EXHIBIT 10.10
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COMMON STOCK PURCHASE AGREEMENT
BETWEEN
ALPHA VENTURE CAPITAL, INC.
AND
EARTH SEARCH SCIENCES, INC.
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DATED AS OF MAY 23, 2001
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This COMMON STOCK PURCHASE AGREEMENT is entered into as of the 23rd
day of May, 2001 (this "Agreement"), between Alpha Venture Capital, Inc., a
corporation organized and existing under the laws of the Xxxx Islands (the
"Investor"), and Earth Search Sciences, Inc., a corporation organized and
existing under the laws of the State of Utah (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor
and the Investor shall purchase (i) from time to time as provided herein, up to
$10,000,000 of the Common Stock (as defined below), and (ii) Warrants (as
defined below) to purchase shares of Common Stock; and
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Affiliate" shall have the meaning assigned to such term in
Section 3.4 hereof.
Section 1.2 "Average Daily Trading Volume" shall mean the dollar amount
of the average daily trading volume of shares of Common Stock, calculated based
upon the average Bid Price and average daily trading volume traded over the
twenty (20) Trading Days preceding the Put Date.
Section 1.3 "Bid Price" shall mean the closing bid price of the Common
Stock on the Principal Market.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.5 "Commitment Amount" shall mean the $10,000,000 up to which
the Investor has agreed to provide to the Company in order to purchase Put
Shares pursuant to the terms and conditions of this Agreement.
Section 1.6 "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earlier to occur of (x) the date on which the
Investor shall have purchased Put Shares pursuant to this Agreement for an
aggregate Purchase Price of $10,000,000, or (y) the date occurring twelve (12)
months from the Effective Date; provided, however, if at least twenty percent
(20%) (i.e., $2,000,000) of the Commitment Amount is purchased during the first
twelve (12) months from the Effective Date, the Commitment Period shall be
extended for an additional twelve (12) months.
Section 1.7 "Common Stock" shall mean the Company's common stock,
$0.001 par value per share.
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Section 1.8 "Common Stock Equivalents" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
Section 1.9 "Condition Satisfaction Date" shall have the meaning
assigned to such term in Section 7.2 hereof.
Section 1.10 "Control Person" shall have the meaning assigned to such
term in Section 11.2(a) hereof.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12 "XXXXX" shall mean the SEC's electronic data gathering and
retrieval system.
Section 1.13 "Effective Date" shall mean the date on which the SEC has
declared the Registration Statement effective.
Section 1.14 "Escrow Agent" shall mean Dundee Securities Corporation.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the regulations promulgated thereunder.
Section 1.16 "Investment Amount" shall mean the dollar amount (within
the range specified in Section 2.1) to be invested by the Investor to purchase
Put Shares with respect to any Put Purchase Notice delivered by the Company to
the Investor in accordance with Section 2.1 hereof.
Section 1.17 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance or situation that would prohibit or otherwise
interfere with the ability of the Company to enter into and perform its
obligations under this Agreement.
Section 1.18 "Market Price" shall mean for the purpose of calculating
the Purchase Price of the Put Shares, the average of the five (5) lowest
reported VWAP of the Common Stock over the Valuation Period.
Section 1.19 "Maximum Put Amount" shall mean the lesser of $1,500,000
or three hundred percent (300%) of the Average Daily Trading Volume.
Section 1.20 "Minimum Put Amount" shall mean the lesser of $150,000 or
three hundred percent (300%) of the Average Daily Trading Volume.
Section 1.21 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.22 "Outstanding" when used with reference to Common Stock or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of
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outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.23 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.24 "Principal Market" shall mean the NASD OTC Bulletin Board,
Nasdaq SmallCap Market, the Nasdaq National Market, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.25 "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, as supplemented
by any prospectus supplement filed with the SEC pursuant to Rule 424(b).
Section 1.26 "Purchase Price" as used in this Agreement shall mean 88%
of the Market Price on the Put Date. The foregoing percentage is the "Purchase
Price Percentage."
Section 1.27 "Put" shall mean each occasion the Company elects to draw
down a portion from the equity line by exercising its right to tender a Put
Purchase Notice requiring the Investor to purchase a specified amount of the
Company's Common Stock, subject to the terms of this Agreement which tender must
be given to the Investor.
Section 1.28 "Put Closing" shall mean one of the closings of a purchase
and sale of the Put Shares pursuant to Section 2.3.
Section 1.29 "Put Closing Date" shall mean, with respect to a Put
Closing the second (2nd) Trading Day following the Put Date related to such Put
Closing, provided all conditions to such Put Closing have been satisfied on or
before such Trading Day.
Section 1.30 "Put Date" shall mean the date on which a Put Purchase
Notice is delivered to the Investor.
