificate of
Designation and the other Transaction Documents (as defined in the Purchase Agreement).
Notwithstanding the foregoing to the contrary, if for any reason the Company cannot issue
registered shares of Common Stock to a holder as required under this Section 2(a), the Company
shall promptly notify the Holder of such determination but in no event later than five (5) trading
days prior to the date the Dividend Payment is due and shall pay such dividends in cash.

          (b) So long as any shares of Series D Preferred Stock are outstanding, the Company shall not
declare, pay or set apart for payment any dividend or make any distribution on any Junior Stock
(other than dividends or distributions payable in additional shares of Junior Stock), unless at the
time of such dividend or distribution the Company shall have paid all accrued and unpaid dividends
on the outstanding shares of Series D Preferred Stock.

          (c) In the event of a dissolution, liquidation or winding up of the Company pursuant to
Section 4, all accrued and unpaid dividends on the Series D Preferred Stock shall be payable on the
date of payment of the preferential amount to the holders of Series D Preferred Stock. In the event
of (i) a mandatory redemption pursuant to Section 9 or (ii) a redemption upon the occurrence of a
Triggering Event (as defined in Section 8(d)), all accrued and unpaid dividends on the Series D
Preferred Stock shall be payable on the date of such redemption. In

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the event of a voluntary conversion pursuant to Section 5(a), all accrued and unpaid dividends
on the Series D Preferred Stock being converted shall be payable on the Voluntary Conversion Date
(as defined in Section 5(b)(i)).

          (d) For purposes hereof, unless the context otherwise requires, “distribution” shall mean the
transfer of cash or property without consideration, whether by way of dividend or otherwise,
payable other than in shares of Common Stock or other equity securities of the Company, or the
purchase or redemption of shares of the Company (other than redemptions set forth in Section 8
below or repurchases of Common Stock held by employees or consultants of the Company upon
termination of their employment or services pursuant to agreements providing for such repurchase or
upon the cashless exercise of options held by employees or consultants) for cash or property.

     3. Voting Rights.

          (a) Class Voting Rights. The Series D Preferred Stock shall have the following class
voting rights (in addition to the voting rights set forth in Section 3(b) hereof). So long as any
shares of the Series D Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least seventy-five percent (75%) of the shares of
the Series D Preferred Stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting, in which the holders of the Series D Preferred Stock vote separately as a
class: (i) amend, alter or repeal the provisions of the Series D Preferred Stock, whether by
merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or
voting power of the Series D Preferred Stock; provided, however, that any creation
and issuance of another series of Junior Stock shall not be deemed to adversely affect such rights,
preferences, privileges or voting powers; (ii) repurchase, redeem or pay dividends on, shares of
Common Stock or any other shares of the Company’s Junior Stock; (iii) amend the Certificate of
Incorporation or By-Laws of the Company so as to affect materially and adversely any right,
preference, privilege or voting power of the Series D Preferred Stock; provided,
however, that any creation and issuance of another series of Junior Stock shall not be
deemed to adversely affect such rights, preferences, privileges or voting powers; (iv) effect any
distribution with respect to Junior Stock; (v) reclassify the Company’s outstanding securities;
(vi) voluntarily file for bankruptcy, liquidate the Company’s assets or make an assignment for the
benefit of the Company’s creditors; or (vii) change the nature of the Company’s business.
Notwithstanding the foregoing to the contrary, the Company shall not issue any securities ranking
pari passu or senior to the Series D Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up without the affirmative vote or consent of the holders of at
least eighty percent (80%) of the shares of the Series D Preferred Stock outstanding at the time.

          (b) General Voting Rights. Except with respect to transactions upon which the Series
D Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above
and except as otherwise required by Delaware law, the Series D Preferred Stock shall have no voting
rights. The Common Stock into which the Series D Preferred Stock is convertible shall, upon
issuance, have all of the same voting rights as other issued and outstanding Common Stock of the
Company.

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     4. Liquidation Preference.

          (a) In the event of the liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or involuntary, the holders of shares of the Series D Preferred Stock then
outstanding shall be entitled to receive, out of the assets of the Company available for
distribution to its stockholders, an amount equal to $3,000 per share, subject to adjustment for
stock splits or stock dividends (the “Liquidation Preference Amount”), of the Series D Preferred
Stock plus any accrued and unpaid dividends before any payment shall be made or any assets
distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the
Company are not sufficient to pay in full the Liquidation Preference Amount plus any accrued and
unpaid dividends payable to the holders of outstanding shares of the Series D Preferred Stock and
any series of preferred stock or any other class of stock on a parity, as to rights on liquidation,
dissolution or winding up, with the Series D Preferred Stock, then all of said assets will be
distributed among the holders of the Series D Preferred Stock and the other classes of stock on a
parity with the Series D Preferred Stock, if any, ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in full. The
liquidation payment with respect to each outstanding fractional share of Series D Preferred Stock
shall be equal to a ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series D Preferred Stock. All payments for which this Section 4(a) provides
shall be in cash, property (valued at its fair market value as determined by an independent
appraiser reasonably acceptable to the holders of a majority of the Series D Preferred Stock) or a
combination thereof; provided, however, that no cash shall be paid to holders of
Junior Stock unless each holder of the outstanding shares of Series D Preferred Stock has been paid
in cash the full Liquidation Preference Amount plus any accrued and unpaid dividends to which such
holder is entitled as provided herein. After payment of the full Liquidation Preference Amount
plus any accrued and unpaid dividends to which each holder is entitled, such holders of shares of
Series D Preferred Stock will not be entitled to any further participation as such in any
distribution of the assets of the Company.

          (b) A consolidation or merger of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the Company, or the
effectuation by the Company of a transaction or series of related transactions in which more than
50% of the voting shares of the Company is disposed of or conveyed, shall not be deemed to be a
liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the
merger or consolidation of the Company with or into another corporation, the Series D Preferred
Stock shall maintain its relative powers, designations and preferences provided for herein and no
merger shall result inconsistent therewith.

          (c) Written notice of any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, stating a payment date and the place where the distributable amounts
shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior
to the payment date stated therein, to the holders of record of the Series D Preferred Stock at
their respective addresses as the same shall appear on the books of the Company.

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     5. Conversion. The holder of Series D Preferred Stock shall have the following
conversion rights (the “Conversion Rights”):

          (a) Right to Convert. At any time on or after the Issuance Date, the holder of any
such shares of Series D Preferred Stock may, at such holder’s option, subject to the limitations
set forth in Section 7 herein, elect to convert (a “Voluntary Conversion”) all or any portion of
the shares of Series D Preferred Stock held by such person into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount
of the shares of Series D Preferred Stock being converted plus any accrued and unpaid dividends
divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the
date of the delivery by such holder of its notice of election to convert. In the event of a notice
of redemption of any shares of Series D Preferred Stock pursuant to Section 8 hereof, the
Conversion Rights of the shares designated for redemption shall terminate at the close of business
on the date fixed for redemption, unless the redemption price is not paid on such redemption date,
in which case the Conversion Rights for such shares shall continue until such price is paid in
full. In the event of a liquidation, dissolution or winding up of the Company, the Conversion
Rights shall terminate at the close of business on the date fixed for the payment of any such
amounts distributable on such event to the holders of Series D Preferred Stock. In the event of
such a redemption or liquidation, dissolution or winding up, the Company shall provide to each
holder of shares of Series D Preferred Stock notice of such redemption or liquidation, dissolution
or winding up, which notice shall (i) be sent at least fifteen (15) days prior to the termination
of the Conversion Rights and (ii) state the amount per share of Series D Preferred Stock that will
be paid or distributed on such redemption or liquidation, dissolution or winding up, as the case
may be.

          (b) Mechanics of Voluntary Conversion. The Voluntary Conversion of Series D Preferred
Stock shall be conducted in the following manner:

               (i) Holder’s Delivery Requirements. To convert Series D Preferred Stock into full
shares of Common Stock on any date (the “Conversion Date”), the holder thereof shall
transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time
on such date, a copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the “Conversion Notice”), to the Company at (405) 360-5354, Attention:
Chief Financial Officer. The holders of Series D Preferred Stock shall deliver the original
certificates representing the shares of Series D Preferred Stock being converted, or an
indemnification undertaking with respect to such shares in the case of their loss, theft or
destruction (the “Preferred Stock Certificates”), at such time that a holder’s shares of
Series D Preferred Stock are fully converted or redeemed. With respect to partial conversions of
the Series D Preferred Stock, the Company shall keep written records for each holder of the number
of shares of Series D Preferred Stock converted as of each Conversion Date.

               (ii) Company’s Response. Upon receipt by the Company of a facsimile copy of a fully
executed Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of
receipt of such Conversion Notice to such holder. The Company or its designated transfer agent
(the “Transfer Agent”), as applicable, shall, within three (3) trading days following the
date of receipt by the Company of the facsimile copy of the fully executed

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Conversion Notice, issue and deliver to the Depository Trust Company (“DTC”) account
on the Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as
specified in the Conversion Notice, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled.

               (iii) Dispute Resolution. In the case of a dispute as to the arithmetic calculation
of the number of shares of Common Stock to be issued upon conversion, the Company shall cause its
Transfer Agent to promptly issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as
possible, but in no event later than two (2) business days after receipt of such holder’s
Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic
calculation of the number of shares of Common Stock to be issued upon such conversion within one
(1) business day of such disputed arithmetic calculation being submitted to the holder, then the
Company shall within one (1) business day submit via facsimile the disputed arithmetic calculation
of the number of shares of Common Stock to be issued upon such conversion to the Company’s
independent, outside accountant. The Company shall cause the accountant to perform the
calculations and notify the Company and the holder of the results no later than seventy-two (72)
hours from the time it receives the disputed calculations. Such accountant’s calculation shall be
binding upon all parties absent manifest error. The reasonable expenses of such accountant in
making such determination shall be paid by the Company, in the event the holder’s calculation was
correct, or by the holder, in the event the Company’s calculation was correct, or equally by the
Company and the holder in the event that neither the Company’s or the holder’s calculation was
correct. The period of time in which the Company is required to effect conversions or redemptions
under this Certificate of Designation shall be tolled with respect to the subject conversion or
redemption pending resolution of any dispute by the Company made in good faith and in accordance
with this Section 5(b)(iii).

               (iv) Record Holder. The person or persons entitled to receive the shares of Common
Stock issuable upon a conversion of the Series D Preferred Stock shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on the Conversion Date.