Section 1.31 "Put Purchase Notice" shall mean a written notice to the
Investor setting forth the Investment Amount that the Company intends to sell to
the Investor, as such form is attached hereto as Exhibit A.
Section 1.32 "Put Shares" shall mean all shares of Common Stock issued
or issuable pursuant to a Put that has occurred or may occur in accordance with
the terms and conditions of this Agreement.
Section 1.33 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement.
Section 1.34 "Registration Statement" shall mean the registration
statement on Form S-1 filed with the SEC for the registration of the Put Shares
and Warrant Shares, as such Registration Statement may be amended from time to
time.
Section 1.35 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
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Section 1.36 "SEC" shall mean the Securities and Exchange Commission.
Section 1.37 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.38 "Securities Act" shall have the definition ascribed to it
in the recitals of this Agreement.
Section 1.39 "SEC Documents" shall mean, to the extent applicable, the
Company's latest Form 10-K as of the time in question, all Forms 10-Q and 8-K
filed thereafter and all exhibits and amendments thereto and the Proxy Statement
for its latest fiscal year as of the time in question until such time the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement.
Section 1.40 "Trading Cushion" shall mean the mandatory minimum fifteen
(15) Trading Days between Put Dates.
Section 1.41 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.42 "VWAP" shall mean the daily volume weighted average price
(based on a Trading Day from 9:30 a.m. to 4:00 p.m., eastern time) of the Common
Stock of the Company on the OTC Bulletin Board (or any successor thereto) as
reported by Bloomberg Financial LP using the AQR function.
Section 1.43 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any
other distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above, at a price per share less, or
for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and
the price per share for which Additional Capital Shares may at
any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
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(e) issues any securities convertible into or exchangeable
for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be
issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the
foregoing subsections (a) through (f) hereof, inclusive, which
in the opinion of the Company's Board of Directors, determined
in good faith, would have a materially adverse effect upon the
rights of the Investor at the time of a Put.
Section 1.44 "Valuation Period" shall mean the period of ten (10)
Trading Days immediately preceding the Put Date during which the Purchase Price
of the Common Stock is determined.
Section 1.45 "Warrants" shall mean the common stock purchase warrants
of the Company described in Section 2.4, a form of which is annexed hereto as
Exhibit G.
Section 1.46 "Warrant Shares" shall mean the Common Stock issuable upon
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments/Puts. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII hereof), on
any Put Date the Company may exercise a Put by the delivery of a Put Purchase
Notice. The number of Put Shares that the Investor shall receive pursuant to
such Put shall be determined by dividing the relevant portions of the Investment
Amount specified in the Put Purchase Notice by the Purchase Price determined
during the Valuation Period. The Investment Amount for each Put as designated by
the Company in the applicable Put Purchase Notice shall be neither less than the
Minimum Put Amount and not more than the Maximum Put Amount and shall be subject
always to a limit of three hundred percent (300%) of the Average Daily Trading
Volume.
Section 2.2 Mechanics.
(a) Put Purchase Notice. At any time during the Commitment
Period, the Company may deliver a Put Purchase Notice, in substantially the form
and substance of Exhibit A, to the Investor, subject to the conditions set forth
in Section 7.2.
(b) Date of Delivery of Put Purchase Notice. A Put Purchase
Notice shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior to 2:00
p.m. New York time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 2:00 p.m. New York time on a Trading
Day or at any time on a day which is not a Trading Day. No Put Purchase Notice
may be deemed delivered on a day that is not a Trading Day.
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(c) Determination of Put Shares Issuable. The Purchase Price
shall be based on the Purchase Price Percentage of the Market Price during the
Valuation Period. The number of Put Shares to be purchased by the Investor shall
be settled on the Put Closing Date.
Section 2.3 Put Closings. On the first (1st) Trading Day following any
Put Date, the Company shall have delivered to the Escrow Agent certificates for
such number of shares of Common Stock, the Warrants and a certificate for such
number of Warrant Shares issuable upon exercise of the Warrants and the Investor
shall deliver to the Escrow Agent the Purchase Price for such Put in immediately
available funds. On the Put Closing Date, upon the joint written directions of
the Company and the Investor, the Escrow Agent shall deliver the certificates to
the Investor and the Purchase Price to the Company. Additionally, on or prior to
the Put Closing Date, each of the Company and the Investor shall deliver all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
certificates to the Investor shall occur out of escrow in accordance with the
escrow agreement referred to in Section 6.2(o) following (x) the Company's
deposit into escrow of the unlegended certificates representing the Put Shares
and (y) the Investor's deposit into escrow of the Investment Amount.
Section 2.4 Purchase and Sale of Warrants. Under the terms of this
Agreement, on the date hereof, the Company shall issue to the Investor Warrants
to purchase 3,000,000 shares of Common Stock exercisable for a period of five
(5) years, of which Warrants to purchase 1,500,000 shares of Common Stock shall
be immediately exercisable (the "A Warrants") and Warrants to purchase 1,500,000
shares of Common Stock shall be exercisable after the Effective Date (the "B
Warrants").
Section 2.5 Valuation Event. If a Valuation Event occurs at any time
during a Valuation Period, the Investor may in its sole discretion (i) purchase
the Investment Amount of shares of Common Stock granted during such Valuation
Period on the terms at which the Company issued shares of Common Stock pursuant
to the Valuation Event during such Valuation Period, net of any third party's
discount and fees, (ii) purchase the Investment Amount of shares of Common Stock
granted during such Valuation Period at the applicable Purchase Price for such
Valuation Period, or (iii) elect not to purchase any shares of Common Stock
during such Valuation Period. The Investor shall notify the Company of its
election on the last Trading Day of the Valuation Period.
Section 2.6 Liquidated Damages. If the Company fails to cause its
transfer agent to deliver to the Investor unlegended certificates representing
Put Shares to be sold or in connection with the sale by the Investor within
three (3) business days of the Investor's request, the Company shall pay the
Investor, as liquidated damages for such failure to deliver and not as a
penalty, in cash, an amount equal to $500 per each $100,000 funded for each day
that such Put Shares are not delivered up to ten (10) days, and $1,000 per each
$100,000 funded for each day that the Put Shares are not delivered in excess of
ten (10) days, until such Put Shares have been delivered. The Escrow Agent shall
be directed to pay such liquidated damages to the Investor out of the Investment
Amount delivered by the Investor to the Escrow Agent. If no funds remain in
escrow, the Company will be liable for the liquidated damages which shall be
payable on demand.
Section 2.7 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Put Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for a consecutive ten day calendar
period or for an aggregate
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of thirty (30) Trading Days during the Commitment Period, for any reason, or
(ii) the Company shall at any time fail to comply with the requirements of
Section 5.2, 5.3, 5.4, 5.5 or 5.6.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and not with a view to the distribution of the Common Stock, and
the Investor has no present arrangement (whether or not legally binding) at any
time to sell the Common Stock to or through any person or entity; provided,
however, that by making the representations herein, the Investor does not agree
to hold the Common Stock for any minimum or other specific term and reserves the
right to dispose of the Common Stock at any time in accordance with federal and
state securities laws applicable to such disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and the Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director
or to Investor's good faith belief, an "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated hereby, and compliance
with the requirements hereof, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor, or, to the
Investor's knowledge, (a) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (b) conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.6 Disclosure; Access to Information. The Investor has
received all documents, records, books and other information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has had access to copies of any such reports that have
been requested by it.
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Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.8 Governmental Review. Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Common Stock,
the Warrants and the Warrant Shares.
Section 3.9 Transfer or Re-sale. Investor understands that: (i) except
as provided in the Registration Rights Agreement by and between the Investor and
the Company, dated the date hereof, the sale or re-sale of the Common Stock, the
Warrants and the Warrant Shares has not been and is not being registered under
the Securities Act or any applicable state securities laws, and the Common
Stock, the Warrants and the Warrant Shares may not be transferred unless (a) the
Common Stock, the Warrants and the Warrant Shares are sold pursuant to an
effective registration statement under the Securities Act, (b) the Investor
shall have delivered to the Company an opinion of counsel (which opinion shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Common Stock, the Warrants and the Warrant
Shares to be sold or transferred may be sold or transferred pursuant to an
exemption from registration, (c) the Common Stock, the Warrants and the Warrant
Shares are sold or transferred to an "affiliate" (as defined in Rule 144 of the
Securities Act) of the Investor who agrees to sell or otherwise transfer the
Common Stock, the Warrants and the Warrant Shares only in accordance with this
Section 3.9 and who is an Accredited Investor (as defined in Regulation D), (d)
the Common Stock, the Warrants and the Warrant Shares are sold pursuant to Rule
144; (ii) any sales of the Common Stock, the Warrants and the Warrant Shares
made in reliance on Rule 144 may be made only in accordance with the terms of
such rule and further, if such rule is not applicable, any re-sale of the Common
Stock, the Warrants and the Warrant Shares under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Common Stock, the Warrants and the Warrant Shares
under the Securities Act or any state securities laws or comply with the terms
and conditions of any exemption thereunder (in each case, other than pursuant to
the Registration Rights Agreement).