               (v) Company’s Failure to Timely Convert. If within three (3) business days of the
Company’s receipt of an executed copy of the Conversion Notice (the “Share Delivery Period”) the
Transfer Agent shall fail to issue and deliver to a holder the number of shares of Common Stock to
which such holder is entitled upon such holder’s conversion of the Series D Preferred Stock (a
“Conversion Failure”), in addition to all other available remedies which such holder may pursue
hereunder and under the Series D Convertible Preferred Stock Purchase Agreement (the “Purchase
Agreement”) among the Company and the initial holders of the Series D Preferred Stock (including
indemnification pursuant to Section 6 thereof), the Company shall pay additional damages to such
holder on each business day after such third (3rd) business day that such conversion is
not timely effected in an amount equal 0.5% of the product of (A) the number of shares of Common
Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such
holder is entitled and (B) the Closing Bid Price (as defined in Section 5(c)(iv) below) of the
Common Stock on the last possible date which the Company could have issued such Common Stock to
such holder without violating Section 5(b)(ii). If the

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Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5)
business days of the date incurred, then such payment shall bear interest at the rate of 2.0% per
month (pro rated for partial months) until such payments are made.

               (vi) Buy-In Rights. In addition to any other rights available to the holders of
Series D Preferred Stock, if the Company fails to cause its Transfer Agent to transmit to the
holder a certificate or certificates representing the shares of Common Stock issuable upon
conversion of the Series D Preferred Stock on or before the Delivery Date, and if after such date
the holder is required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the holder of the shares of Common
Stock issuable upon conversion of Series D Preferred Stock which the holder anticipated receiving
upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the holder the
amount by which (x) the holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of Series D Preferred Stock that the
Company was required to deliver to the holder in connection with the conversion at issue times (B)
the price at which the sell order giving rise to such purchase obligation was executed, and (2) at
the option of the holder, either reinstate the shares of Series D Preferred Stock and equivalent
number of shares of Common Stock for which such conversion was not honored or deliver to the holder
the number of shares of Common Stock that would have been issued had the Company timely complied
with its conversion and delivery obligations hereunder. For example, if the holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such
purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company
shall be required to pay to the holder $1,000. The holder shall provide the Company written notice
indicating the amounts payable to the holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a
holder’s right to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing shares of Common Stock
upon conversion of the Series D Preferred Stock as required pursuant to the terms hereof.

          (c) Mandatory Conversion.

               (i) The number of outstanding shares of Series D Preferred Stock referred to below in Section
5(c)(ii) on the Mandatory Conversion Date shall, automatically and without any action on the part
of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the Liquidation Preference Amount of the number of shares of Series D
Preferred Stock being converted on the Mandatory Conversion Date plus all accrued but unpaid
dividends divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date.

               (ii) As used herein, “Mandatory Conversion Date” shall mean, subject to the provisions of
Section 7 hereof, the date that the Closing Bid Price (as defined below) of the Common Stock is
equal to or exceeds $7.50 (as may be adjusted for any stock splits or
combinations of the Common Stock) for a period of ten (10) consecutive trading days;
provided,

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that, (A) the first trading day of such ten (10) trading day period shall
commence at least one hundred eighty (180) days following the effective date (the “Effective Date”)
of the registration statement (the “Registration Statement”) providing for the resale of the shares
of Common Stock issuable upon conversion of the Series D Preferred Stock, and (B) the dollar
trading volume of the Common Stock for each of such ten (10) trading days exceeds $1,000,000; and
provided further, that, on the Mandatory Conversion Date, (1) the
Registration Statement is effective and has been effective, without lapse or suspension of any
kind, for a period sixty (60) consecutive calendar days, or the shares of Common Stock into which
the Series D Preferred Stock can be converted may be offered for sale to the public pursuant to
Rule 144(k) under the Securities Act of 1933, as amended, (2) trading in the Common Stock shall not
have been suspended by the Securities and Exchange Commission, the OTC Bulletin Board or The Nasdaq
Capital Market (or other exchange or market on which the Common Stock is trading), and (3) the
Company is in material compliance with the terms and conditions of this Certificate of Designation
and the other Transaction Documents (as defined in the Purchase Agreement). Notwithstanding the
foregoing, the Mandatory Conversion Date shall not occur for as long as (i) a Triggering Event (as
defined in Section 8(d) hereof) shall have occurred and be continuing, or (ii) any event shall have
occurred and be continuing which with the passage of time and the failure to cure would result in a
Triggering Event. In the event that a holder of Series D Preferred Stock may not convert all of
its shares of Series D Preferred Stock upon a Mandatory Conversion because of the restrictions
contained in Section 7 hereof, such number of shares of Series D Preferred Stock that may not be
converted because of the restrictions contained in Section 7 hereof shall remain outstanding, shall
not accrue any dividends pursuant to Section 2 hereof and shall automatically convert into Common
Stock when such holder’s beneficial ownership falls below 4.99% or 9.99%, as applicable. The
Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this
Certificate of Designation as the “Conversion Date.”

               (iii) In the event that the Company completes a bona fide underwritten public offering of the
Common Stock resulting in gross proceeds of at least $20,000,000 at a price per share of at least
$4.50, subject to the approval of the lead underwriter, (A) all of the outstanding shares of Series
D Preferred Stock shall automatically and without any action on the part of a holder, subject to
Section 7 hereof, convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the Liquidation Preference Amount per share of Series D Preferred
Stock outstanding at such time divided by (ii) the Conversion Price and (B) all accrued and unpaid
dividends on the Series D Preferred Stock shall automatically and without any action on the part of
the holders, subject to Section 7(b) hereof, convert into a number of fully paid and nonassessable
shares of Common Stock as determined in accordance with Section 2(a) hereof.

               (iv) In the event that a holder is restricted from converting its shares of Series D Preferred
Stock and any accrued but unpaid dividends upon the consummation of a bona fide underwritten public
offering referred to above because of the restrictions contained in Section 7 hereof, such holder
shall exchange its shares of Series D Preferred Stock that cannot be converted because of such
restriction for a number of shares of a new series of convertible preferred stock of the Company
(the “Mandatory Conversion Preferred Stock”). The Mandatory Conversion Preferred Stock
issued in exchange for such shares of Series D Preferred Stock shall
pay no dividends, shall have a de-minimus liquidation preference amount and shall convert into

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Common Stock at the Conversion Price when such holder’s beneficial ownership percentage of Common
Stock falls below 4.99% or 9.99%, as applicable. In the event that an exchange pursuant to Section
3(a)(9) of the Securities Exchange Act of 1934, as amended, thereunder is unavailable, upon the
first occurrence of a Mandatory Conversion Date in which the Company is required to issue shares of
Mandatory Conversion Preferred Stock pursuant to this Section 5(c), the Company shall file a
registration statement on Form SB-2 with the Securities and Exchange Commission within thirty (30)
days of such Mandatory Conversion Date providing for the resale of the shares of Common Stock
issuable upon conversion of the Mandatory Conversion Preferred Stock. The Company shall use its
reasonable best efforts to cause such registration statement to become effective within ninety (90)
days of such Mandatory Conversion Date and to remain effective until such date as is the earlier of
(i) the date when all shares of Common Stock covered by such registration statement have been sold
(ii) the date when all shares of Common Stock may be sold without any volume restrictions pursuant
to Rule 144(e) under the Securities Act or (iii) the date on which the shares of Common Stock may
be sold without any restriction pursuant to Rule 144(k) under the Securities Act.

               (v) The term “Closing Bid Price” shall mean, for any security as of any date, the last closing
bid price of such security on the OTC Bulletin Board, Nasdaq Capital Market or other principal
exchange on which such security is traded as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in the “pink sheets”
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of such security on such
date shall be the fair market value as mutually determined by the Company and the holders of a
majority of the outstanding shares of Series D Preferred Stock.

               (vi) On the Mandatory Conversion Date, the outstanding shares of Series D Preferred Stock
shall be converted automatically without any further action by the holders of such shares and
whether or not the Preferred Stock Certificates representing such shares are surrendered to the
Company or its Transfer Agent. Upon a Mandatory Conversion, each holder of Series D Preferred
Stock shall use its best efforts to cause the Preferred Stock Certificates to be delivered to the
Company or in the event that such Preferred Stock Certificates have been lost, stolen, or
destroyed, such holder shall execute an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. Upon the occurrence of a Mandatory
Conversion of the Series D Preferred Stock pursuant to this Section 5, the Company shall cause its
Transfer Agent to deliver the shares of Common Stock issuable upon such conversion (in the same
manner set forth in Section 5(b)(ii)) to the holder within three (3) trading days of the Mandatory
Conversion Date.

          (d) Conversion Price.

               (i) The term “Conversion Price” shall mean $3.00 per share, subject to adjustment under
Section 5(e) hereof. Notwithstanding any adjustment hereunder, at no time
shall the Conversion Price be greater than $3.00 per share except if it is adjusted pursuant
to Section 5(e)(i).

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               (ii) Notwithstanding the foregoing to the contrary, if during any period (a “Black-out
Period”), a holder of Series D Preferred Stock is unable to trade any Common Stock issued or
issuable upon conversion of the Series D Preferred Stock immediately due to the postponement of
filing or delay or suspension of effectiveness of the Registration Statement or because the Company
has otherwise informed such holder of Series D Preferred Stock that an existing prospectus cannot
be used at that time in the sale or transfer of such Common Stock (provided that such postponement,
delay, suspension or fact that the prospectus cannot be used is not due to factors solely within
the control of the holder of Series D Preferred Stock or due to the Company exercising its rights
under Section 3(n) of the Registration Rights Agreement (as defined in the Purchase Agreement)),
such holder of Series D Preferred Stock shall have the option but not the obligation on any
Conversion Date within ten (10) trading days following the expiration of the Black-out Period of
using the Conversion Price applicable on such Conversion Date or any Conversion Price selected by
such holder of Series D Preferred Stock that would have been applicable had such Conversion Date
been at any earlier time during the Black-out Period or within the ten (10) trading days
thereafter.

          (e) Adjustments of Conversion Price.

               (i) Adjustments for Stock Splits and Combinations. If the Company shall at any time
or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock,
the Conversion Price shall be proportionately decreased. If the Company shall at any time or from
time to time after the Issuance Date, combine the outstanding shares of Common Stock, the
Conversion Price shall be proportionately increased. Any adjustments under this Section 5(e)(i)
shall be effective at the close of business on the date the stock split or combination becomes
effective.

               (ii) Adjustments for Certain Dividends and Distributions. If the Company shall at any
time or from time to time after the Issuance Date, make or issue or set a record date for the
determination of holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased
as of the time of such issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying the Conversion Price then in effect by a
fraction:

                    (1) the numerator of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of business on such record
date; and

                    (2) the denominator of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment of such dividend or
distribution.

               (iii) Adjustment for Other Dividends and Distributions. If the Company shall at any
time or from time to time after the Issuance Date, make or issue or set a

10

 

record date for the
determination of holders of Common Stock entitled to receive a dividend or other distribution
payable in securities of the Company other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and provision shall be made
(by adjustments of the Conversion Price or otherwise) so that the holders of Series D Preferred
Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would have received had
their Series D Preferred Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this Section 5(e)(iii)
with respect to the rights of the holders of the Series D Preferred Stock; provided,
however, that if such record date shall have been fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such dividends or
distributions; and provided, further, that no such adjustment shall be made if the
holders of Series D Preferred Stock simultaneously receive (i) a dividend or other distribution of
shares of Common Stock in a number equal to the number of shares of Common Stock as they would have
received if all outstanding shares of Series D Preferred Stock had been converted into Common Stock
on the date of such event or (ii) a dividend or other distribution of shares of Series D Preferred
Stock which are convertible, as of the date of such event, into such number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being issued with respect to
each share of Common Stock in such dividend or distribution.

               (iv) Adjustments for Reclassification, Exchange or Substitution. If the Common Stock
issuable upon conversion of the Series D Preferred Stock at any time or from time to time after the
Issuance Date shall be changed to the same or different number of shares of any class or classes of
stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and
(iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section
5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made
and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the
holder of each share of Series D Preferred Stock shall have the right thereafter to convert such
share of Series D Preferred Stock into the kind and amount of shares of stock and other securities
receivable upon reclassification, exchange, substitution or other change, by holders of the number
of shares of Common Stock into which such share of Series D Preferred Stock might have been
converted immediately prior to such reclassification, exchange, substitution or other change, all
subject to further adjustment as provided herein.

               (v) Adjustments for Reorganization, Merger, Consolidation or Sales of Assets.
If at any time or from time to time after the Issuance Date there shall be a capital reorganization
of the Company (other than by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the
Company with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over 50% of the outstanding voting
securities of the merged or consolidated entity, immediately after such merger or consolidation,

11

 

or
the sale of all or substantially all of the Company’s properties or assets to any other person (an
“Organic Change”), then as a part of such Organic Change an appropriate revision to the Conversion
Price shall be made if necessary and provision shall be made if necessary (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of Series D Preferred Stock shall
have the right thereafter to convert such share of Series D Preferred Stock into the kind and
amount of shares of stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 5(e)(v) with respect to the rights of the
holders of the Series D Preferred Stock after the Organic Change to the end that the provisions of
this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the
number of shares of stock or other securities deliverable upon conversion of the Series D Preferred
Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

               (vi) Adjustments for Issuance of Additional Shares of Common Stock.

               (A) In the event the Company, shall, at any time, from time to time, issue or sell any
additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i)
through (v) of this Section 5(e) or pursuant to Common Stock Equivalents (hereafter defined)
granted or issued prior to the Issuance Date) (the “Additional Shares of Common Stock”), at a price
per share less than the Conversion Price, or without consideration, the Conversion Price then in
effect upon each such issuance shall be adjusted to that price (rounded to the nearest cent)
determined by multiplying the Conversion Price by a fraction:

               (1) the numerator of which shall be equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock
plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which
the aggregate consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the then Conversion Price, and

               (2) the denominator of which shall be equal to the number of shares of Common Stock
outstanding immediately after the issuance of such Additional Shares of Common Stock.

No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of Section
5(e)(vi) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise
of any conversion or exchange rights in any Common Stock Equivalents (as defined below), if any
such adjustment shall previously have been made upon the issuance of such warrants or other rights
or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other
rights therefore) pursuant to Section 5(e)(vii).

               (vii) Issuance of Common Stock Equivalents. If the Company, at any time after the
Issuance Date, shall issue any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (“Convertible Securities”), other than the Series D

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Preferred Stock, or
any rights or warrants or options to purchase any such Common Stock or Convertible Securities,
shall be issued or sold (collectively, the “Common Stock Equivalents”) and the aggregate of the
price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent, plus the consideration received by the Company for issuance of such
Common Stock Equivalent divided by the number of shares of Common Stock issuable pursuant to such
Common Stock Equivalent (the “Aggregate Per Common Share Price”) shall be less than the Conversion
Price, or if, after any such issuance of Common Stock Equivalents, the price per share for which
Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price
as so amended or adjusted shall cause the Aggregate Per Common Share Price to be less than
Conversion Price in effect at the time of such amendment or adjustment, then the Conversion Price
then in effect shall be adjusted pursuant to Section (5)(e)(vi) above assuming that all Additional
Shares of Common Stock have been issued pursuant to the Convertible Securities or Common Stock
Equivalents for a purchase price equal to the Aggregate Per Common Share Price. No adjustment of
the Conversion Price shall be made under this subsection (vii) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other subscription or purchase
rights therefore, if any adjustment shall previously have been made to the exercise price of such
warrants then in effect upon the issuance of such warrants or other rights pursuant to this
subsection (vii). No adjustment shall be made to the Conversion Price upon the issuance of Common
Stock pursuant to the exercise, conversion or exchange of any Convertible Security or Common Stock
Equivalent where an adjustment to the Conversion Price was made as a result of the issuance or
purchase of any Convertible Security or Common Stock Equivalent.

               (viii) Consideration for Stock. In case any shares of Common Stock or Convertible
Securities other than the Series D Preferred Stock, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or sold:

                    (1) in connection with any merger or consolidation in which the Company is the surviving
corporation (other than any consolidation or merger in which the previously outstanding shares of
Common Stock of the Company shall be changed to or exchanged for the stock or other securities of
another corporation), the amount of consideration therefore shall be deemed to be the fair value,
as jointly determined reasonably and in good faith by the Board of Directors of the Company and the
holders of the Series D Preferred Stock, of such portion of the assets and business of the
nonsurviving corporation as such Board and holders of the Series D Preferred Stock may jointly
determine to be attributable to such shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be; or

                    (2) in the event of any consolidation or merger of the Company in which the Company is not the
surviving corporation, in each case not resulting in a change of control (as defined in Section
5A), or in which the previously outstanding shares of Common Stock of the Company shall be changed
into or exchanged for the stock or other securities of another corporation, or in the event of any
sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for stock or securities or other property of the
other corporation computed on the basis of the actual exchange ratio on which the transaction

13

 

was
predicated, and for a consideration equal to the fair market value on the date of such transaction
of all such stock or securities or other property of the other corporation. If any such
calculation results in adjustment of the applicable Conversion Price, or the number of shares of
Common Stock issuable upon conversion of the Series D Preferred Stock, the determination of the
applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the
Series D Preferred Stock immediately prior to such merger, consolidation or sale, shall be made
after giving effect to such adjustment of the number of shares of Common Stock issuable upon
conversion of the Series D Preferred Stock. In the event any consideration received by the Company
for any securities consists of property other than cash, the fair market value thereof at the time
of issuance or as otherwise applicable shall be as determined in good faith by the Board of
Directors of the Company. In the event Common Stock is issued with other shares or securities or
other assets of the Company for consideration which covers both, the consideration computed as
provided in this Section (5)(e)(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Company.

               (ix) Record Date. In case the Company shall take record of the holders of its Common
Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common
Stock shall be deemed to be such record date.

               (x) Certain Issues Excepted. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment to the Conversion Price upon (i) the Company’s
issuance of any Additional Shares of Common Stock in connection with an acquisition of the Company,
(ii) the Company’s issuance of Additional Shares of Common Stock pursuant to a bona fide firm
underwritten public offering of the Company’s securities, (iii) any issuances of warrants issued
pursuant to the Purchase Agreement, (iv) securities issued pursuant to the conversion or exercise
of convertible or exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such
securities are not amended to lower such price and/or adversely affect the holders), (v) any
warrants issued to the placement agent for the transactions contemplated by the Purchase Agreement
or in connection with other financial services rendered to the Company, (vi) the payment of any
dividends on the Series D Preferred Stock, (vii) the Company’s issuance of Additional Shares of
Common Stock in connection with strategic license agreements and other partnering arrangements so
long as such issuances are not for the purpose of raising capital and the Company has received the
prior written consent of the holders of the shares of the Series D Preferred Stock outstanding at
such time, and (viii) the Company’s issuance of Common Stock or the issuance or grants of options
to purchase Common Stock pursuant to the Company’s stock option plans and employee stock purchase
plans outstanding on the date hereof and which have been approved by the Board of Directors of the
Company.

          (f) No Impairment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith, assist in the carrying out of all the provisions of
this

14

 

Section 5 and in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series D Preferred Stock against impairment.

          (g) Certificates as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion
of the Series D Preferred Stock pursuant to this Section 5, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of such Series D Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon written request of the holder of such affected Series D Preferred Stock, at any
time, furnish or cause to be furnished to such holder a like certificate setting forth such
adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares
of Common Stock and the amount, if any, of other securities or property which at the time would be
received upon the conversion of a share of such Series D Preferred Stock. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent of such adjusted amount.

          (h) Issue Taxes. The Company shall pay any and all issue and other taxes, excluding
federal, state or local income taxes, that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series D Preferred Stock pursuant thereto;
provided, however, that the Company shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection with any such conversion.

          (i) Notices. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by facsimile or three (3) business days following
being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed
to the holder of record at its address appearing on the books of the Company. The Company will
give written notice to each holder of Series D Preferred Stock at least twenty (20) days prior to
the date on which the Company closes its books or takes a record (I) with respect to any dividend
or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change,
dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder
prior to such information being made known to the public. The Company will also give written
notice to each holder of Series D Preferred Stock at least twenty (20) days prior to the date on
which any Organic Change, dissolution, liquidation or winding-up will take place and in no event
shall such notice be provided to such holder prior to such information being made known to the
public.

          (j) Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of the Series D Preferred Stock. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay cash equal to the product of such
fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five
(5) consecutive trading immediately preceding the Voluntary Conversion Date or the Mandatory
Conversion Date, as applicable.

15

 

          (k) Reservation of Common Stock. The Company shall, so long as any shares of Series D
Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, a
number of shares of Common Stock equal to at least one hundred twenty percent (120%) of the number
of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all
of the Series D Preferred Stock then outstanding without regard to any limitations on conversion.
The initial number of shares of Common Stock reserved for conversions of the Series D Preferred
Stock and any increase in the number of shares so reserved shall be allocated pro rata among the
holders of the Series D Preferred Stock based on the number of shares of Series D Preferred Stock
held by each holder of record at the time of issuance of the Series D Preferred Stock or increase
in the number of reserved shares, as the case may be. In the event a holder shall sell or
otherwise transfer any of such holder’s shares of Series D Preferred Stock, each transferee shall
be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity
which does not hold any shares of Series D Preferred Stock shall be allocated to the remaining
holders of Series D Preferred Stock, pro rata based on the number of shares of Series D Preferred
Stock then held by such holder.

          (l) Retirement of Series D Preferred Stock. Conversion of Series D Preferred Stock
shall be deemed to have been effected on the Conversion Date. Upon conversion of only a portion of
the number of shares of Series D Preferred Stock represented by a certificate surrendered for
conversion, the Company shall issue and deliver to such holder at the expense of the Company, a new
certificate covering the number of shares of Series D Preferred Stock representing the unconverted
portion of the certificate so surrendered as required by Section 5(b)(ii).

          (m) Regulatory Compliance. If any shares of Common Stock to be reserved for the
purpose of conversion of Series D Preferred Stock require registration or listing with or approval
of any governmental authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the case may be.

     5A. Change of Control. Notwithstanding anything to the contrary set forth in this
Certificate of Designation, in the event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or other securities of
such surviving corporation, in each case resulting in a change of control, the holder shall acquire
securities issued by the surviving corporation in exchange of holder’s Series D Preferred Stock,
which securities shall have terms and conditions at least as favorable as the Series D Preferred
Stock. For purposes of this Section 5A, “change of control” shall mean a
transaction in which a third party acquires greater than fifty percent (50%) of the voting rights
in one or a series of related transactions.

16

 

     6. No Preemptive Rights. Except as provided in Section 5 hereof and in the Purchase
Agreement, no holder of the Series D Preferred Stock shall be entitled to rights to subscribe for,
purchase or receive any part of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible
into or exchangeable for shares of any class, but all such new or additional shares of any class,
or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for
shares, may be issued and disposed of by the Board of Directors on such terms and for such
consideration (to the extent permitted by law), and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.

     7. Conversion Restrictions.

          (a) Notwithstanding anything to the contrary set forth in this Certificate of Designation, at
no time may a holder of shares of Series D Preferred Stock convert shares of the Series D Preferred
Stock if the number of shares of Common Stock to be issued pursuant to such conversion would cause
the number of shares of Common Stock owned by such holder at such time to exceed, when aggregated
with all other shares of Common Stock owned by such holder at such time, the number of shares of
Common Stock which would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in
excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time;
provided, however, that upon a holder of Series D Preferred Stock providing the
Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”)
that such holder would like to waive Section 7(a) of this Certificate of Designation with regard to
any or all shares of Common Stock issuable upon conversion of Series D Preferred Stock, this
Section 7(a) shall be of no force or effect with regard to those shares of Series D Preferred Stock
referenced in the Waiver Notice.

          (b) Notwithstanding anything to the contrary set forth in this Certificate of Designation, at
no time may a holder of shares of Series D Preferred Stock convert shares of the Series D Preferred
Stock if the number of shares of Common Stock to be issued pursuant to such conversion would cause
the number of shares of Common Stock owned by such holder at such time to exceed, when aggregated
with all other shares of Common Stock owned by such holder at such time, the number of shares of
Common Stock which would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in
excess of 9.99% of the then issued and outstanding shares of Common Stock outstanding at such time;
provided, however, that upon a holder of Series D Preferred Stock providing the
Company with a Waiver Notice that such holder would like to waive Section 7(b) of this Certificate
of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series
D Preferred Stock, this Section 7(b) shall be of no force or effect with regard to those shares of
Series D Preferred Stock referenced in the Waiver Notice.

     8. Redemption.

          (a) Intentionally Omitted.

17

 

          (b)  Redemption Option Upon Triggering Event. In addition to all other rights of the
holders of Series D Preferred Stock contained herein, after a Triggering Event (as defined below),
each holder of Series D Preferred Stock shall have the right, at such holder’s option, to require
the Company to redeem for cash all or a portion of such holder’s shares of Series D Preferred Stock
at a price per share of Series D Preferred Stock equal to one hundred twenty percent (120%) of the
Liquidation Preference Amount, plus any accrued but unpaid dividends and liquidated damages the
“Triggering Event Redemption Price”).

          (c) Intentionally Omitted.

          (d) “Triggering Event”. A “Triggering Event” shall be deemed to have occurred at such
time as any of the following events:

               (i) so long as any shares of Series D Preferred Stock are outstanding, the effectiveness of
the Registration Statement, after it becomes effective, (i) lapses for any reason (including,
without limitation, the issuance of a stop order) and such lapse continues for a period of twenty
(20) consecutive trading days, or (ii) is unavailable to the holder of the Series D Preferred Stock
for sale of the shares of Common Stock, and such lapse or unavailability continues for a period of
twenty (20) consecutive trading days, and the shares of Common Stock into which such holder’s
Series D Preferred Stock can be converted cannot be sold in the public securities market pursuant
to Rule 144(k) (“Rule 144(k)”) under the Securities Act of 1933, as amended, provided that
the cause of such lapse or unavailability is not due to factors solely within the control of such
holder of Series D Preferred Stock;

               (ii) the suspension from listing, without subsequent listing on any one of, or the failure of
the Common Stock to be listed on at least one of the OTC Bulletin Board, The Nasdaq National
Market, The Nasdaq Capital Market, the New York Stock Exchange, Inc. or the American Stock
Exchange, Inc., for a period of five (5) consecutive trading days;

               (iii) the Company’s notice to any holder of Series D Preferred Stock, including by way of
public announcement, at any time, of its inability to comply (including for any of the reasons
described in Section 9) or its intention not to comply with proper requests for conversion of any
Series D Preferred Stock into shares of Common Stock; or

               (iv) the Company’s failure to comply with a Conversion Notice tendered in accordance with the
provisions of this Certificate of Designation within ten (10) business days after the receipt by
the Company of a fully executed copy of the Conversion Notice; or

               (v) the Company deregisters its shares of Common Stock and as a result such shares of Common
Stock are no longer publicly traded; or

               (vi) the Company consummates a “going private” transaction and as a result the Common Stock is
no longer registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended; or

18

 

               (vii) the Company breaches any representation, warranty, covenant or other term or condition
of the Purchase Agreement, this Certificate of Designation or any other agreement, document,
certificate or other instrument delivered in connection with the transactions contemplated thereby
or hereby, except to the extent that such breach would not have a Material Adverse Effect (as
defined in the Purchase Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of a least ten (10) days.

          (e) Intentionally Omitted.

          (f) Mechanics of Redemption at Option of Buyer Upon Triggering Event. Within one (1)
day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof
via facsimile and overnight courier (“Notice of Triggering Event”) to each holder of Series D
Preferred Stock. At any time after the earlier of a holder’s receipt of a Notice of Triggering
Event and such holder becoming aware of a Triggering Event, any holder of Series D Preferred Stock
then outstanding may require the Company to redeem all of the Series D Preferred Stock by
delivering written notice thereof via facsimile and overnight courier (“Notice of Redemption at
Option of Buyer Upon Triggering Event”) to the Company, which Notice of Redemption at Option of
Buyer Upon Triggering Event shall indicate (i) the number of shares of Series D Preferred Stock
that such holder is electing to redeem and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 8(b) above.

          (g) Payment of Triggering Event Redemption Price. Upon the Company’s receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event from any holder of Series D
Preferred Stock, the Company shall immediately notify each holder of Series D Preferred Stock by
facsimile of the Company’s receipt of such Notice(s) of Redemption at Option of Buyer Upon
Triggering Event and each holder which has sent such a notice shall promptly submit to the Company
such holder’s Preferred Stock Certificates which such holder has elected to have redeemed. The
Company shall pay the Triggering Event Redemption Price in cash. If the Company shall fail to
redeem all of the Series D Preferred Stock submitted for redemption (other than pursuant to a
dispute as to the arithmetic calculation of the Triggering Event Redemption Price), in addition to
any remedy such holder of Series D Preferred Stock may have under this Certificate of Designation
and the Purchase Agreement, the Triggering Event Redemption Price payable in respect of such
unredeemed Series D Preferred Stock shall bear interest at the rate of 2.0% per month (prorated for
partial months) until paid in full. Until the Company pays such unpaid applicable Triggering Event
Redemption Price in full to a holder of shares of Series D Preferred Stock submitted for
redemption, such holder shall have the option (the “Void Optional Redemption Option”) to, in lieu
of redemption, require the Company to promptly return to such holder(s) all of the shares of Series
D Preferred Stock that were submitted for redemption by such holder(s) under this Section 8 and for
which the applicable Triggering Event Redemption Price has not been paid, by sending written notice
thereof to the Company via facsimile (the “Void Optional Redemption Notice”). Upon the Company’s
receipt
of such Void Optional Redemption Notice(s) and prior to payment of the full applicable
Triggering Event Redemption Price to such holder, (i) the Notice(s) of Redemption at Option of
Buyer Upon Triggering Event shall be null and void with respect to those shares of Series D
Preferred Stock submitted for redemption and for which the applicable Triggering Event

19

 

Redemption
Price has not been paid and (ii) the Company shall immediately return any Series D Preferred Stock
submitted to the Company by each holder for redemption under this Section 8(d) and for which the
applicable Triggering Event Redemption Price has not been paid and (iii) the Conversion Price of
such returned shares of Series D Preferred Stock shall be adjusted to the lesser of (A) the
Conversion Price and (B) the lowest Closing Bid Price during the period beginning on the date on
which the Notice(s) of Redemption of Option of Buyer Upon Triggering Event is delivered to the
Company and ending on the date on which the Void Optional Redemption Notice(s) is delivered to the
Company; provided that no adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect. A holder’s delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not effect the Company’s obligations
to make any payments which have accrued prior to the date of such notice other than interest
payments. Payments provided for in this Section 8 shall have priority to payments to other
stockholders in connection with a Triggering Event.

     9. Inability to Fully Convert.

          (a) Holder’s Option if Company Cannot Fully Convert. If, upon the Company’s receipt
of a Conversion Notice or on the Mandatory Conversion Date, the Company cannot issue shares of
Common Stock registered for resale under the Registration Statement for any reason, including,
without limitation, because the Company (w) does not have a sufficient number of shares of Common
Stock authorized and available, (x) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing all of the Common
Stock which is to be issued to a holder of Series D Preferred Stock pursuant to a Conversion Notice
or (y) subsequent to the Effective Date, fails to have a sufficient number of shares of Common
Stock registered for resale under the Registration Statement, then the Company shall issue as many
shares of Common Stock as it is able to issue in accordance with such holder’s Conversion Notice
and pursuant to Section 5(b)(ii) above and, with respect to the unconverted Series D Preferred
Stock, the holder, solely at such holder’s option, can elect, within five (5) business days after
receipt of notice from the Company thereof to:

               (i) intentionally omitted;

               (ii) if the Company’s inability to fully convert Series D Preferred Stock is pursuant to
Section 9(a)(y) above, require the Company to issue restricted shares of Common Stock in accordance
with such holder’s Conversion Notice and pursuant to Section 5(b)(ii) above;

               (iii) void its Conversion Notice and retain or have returned, as the case may be, the shares
of Series D Preferred Stock that were to be converted pursuant to such holder’s Conversion Notice
(provided that a holder’s voiding its Conversion Notice shall not
effect the Company’s obligations to make any payments which have accrued prior to the date of
such notice);

20

 

               (iv) exercise its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 5(b)(vi) hereof.

          (b) Mechanics of Fulfilling Holder’s Election. The Company shall immediately send via
facsimile to a holder of Series D Preferred Stock, upon receipt of a facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as described in Section 9(a) above, a
notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability
to Fully Convert Notice”). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder’s Conversion Notice and (ii) the number of
Series D Preferred Stock which cannot be converted. Such holder shall notify the Company of its
election pursuant to Section 9(a) above by delivering written notice via facsimile to the Company
(“Notice in Response to Inability to Convert”).

          (c) Intentionally Omitted.

          (d) Pro-rata Conversion and Redemption. In the event the Company receives a
Conversion Notice from more than one holder of Series D Preferred Stock on the same day and the
Company can convert and redeem some, but not all, of the Series D Preferred Stock pursuant to this
Section 9, the Company shall convert and redeem from each holder of Series D Preferred Stock
electing to have Series D Preferred Stock converted and redeemed at such time an amount equal to
such holder’s pro-rata amount (based on the number shares of Series D Preferred Stock held by such
holder relative to the number of shares of Series D Preferred Stock outstanding) of all shares of
Series D Preferred Stock being converted and redeemed at such time.

     10. Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting, of the holders of
not less than seventy-five percent (75%) of the then outstanding shares of Series D Preferred
Stock, shall be required (a) for any change to this Certificate of Designation or the Company’s
Certificate of Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Series D Preferred Stock or (b) for the issuance of
shares of Series D Preferred Stock other than pursuant to the Purchase Agreement.

     11. Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates
representing the shares of Series D Preferred Stock, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and date;
provided, however, the Company shall not be obligated to re-issue Preferred Stock
Certificates if the holder contemporaneously requests the Company to convert such shares of Series
D Preferred Stock into Common Stock.

     12. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.
The remedies provided in this Certificate of Designation shall be cumulative and in addition to all
other remedies available under this Certificate of Designation, at law or in equity (including a
decree of specific performance and/or other injunctive relief), no remedy contained herein shall

21

 

be
deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder’s right to pursue actual damages for any failure by the Company to comply with
the terms of this Certificate of Designation. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall be the amounts to
be received by the holder thereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series
D Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the holders of the
Series D Preferred Stock shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any
bond or other security being required.

     13. Specific Shall Not Limit General; Construction. No specific provision contained
in this Certificate of Designation shall limit or modify any more general provision contained
herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and
all initial purchasers of the Series D Preferred Stock and shall not be construed against any
person as the drafter hereof.

     14. Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of
Series D Preferred Stock in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or privilege.

     15. Disclosure. Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Certificate of Designation, unless the Company has in good faith determined
that the matters relating to such notice do not constitute material, nonpublic information relating
to the Company or its Subsidiaries, the Company shall within one (1) Business Day after any such
receipt or delivery publicly disclose such material, nonpublic information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice contains material,
nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to
the Holders contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holders shall be allowed to presume that all matters relating to such notice do not
constitute material, nonpublic information relating to the Company or its Subsidiaries.

22

 

     IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does
affirm the foregoing as true this ___day of May, 2006.

	 	 	 	 	 
	 	DIRT MOTOR SPORTS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

23

 

EXHIBIT I

DIRT MOTOR SPORTS, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the
Series D Preferred Stock of Dirt Motor Sports, Inc. (the “Certificate of Designation”). In
accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to
convert the number of shares of Series D Preferred Stock, par value $.01 per share (the “Preferred
Shares”), of Dirt Motor Sports, Inc., a Delaware corporation (the “Company”), indicated below into
shares of Common Stock, par value $.0001 per share (the “Common Stock”), of the Company, by
tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.

	 	 	 
	     Date of Conversion:

	                                                            	 
	 
	 	 
	     Number of Preferred Shares to be converted:

	                    	 
	 
	 	 
	     Stock certificate no(s). of Preferred Shares to be converted:                     
	 
	 	 
	     The Common Stock have been sold pursuant to the Registration Statement (as defined in the
Purchase Agreement): YES                                 NO                     
	 
	 	 
	Please confirm the following information:
	 	 
	 
	 	 
	     Conversion Price:

	 	                                                            
	 
	 	 
	     Number of shares of Common Stock to be issued:

	 	                                                            
	 
	 	 
	Please issue the Common Stock into which the Preferred Shares are being converted and, if
applicable, any check drawn on an account of the Company in the following name and to the following
address:
	 
	 	 
	     Issue to:

	 	                                                            
	 

	 	                                                            
	 
	 	 
	     Facsimile Number:

	 	                                                            
	 
	 	 
	     Authorization:

	 	                                                            
	 

	 	By:                                                       
	 

	 	Title:                                                    
	 
	 	 
	     Dated:
	 	 

24exv4w3

 

EXHIBIT 4.3

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR DIRT MOTOR SPORTS, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO DIRT MOTOR SPORTS, INC. THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.

SERIES D WARRANT TO PURCHASE

SHARES OF COMMON STOCK

OF

DIRT MOTOR SPORTS, INC.

Expires May__, 2011

	 	 	 	 	 
	No.: W-D-06-___

	 	Number of Shares:	 	 
	 

	 	 	 	 
	Date of Issuance: May___, 2006
	 	 	 	 

     FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the undersigned, Dirt
Motor Sports, Inc., a Delaware corporation (together with its successors and assigns, the
“Issuer”), hereby certifies that ___or its registered assigns is
entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to
___(___) shares (subject to adjustment as hereinafter provided)
of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer,
at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this
Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9
hereof.

     1. Term. The term of this Warrant shall commence on May___, 2006 and shall expire at
5:00 p.m., eastern time, on May___, 2011 (such period being the “Term”).

     2. Method of Exercise Payment; Issuance of New Warrant; Transfer and Exchange.

     (a) Time of Exercise. The purchase rights represented by this Warrant may be
exercised in whole or in part during the Term.

     (b) Method of Exercise. The Holder hereof may exercise this Warrant, in whole or in
part, by sending an exercise form attached hereto duly executed at the principal office of the
Issuer, and by the payment to the Issuer of an amount of
consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of

 

 

Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder’s
election (i) by certified or official bank check or by wire transfer to an account designated by
the Issuer, (ii) by “cashless exercise” in accordance with the provisions of subsection (c) of this
Section 2, but only when a registration statement under the Securities Act providing for the resale
of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of
payment selected by the Holder of this Warrant.

     (c) Cashless Exercise. Notwithstanding any provisions herein to the contrary and
commencing one (1) year following the Original Issue Date, if (i) the Per Share Market Value of one
share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth
below) and (ii) a registration statement under the Securities Act providing for the resale of the
Warrant Stock is not then in effect by the date such registration statement is required to be
effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or
not effective at any time during the Effectiveness Period (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement, unless the
registration statement is not effective as a result of the Issuer exercising its rights under
Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of
cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of
shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the
principal office of the Issuer together with the properly endorsed Notice of Exercise in which
event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the
following formula:

	 	 	 	 	 
	 	 	X = Y – (A)(Y)
	 	 	                    B
	 
	 	 	 	 
	Where

	 	X =
	 	the number of shares of Common Stock to be issued to the Holder.
	 
	 	 	 	 
	 

	 	Y =
	 	the number of shares of Common Stock purchasable upon
exercise of all of the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised.
	 
	 	 	 	 
	 

	 	A =
	 	the Warrant Price.
	 
	 	 	 	 
	 

	 	B =
	 	the Per Share Market Value of one share of Common Stock.

     (d) Issuance of Stock Certificates. In the event of any exercise of the rights
represented by this Warrant in accordance with and subject to the terms and conditions hereof,
certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise
and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days
after such exercise (the “Delivery Date”) or, at the request of the Holder (provided that a
registration statement under the Securities Act providing for the resale of the Warrant Stock is
then in effect, issued and delivered to the Depository Trust Company (“DTC”) account on the
Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) within a
reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof
shall be deemed for all purposes to be the holder of the shares of
Warrant Stock so purchased as of the date of such exercise. The Holders shall deliver this original Warrant, or an

2

 

indemnification undertaking with respect to such Warrant in the case of its loss, theft or
destruction, at such time that this Warrant is fully exercised or redeemed. With respect to
partial exercises of this Warrant, the Issuer shall keep written records for the Holder of the
number of shares of Warrant Stock exercised as of each date of exercise.

     (e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.
In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer
agent to transmit to the Holder a certificate or certificates representing the Warrant Stock
pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to
the Holder in connection with the exercise at issue times (B) the price at which the sell order
giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which
such exercise was not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Issuer timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder
shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of
the Buy-In, together with applicable confirmations and other evidence reasonably requested by the
Issuer. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates
representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms
hereof.

     (f) Transferability of Warrant. Subject to Section 2(f), this Warrant may be
transferred by a Holder without the consent of the Issuer. If transferred pursuant to this
paragraph and subject to the provisions of subsection (g) of this Section 2, this Warrant may be
transferred on the books of the Issuer by the Holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed
(by the Holder executing an assignment in the form attached hereto) and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is
exchangeable at the principal office of the Issuer for Warrants for the purchase of the same
aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase
such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and
shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable
pursuant thereto.

3

 

     (g) Continuing Rights of Holder. The Issuer will, at the time of or at any time after
each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the
extent, if any, of its continuing obligation to afford to such Holder all rights to which such
Holder shall continue to be entitled after such exercise in accordance with the terms of this
Warrant, provided that if any such Holder shall fail to make any such request, the failure
shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.

     (h) Compliance with Securities Laws.

     (i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant or
the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for
the Holder’s own account and not as a nominee for any other party, and for investment, and
that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of
Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration
statement, or an exemption from registration, under the Securities Act and any applicable
state securities laws.

     (ii) Except as provided in paragraph (iii) below, this Warrant and all certificates
representing shares of Warrant Stock issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form:

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR DIRT MOTOR SPORTS, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO DIRT MOTOR SPORTS, INC. THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS
OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

     (iii) The Issuer agrees to reissue this Warrant or certificates representing any of the
Warrant Stock, without the legend set forth above if at such time, prior to making any
transfer of any such securities, the Holder shall give written notice to the Issuer
describing the manner and terms of such transfer and removal as the Issuer may reasonably
request. Such proposed transfer and removal will not be effected until: (a) either (i) the
Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the
effect that the registration of such securities under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the Securities
Act covering such proposed disposition has been filed by the Issuer with the Securities and
Exchange Commission and has become effective under the Securities Act, (iii) the Issuer has
received other evidence reasonably satisfactory to the Issuer that such

4

 

registration and qualification under the Securities Act and state securities laws are
not required, or (iv) the Holder provides the Issuer with reasonable assurances that such
security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the
Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the
effect that registration or qualification under the securities or “blue sky” laws of any
state is not required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or “blue sky” laws has been effected or a valid exemption exists
with respect thereto. The Issuer will respond to any such notice from a holder within five
(5) business days. In the case of any proposed transfer under this Section 2(f), the Issuer
will use reasonable efforts to comply with any such applicable state securities or “blue
sky” laws, but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, or (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject. The restrictions
on transfer contained in this Section 2(f) shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section of this
Warrant. Whenever a certificate representing the Warrant Stock is required to be issued to
a the Holder without a legend, in lieu of delivering physical certificates representing the
Warrant Stock (provided that a registration statement under the Securities Act providing for
the resale of the Warrant Stock is then in effect), the Issuer shall cause its transfer
agent to electronically transmit the Warrant Stock to the Holder by crediting the account of
the Holder’s Prime Broker with DTC through its DWAC system (to the extent not inconsistent
with any provisions of this Warrant or the Purchase Agreement).

     (i) In no event may the Holder exercise this Warrant in whole or in part unless the Holder is
an “accredited investor” as defined in Regulation D under the Securities Act.

     3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

     (a) Stock Fully Paid. The Issuer represents, warrants, covenants and agrees that all
shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise
hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by
or through the Issuer. The Issuer further covenants and agrees that during the period within which
this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the
purpose of the issuance upon exercise of this Warrant a number of shares of Common Stock equal to
at least one hundred twenty percent (120%) of the number of shares of Common Stock issuable upon
exercise of this Warrant without regard to any limitations on exercise.

     (b) Reservation. If any shares of Common Stock required to be reserved for issuance
upon exercise of this Warrant or as otherwise provided hereunder require registration or
qualification with any governmental authority under any federal or state law before such shares may
be so issued, the Issuer will in good faith use its reasonable best efforts as expeditiously as
possible at its expense to cause such shares to be duly registered or qualified. If the Issuer
shall list any shares of Common Stock on any securities exchange or market it will, at its expense,
list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock
from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided

5

 

that such Warrant Stock has been registered pursuant to a registration statement under the
Securities Act then in effect), and, to the extent permissible under the applicable securities
exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so
long as any shares of Common Stock shall be so listed. The Issuer will also so list on each
securities exchange or market, and will maintain such listing of, any other securities which the
Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the
time any securities of the same class shall be listed on such securities exchange or market by the
Issuer.

     (c) Covenants. The Issuer shall not by any action including, without limitation,
amending the Certificate of Incorporation or the by-laws of the Issuer, or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other action, avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect the rights of the
Holder hereof against dilution (to the extent specifically provided herein) or impairment. Without
limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of
its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision
of the Certificate of Incorporation or by-laws of the Issuer in any manner that would adversely
affect the rights of the Holders of the Warrants in their capacity as Holders of the Warrants,
(iii) take all such action as may be reasonably necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens,
claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this
Warrant, and (iv) use its reasonable best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary
to enable the Issuer to perform its obligations under this Warrant.

     (d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence satisfactory to
the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction, upon receipt of indemnity or security
satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same
number of shares of Common Stock.

     4. Adjustment of Warrant Price. The price at which shares of Warrant Stock may be
purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set
forth in this Section 4. The Issuer shall give the Holder notice of any event described below which
requires an adjustment pursuant to this Section 4 in accordance with Section 5.

6

 

     (a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.
In case the Issuer after the Original Issue Date shall do any of the following (each, a
“Triggering Event”): (a) consolidate or merge with or into any other Person and the Issuer
shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit
any other Person to consolidate with or merge into the Issuer and the Issuer shall be the
continuing or surviving Person but, in connection with such consolidation or merger, any Capital
Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash
or any other property, or (c) transfer all or substantially all of its properties or assets to any
other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock,
then, and in the case of each such Triggering Event, proper provision shall be made so that, upon
the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant
shall be entitled upon the exercise hereof at any time after the consummation of such Triggering
Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at
the Warrant Price in effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such Holder would have been entitled
upon the consummation of such Triggering Event if such Holder had exercised the rights represented
by this Warrant immediately prior thereto (including the right of a shareholder to elect the type
of consideration it will receive upon a Triggering Event), subject to adjustments (subsequent to
such corporate action) as nearly equivalent as possible to the adjustments provided for elsewhere
in this Section 4; provided, however, the Holder shall have the option to receive,
in lieu of the foregoing right to receive such securities, cash and property, an amount in cash
equal to the value of this Warrant calculated in accordance with the Black-Scholes formula.
Notwithstanding the foregoing to the contrary, in the event of a Triggering Event, at the request
of the Holder delivered before the ninetieth (90th) day after such Triggering Event,
the Issuer shall pay to the Holder an amount in cash equal to the value of the unexercised portion
of this Warrant as of the date of such Triggering Event calculated in accordance with the
Black-Scholes formula within five (5) days of such request.

     (b) Stock Dividends, Subdivisions and Combinations. If at any time the Issuer shall:

     (i) make or issue or set a record date for the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other distribution of, shares
of Common Stock,

     (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of
Common Stock, or

     (iii) combine its outstanding shares of Common Stock into a smaller number of shares of
Common Stock,

then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately
after the occurrence of any such event shall be adjusted to equal the number of shares of Common
Stock which a record holder of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be entitled to receive
after the happening of such event, and (2) the Warrant Price then in

7

 

effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of
shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares of Common Stock for which this Warrant is exercisable
immediately after such adjustment.

Notwithstanding the foregoing, if such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor, the Warrant Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or
distributions.

     (c) Certain Other Distributions. If at any time the Issuer shall make or issue or set
a record date for the determination of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:

     (i) cash (other than a cash dividend payable out of earnings or earned surplus legally
available for the payment of dividends under the laws of the jurisdiction of incorporation
of the Issuer),

     (ii) any evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, Common Stock Equivalents
or Additional Shares of Common Stock), or

     (iii) any warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or property of any
nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common
Stock),

then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of
which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B)
the denominator of which shall be such Per Share Market Value minus the amount allocable to one
share of Common Stock of any such cash so distributable and of the fair value (as determined in
good faith by the Board of Directors of the Issuer and supported by an opinion from an investment
banking firm of recognized national standing acceptable to (but not affiliated with) the Holder) of
any and all such evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so distributable, and (2) the Warrant Price then
in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number
of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares of Common Stock for which this Warrant is exercisable
immediately after such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value) into shares of
Common Stock and shares of any other class of stock shall be deemed a distribution by the Issuer to
the holders of its Common Stock of such shares of such other class of stock within the meaning of
this Section 4(c) and, if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification, such change shall be
deemed a subdivision or combination, as the

8

 

case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).

Notwithstanding the foregoing, if such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor, the Warrant Price
shall be adjusted pursuant to this Section 4(c) as of the time of actual payment of such dividends
or distributions.

     (d) Issuance of Additional Shares of Common Stock.

          (i) In the event the Issuer shall at any time following the date of the Purchase Agreement
issue any Additional Shares of Common Stock (otherwise than as provided in the foregoing
subsections (a) through (c) of this Section 4), at a price per share less than the Warrant Price
then in effect or without consideration, then the Warrant Price upon each such issuance shall be
adjusted to that price determined by multiplying the Warrant Price then in effect by a fraction:

     (A)
the numerator of which shall be equal to the sum of (x) the number of shares of Outstanding Common Stock immediately prior to the issuance of such
Additional Shares of Common Stock plus (y) the number of shares of Common
Stock (rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase at a
price per share equal to the Warrant Price then in effect, and

     (B) the denominator of which shall be equal to the number of shares of
Outstanding Common Stock immediately after the issuance of such Additional Shares of
Common Stock.

          (ii) No adjustment of the number of shares of Common Stock for which this Warrant shall be
exercisable shall be made under paragraph (i) of Section 4(d) upon the issuance of any Additional
Shares of Common Stock which are issued pursuant to the exercise of any Common Stock Equivalents,
if any such adjustment shall previously have been made upon the issuance of such Common Stock
Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to Section
4(e).

     (e) Issuance of Common Stock Equivalents. If at any time the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to receive a
distribution of, or shall in any manner (whether directly or by assumption in a merger in which the
Issuer is the surviving corporation) issue or sell, any Common Stock Equivalents, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange shall be less than the Warrant
Price in effect immediately prior to the time of such issue or sale, or if, after any such issuance
of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be
issuable thereafter is amended or adjusted, and such price as so amended shall be less than the
Warrant Price in effect at the time of such amendment or adjustment, then the Warrant Price then in
effect shall be adjusted as provided in Section 4(d). No further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable and

9

 

the Warrant Price then in effect shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Common Stock Equivalents.

     (f) Intentionally omitted.

     (h) Other Provisions applicable to Adjustments under this Section. The following
provisions shall be applicable to the making of adjustments of the number of shares of Common Stock
for which this Warrant is exercisable and the Warrant Price then in effect provided for in this
Section 4:

          (i) Computation of Consideration. To the extent that any Additional Shares of Common
Stock or any Common Stock Equivalents (or any warrants or other rights therefor) shall be issued
for cash consideration, the consideration received by the Issuer therefor shall be the amount of
the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common
Stock Equivalents are offered by the Issuer for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued dividends and
without taking into account any compensation, discounts or expenses paid or incurred by the Issuer
for and in the underwriting of, or otherwise in connection with, the issuance thereof). In
connection with any merger or consolidation in which the Issuer is the surviving corporation (other
than any consolidation or merger in which the previously outstanding shares of Common Stock of the
Issuer shall be changed to or exchanged for the stock or other securities of another corporation),
the amount of consideration therefore shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board and acceptable to the Holder, of such portion of the
assets and business of the nonsurviving corporation as the Board may determine to be attributable
to such shares of Common Stock or Common Stock Equivalents, as the case may be. The consideration
for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by the Issuer for issuing
such warrants or other rights plus the additional consideration payable to the Issuer upon exercise
of such warrants or other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration received
by the Issuer for issuing warrants or other rights to subscribe for or purchase such Common Stock
Equivalents, plus the consideration paid or payable to the Issuer in respect of the subscription
for or purchase of such Common Stock Equivalents, plus the additional consideration, if any,
payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Stock
Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not
the surviving corporation or in which the previously outstanding shares of Common Stock of the
Issuer shall be changed into or exchanged for the stock or other securities of another corporation,
or in the event of any sale of all or substantially all of the assets of the Issuer for stock or
other securities of any corporation, the Issuer shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated, and for a
consideration equal to the fair market value on the date of such transaction of all such stock or
securities or other property of the other corporation. In the event any consideration received by
the Issuer for any securities consists of property other than cash, the fair market value thereof
at

10

 

the time of issuance or as otherwise applicable shall be as determined in good faith by the Board.
In the event Common Stock is issued with other shares or securities or other assets of the Issuer
for consideration which covers both, the consideration computed as provided in this Section 4(h)(i)
shall be allocated among such securities and assets as determined in good faith by the Board.

          (ii) When Adjustments to Be Made. The adjustments required by this Section 4 shall be
made whenever and as often as any specified event requiring an adjustment shall occur, except that
any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that
would otherwise be required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of
exercise if such adjustment either by itself or with other adjustments not previously made adds or
subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any adjustment representing a
change of less than such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments required by this
Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise.
For the purpose of any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.

          (iii) Fractional Interests. In computing adjustments under this Section 4, fractional
interests in Common Stock shall be taken into account to the nearest one one-hundredth
(1/100th) of a share.

          (iv) When Adjustment Not Required. If the Issuer shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

     (i) Form of Warrant After Adjustments. The form of this Warrant need not be changed
because of any adjustments in the Warrant Price or the number and kind of Securities purchasable
upon the exercise of this Warrant.

     (j) Escrow of Warrant Stock. If after any property becomes distributable pursuant to
this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to
the occurrence of the event for which such record is taken, and the Holder exercises this Warrant,
any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the
last shares of Common Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property shall be held in escrow for the
Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually
takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or is rescinded, then
such escrowed shares shall be cancelled by the Issuer and escrowed property

11

 

returned.

     5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share Number shall be
adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an “adjustment”), the
Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth,
in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method
by which such adjustment was calculated (including a description of the basis on which the Board
made any determination hereunder), and the Warrant Price and Warrant Share Number after giving
effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder
of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at the option of the
Holder of this Warrant be submitted to an Independent Appraiser reasonably acceptable to the Issuer
and the Holder. The Issuer shall use its best efforts to cause the Independent Appraiser to
perform the calculations and notify the Issuer and the Holder of the results no later than five (5)
business days from the time it receives the disputed calculation. Such Independent Appraiser’s
calculation shall be binding upon all parties absent manifest error. The reasonable expenses of
the Independent Appraiser in making such determination shall be paid by the Issuer, in the event
the Holder’s calculation was correct, or by the Holder, in the event the Issuer’s calculation was
correct, or equally by the Issuer and the Holder in the event that neither the Issuer’s or the
Holder’s calculation was correct.

     6. Fractional Shares. No fractional shares of Warrant Stock will be issued in
connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall make a
cash payment therefor equal in amount to the product of the applicable fraction multiplied by the
Per Share Market Value then in effect.

     7. Ownership Cap and Certain Exercise Restrictions. (a) Notwithstanding anything to
the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this
Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would cause
the number of shares of Common Stock owned by the Holder at such time to exceed, when aggregated
with all other shares of Common Stock owned by such Holder at such time, the number of shares of
Common Stock which would result in such Holder beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of all of the
Common Stock outstanding at such time; provided, however, that upon the Holder of
this Warrant providing the Issuer with sixty-one (61) days notice (pursuant to Section 13 hereof)
(the “Waiver Notice”) that such Holder would like to waive this Section 7(a) with regard to
any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7(a) will be
of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver
Notice; provided, further, that this provision shall be of no further force or
effect during the sixty-one (61) days immediately preceding the expiration of the term of this
Warrant.

          (b) Notwithstanding anything to the contrary set forth in this Warrant, at no time may a
Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued
pursuant to such exercise would cause the number of shares of Common Stock owned by the Holder at
such time to exceed, when aggregated with all other shares of Common Stock owned by such Holder at
such time, the number of shares of Common Stock which would result in such Holder beneficially
owning (as determined in accordance with Section 13(d) of the

12

 

Exchange Act and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at
such time; provided, however, that upon a holder of this Warrant providing the
Issuer with a Waiver Notice that such holder would like to waive this Section 7(b) with regard to
any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7(b) shall
be of no force or effect with regard to those shares of Warrant Stock referenced in the Waiver
Notice; provided, further, that this provision shall be of no further force or
effect during the sixty-one (61) days immediately preceding the expiration of the term of this
Warrant.

     8. Call. Notwithstanding anything herein to the contrary, the Issuer, at its option,
may call (a “Call”) up to one hundred percent (100%) of this Warrant if (A) the Per Share
Market Value of the Common Stock has been equal to or greater than $10.00 (as may be adjusted for
any stock splits of combinations of the Common Stock) for a period of ten (10) consecutive Trading
Days immediately prior to the date of delivery of the Call Notice (a “Call Notice Period”)
and (B) the dollar trading volume of the Common Stock for each of such ten (10) consecutive Trading
Days exceeds $500,000, in each case, by providing the Holder of this Warrant written notice
pursuant to Section 13 (the “Call Notice”); provided, that (i) a
registration statement under the Securities Act providing for the resale of the Warrant Stock and
the shares of Common Stock issuable upon conversion of the Issuer’s Series D Preferred Stock issued
pursuant to the Purchase Agreement (the “Registration Statement”) is then in effect and has
been effective, without lapse or suspension of any kind, for a period of sixty (60) consecutive
calendar days, (ii) trading in the Common Stock shall not have been suspended by the Securities and
Exchange Commission or the OTC Bulletin Board (or other exchange or market on which the Common
Stock is trading) and (iii) the Issuer is in material compliance with the terms and conditions of
this Warrant and the other Transaction Documents (as defined in the Purchase Agreement);
provided, further, that the Registration Statement is in effect from the date of
delivery of the Call Notice until the date which is the later of (1) the date the Holder exercises
the Warrant pursuant to the Call Notice and (2) the 20th day after the Holder receives
the Call Notice (the “Early Termination Date”). The rights and privileges granted pursuant
to this Warrant with respect to the shares of Warrant Stock subject to the Call Notice (the
“Called Warrant Shares”) shall expire on the Early Termination Date if this Warrant is not
exercised with respect to such Called Warrant Shares prior to such Early Termination Date. In the
event this Warrant is not exercised with respect to the Called Warrant Shares, the Issuer shall
remit to the Holder of this Warrant (A) $.01 per Called Warrant Share and (B) a new Warrant
representing the number of shares of Warrant Stock, if any, which shall not have been subject to
the Call Notice upon the Holder tendering to the Issuer the applicable Warrant certificate.
Notwithstanding anything in the foregoing to the contrary, if the Holder may not exercise this
Warrant as a result of the restrictions contained in Section 7 hereof, the Call Notice shall be
deemed null and void and shall not be deemed effective until the date that the Holder may exercise
this Warrant in accordance with Section 7 hereof.

     9. Definitions. For the purposes of this Warrant, the following terms have the
following meanings:

     “Additional Shares of Common Stock” means all shares of Common Stock issued by
the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by
the Issuer after the Original Issue Date, except: (i) securities issued pursuant to a bona
fide firm underwritten public offering of the Issuer’s securities, (ii) securities

13

 

issued pursuant to the conversion or exercise of convertible or excercisable securities
issued or outstanding on or prior to the date hereof or issued pursuant to the Purchase
Agreement (so long as the conversion or exercise price in such securities are not amended to
lower such price and/or adversely affect the Holders), (iii) the Warrant Stock, (iv) the
payment of any dividends on the Series D Preferred Stock of the Issuer issued pursuant to
the Purchase Agreement, (v) securities issued (other than for cash) in connection with an
acquisition of the Issuer, (vi) any warrants issued to the placement agent for the
transactions contemplated by the Purchase Agreement or in connection with other financial
services rendered to the Issuer, (vii) securities issued in connection with strategic
license agreements and other partnering arrangements so long as such issuances are not for
the purpose of raising capital and the Issuer has received the prior written consent of the
Holder, and (viii) the issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Issuer’s stock option plans and employee stock
purchase plans outstanding on the date hereof and which have been approved by the Board.

     “Board” shall mean the Board of Directors of the Issuer.

     “Capital Stock” means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated) corporate stock,
including, without limitation, shares of preferred or preference stock, (ii) all partnership
interests (whether general or limited) in any Person which is a partnership, (iii) all
membership interests or limited liability company interests in any limited liability
company, and (iv) all equity or ownership interests in any Person of any other type.

     “Certificate of Incorporation” means the Certificate of Incorporation of the
Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended,
modified, supplemented or restated in accordance with the terms hereof and thereof and
pursuant to applicable law.

     “Common Stock” means the Common Stock, par value $.0001 per share, of the
Issuer and any other Capital Stock into which such stock may hereafter be changed.

     “Common Stock Equivalent” means any Convertible Security or warrant, option or
other right to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Security.

     “Convertible Securities” means evidences of Indebtedness, shares of Capital
Stock or other Securities which are or may be at any time convertible into or exchangeable
for Additional Shares of Common Stock. The term “Convertible Security” means one of the
Convertible Securities.

     “Governmental Authority” means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or instrumentality,
whether federal, state or local, and whether domestic or foreign.

14

 

     “Holders” mean the Persons who shall from time to time own any Warrant. The
term “Holder” means one of the Holders.

     “Independent Appraiser” means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements of the
Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets
of corporations or other entities as going concerns, and which is not affiliated with either
the Issuer or the Holder of any Warrant.

     “Issuer” means Dirt Motor Sports, Inc., a Delaware corporation, and its
successors.

     “Majority Holders” means at any time the Holders of Warrants exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding.

     “Original Issue Date” means May___, 2006.

     “OTC Bulletin Board” means the over-the-counter electronic bulletin board.

     “Other Common” means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than Common Stock) and
which shall have the right to participate in the distribution of earnings and assets of the
Issuer without limitation as to amount.

     “Outstanding Common Stock” means, at any given time, the aggregate amount of
outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as
applicable) of all options, warrants and other Securities which are convertible into or
exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that
are outstanding at such time.

     “Person” means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint venture,
Governmental Authority or other entity of whatever nature.

     “Per Share Market Value” means on any particular date (a) the last closing bid
price per share of the Common Stock on such date on the OTC Bulletin Board or another
registered national stock exchange on which the Common Stock is then listed, or if there is
no such price on such date, then the closing bid price on such exchange or quotation system
on the date nearest preceding such date, or (b) if the Common Stock is not listed then on
the OTC Bulletin Board or any registered national stock exchange, the last closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin
Board or in the National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on such date, or
(c) if the Common Stock is not then reported by the OTC Bulletin Board or the National
Quotation Bureau Incorporated (or similar organization or

15

 

agency succeeding to its functions of reporting prices), then the average of the “Pink
Sheet” quotes for the five (5) Trading Days preceding such date of determination, or (d) if
the Common Stock is not then publicly traded the fair market value of a share of Common
Stock as determined by an Independent Appraiser selected in good faith by the Majority
Holders; provided, however, that the Issuer, after receipt of the
determination by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Independent Appraiser; and provided, further
that all determinations of the Per Share Market Value shall be appropriately adjusted for
any stock dividends, stock splits or other similar transactions during such period. The
determination of fair market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as between a willing buyer
and a willing seller and taking into account all relevant factors determinative of value,
and shall be final and binding on all parties. In determining the fair market value of any
            shares of Common Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities laws, or to the
existence or absence of, or any limitations on, voting rights.

     “Purchase Agreement” means the Series D Convertible Preferred Stock Purchase
Agreement dated as of May___, 2006, among the Issuer and the investors a party thereto.

     “Securities” means any debt or equity securities of the Issuer, whether now or
hereafter authorized, any instrument convertible into or exchangeable for Securities or a
Security, and any option, warrant or other right to purchase or acquire any Security.
“Security” means one of the Securities.

     “Securities Act” means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.

     “Subsidiary” means any corporation at least 50% of whose outstanding Voting
Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of
its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

     “Term” has the meaning specified in Section 1 hereof.

     “Trading Day” means (a) a day on which the Common Stock is traded on the OTC
Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a
day on which banking institutions in the State of New York are authorized or required by law
or other government action to close.

     “Voting Stock” means, as applied to the Capital Stock of any corporation,
Capital Stock of any class or classes (however designated) having ordinary voting power for
the

16

 

election of a majority of the members of the Board of Directors (or other governing
body) of such corporation, other than Capital Stock having such power only by reason of the
happening of a contingency.

     “Warrants” means the Warrants issued and sold pursuant to the Purchase
Agreement, including, without limitation, this Warrant, and any other warrants of like tenor
issued in substitution or exchange for any thereof pursuant to the provisions of Section
2(c), 2(d) or 2(f) hereof or of any of such other Warrants.

     “Warrant Price” initially means $4.50, as such Warrant Price may be adjusted
from time to time as shall result from the adjustments specified in this Warrant, including
Section 4 hereto.

     “Warrant Share Number” means at any time the aggregate number of shares of
Warrant Stock which may at such time be purchased upon exercise of this Warrant, after
giving effect to all prior adjustments and increases to such number made or required to be
made under the terms hereof.

     “Warrant Stock” means Common Stock issuable upon exercise of any Warrant or
Warrants or otherwise issuable pursuant to any Warrant or Warrants.

     10. Other Notices. In case at any time:

	 	(A)	 	the Issuer shall make any
distributions to the holders of Common Stock; or
	 
	 	(B)	 	the Issuer shall authorize the
granting to all holders of its Common Stock of rights to
subscribe for or purchase any shares of Capital Stock of any
class or other rights; or
	 
	 	(C)	 	there shall be any
reclassification of the Capital Stock of the Issuer; or
	 
	 	(D)	 	there shall be any capital
reorganization by the Issuer; or
	 
	 	(E)	 	there shall be any (i)
consolidation or merger involving the Issuer or (ii) sale,
transfer or other disposition of all or substantially all of the
Issuer’s property, assets or business (except a merger or other
reorganization in which the Issuer shall be the surviving
corporation and its shares of Capital Stock shall continue to be
outstanding and unchanged and except a consolidation, merger,
sale, transfer or other disposition involving a wholly-owned
Subsidiary); or
	 
	 	(F)	 	there shall be a voluntary or
involuntary dissolution, liquidation or winding-up of the Issuer
or any partial

17

 

	 	 	 	liquidation of the Issuer or distribution to holders of
Common Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder of the date on
which (i) the books of the Issuer shall close or a record shall be taken for such dividend,
distribution or subscription rights or (ii) such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be entitled to exchange
their certificates for Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or
winding-up, as the case may be. Such notice shall be given at least twenty (20) days prior to the
action in question and not less than ten (10) days prior to the record date or the date on which
the Issuer’s transfer books are closed in respect thereto. This Warrant entitles the Holder to
receive copies of all financial and other information distributed or required to be distributed to
the holders of the Common Stock.

     11. Amendment and Waiver. Any term, covenant, agreement or condition in this Warrant
may be amended, or compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), by a written instrument or written instruments executed
by the Issuer and the Holder. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of this Warrant unless the same consideration
is also offered to all holders of the Warrants.

     12. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the substantive law of another
jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the
party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any
dispute arising under this Warrant will lie exclusively in the state or federal courts located in
New York County, New York, and the parties irrevocably waive any right to raise forum non
conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder
irrevocably consent to personal jurisdiction in the state and federal courts of the state of New
York. The Issuer and the Holder consent to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for notices to it under
this Warrant and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section 12 shall affect or limit any right to serve process in
any other manner permitted by law. The Issuer and the Holder hereby agree that the prevailing
party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase
Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing
party. The parties hereby waive all rights to a trial by jury.

     13. Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earlier of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., eastern time,
on a Trading Day, (ii) the Trading Day after the date of transmission, if such notice or

18

 

communication is delivered via facsimile at the facsimile telephone number specified for
notice later than 5:00 p.m., eastern time, on any date and earlier than 11:59 p.m., eastern time,
on such date, (iii) the Trading Day following the date of mailing, if sent by overnight delivery by
nationally recognized overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be with respect to the
Holder of this Warrant or of Warrant Stock issued pursuant hereto, addressed to such Holder at its
last known address or facsimile number appearing on the books of the Issuer maintained for such
purposes, or with respect to the Issuer, addressed to:

Dirt Motor Sports, Inc.

2500 McGee Drive, Suite 147

Norman, Oklahoma 73072

Attention: Chief Executive Officer

Tel. No.: (405) 360-5047

Fax No.: (405) 360-5354

Copies of notices to the Issuer shall be sent to Jackson Walker L.L.P., 2435 N. Central Expressway,
Suite 600, Richardson, Texas, 75080, Attention: Richard F. Dahlson, Telephone No.: (972) 744-2996,
Facsimile No.: (972) 744-2990. Copies of notices to the Holder shall be sent to such Holder’s
legal counsel as specified in the Purchase Agreement or in writing delivered from the Holder to the
Issuer, with copies to Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York,
New York 10036, Attention: Christopher S. Auguste, Telephone No.: (212) 715-9100, Facsimile No.:
(212) 715-9121. Any party hereto may from time to time change its address for notices by giving at
least ten (10) days written notice of such changed address to the other party hereto.

     14. Warrant Agent. The Issuer may, by written notice to each Holder of this Warrant,
appoint an agent having an office in New York, New York for the purpose of issuing shares of
Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof,
exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant
pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.

     15. Remedies. The Issuer stipulates that the remedies at law of the Holder of this
Warrant in the event of any default or threatened default by the Issuer in the performance of or
compliance with any of the terms of this Warrant are not and will not be adequate and that, to the
fullest extent permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction against a violation of
any of the terms hereof or otherwise.

     16. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof
and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall
be enforceable by any such Holder or Holder of Warrant Stock.

19

 

     17. Modification and Severability. If, in any action before any court or agency
legally empowered to enforce any provision contained herein, any provision hereof is found to be
unenforceable, then such provision shall be deemed modified to the extent necessary to make it
enforceable by such court or agency. If any such provision is not enforceable as set forth in the
preceding sentence, the unenforceability of such provision shall not affect the other provisions of
this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been
contained herein.

     18. Headings. The headings of the Sections of this Warrant are for convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

20

 

     IN WITNESS WHEREOF, the Issuer has executed this Series D Warrant as of the day and year first
above written.

	 	 	 	 	 
	 	DIRT MOTOR SPORTS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

21

 

EXERCISE FORM

SERIES D WARRANT

DIRT MOTOR SPORTS, INC.

The
undersigned
                    , pursuant to the provisions of the within Warrant, hereby elects to
purchase            shares of Common Stock of Dirt Motor Sports, Inc. covered by the within Warrant.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 
	 	 
	 	Signature
	 	 
	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

ASSIGNMENT

FOR VALUE RECEIVED,                      hereby sells, assigns and transfers unto
                     the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint
                    , attorney, to transfer the said Warrant on the books of the within named corporation.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 
	 	 
	 	Signature
	 	 
	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED,
                     hereby sells, assigns and transfers unto ___
the right to purchase            shares of Warrant Stock evidenced by the within Warrant together
with all rights therein, and does irrevocably constitute and appoint                     , attorney,
to transfer that part of the said Warrant on the books of the within named corporation.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 
	 	 
	 	Signature
	 	 
	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

FOR USE BY THE ISSUER ONLY:

This Warrant No. W-___
canceled (or transferred or exchanged) this
     day of
                ,
          ,
shares of Common Stock issued therefor in the name of
                    , Warrant No. W-___issued
for             shares of Common Stock in the name of                     .

-22-

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