Section 3.10 Trading Guidelines. So long as Investor holds Common
Stock, Warrants or Warrant Shares, Buyer covenants and agrees that it will
conduct all sales of Common Stock in compliance with applicable securities laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor, except as may be
set forth in the Disclosure Schedule delivered in connection herewith, that:
Section 4.1 Organization of the Company. The Company is a corporation
duly organized and existing in good standing under the laws of the State of Utah
and has all requisite corporate authority to own its properties and to carry on
its business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
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Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement to issue the Put Shares; (ii) the execution, issuance and delivery of
this Agreement, the issuance of the Put Shares and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required; and (iii) this Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
Section 4.3 Capitalization. As of May 15, 2001, the authorized capital
stock of the Company consists of 200,000,000 shares of Common Stock, of which
154,910,609 shares are issued and outstanding, and 200,000 shares of preferred
stock are issued and outstanding. Except as set forth in Schedule 4.3, there are
no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.
Section 4.4 Common Stock. As of the commencement of the Commitment
Period, the Company will have registered its Common Stock pursuant to Section
12(b) or 12(g) of the Exchange Act and be in full compliance with all reporting
requirements of the Exchange Act, if any, and the Company will have maintained
all requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is then listed or quoted on the Principal Market. As of the
date hereof, the Common Stock is traded on the OTC Bulletin Board.
Section 4.5 Financial Statements. The Company has delivered or made
available to the Investor true and complete copies of unaudited financial
statements (with footnotes if available) as of and for the period ending
December 31, 2000 (the "Financial Statements"). The Company has not provided to
the Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. The Financial Statements fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of operations for the periods then ended, subject
to normal year-end audit adjustments.
Section 4.6 Valid Issuances. Assuming the accuracy of the
representations and warranties contained in Sections 3.1, 3.2, 3.4 and 3.7
hereof both at the date hereof and at the time of sale and issuance, the sale
and issuance of the Put Shares will be exempt from registration under the
Securities Act in reliance upon Section 4(2) thereof and/or Regulation D thereto
and when issued, the Put Shares shall be duly and validly issued, fully paid,
and nonassessable. Neither the sales of the Put Shares pursuant to, nor the
Company's performance of its obligations under this Agreement will (i) result in
the creation or imposition of any liens, charges, claims or other encumbrances
upon the Put Shares or any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
to or acquire the Capital Shares or other securities of the Company. The Put
Shares shall not subject the Investor to personal liability by reason of the
possession thereof.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has
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conducted or will conduct any general solicitation (as that term is used in Rule
502(c) of Regulation D) or general advertising with respect to any of the Put
Shares, or (ii) made any offers or sales of any security or solicited any offers
to buy any security under any circumstances that would require registration of
the Common Stock under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including, without limitation, the issuance of
Common Stock do not and will not (i) result in a violation of the Company's
Certificate or By-Laws or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any "lock-up"
or similar provision of any underwriting or similar agreement to which the
Company is a party, or (iii) result in a violation of any federal, state, local
or foreign law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or by which
any property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect) nor is the Company otherwise in violation of, conflict with or
in default under any of the foregoing; provided that, for purposes of the
Company's representations and warranties as to violations of foreign law, rule
or regulation referenced in clause (iii), no such representations and warranties
are being made insofar as the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either
individually or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Common Stock in accordance with the terms hereof (other than any
SEC, NASD or state securities filings that may be required to be made by the
Company subsequent to any Put Closing, any registration statement that may be
filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on any Principal Market);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.10 No Material Adverse Change. Since the date of the
Financial Statements described in Section 4.5, no Material Adverse Effect has
occurred or exists with respect to the Company.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed to the Investor in the Financial Statements or otherwise in writing,
other than those incurred in the ordinary course of the Company's businesses
since the date of the Financial Statements and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company.
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Section 4.12 No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires as of the date hereof, public
disclosure or announcement prior to the date hereof by the Company.
Section 4.13 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as set forth in
the Financial Statements described in Section 4.5, there are no lawsuits or
proceedings pending or to the best knowledge of the Company threatened, against
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which might have a Material Adverse
Effect. Except as set forth on Schedule 4.14, no judgment, order, writ,
injunction, decree or award has been issued by or, so far as is known by the
Company, requested by any court, arbitrator or governmental agency which might
result in a Material Adverse Effect.
Section 4.15 No Misleading or Untrue Communication. The Company and any
Person representing the Company, in connection with the transactions
contemplated by this Agreement, have not made, at any time, any communication in
connection with same, which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.16 Non-Public Information. Neither the Company nor any of its
officers of agents has disclosed any material non-public information about the
Company to the Investor.
Section 4.17 Securities Act of 1933. The Company has complied and will
comply in all material respects with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the Put Shares and
Warrant Shares hereunder.
(i) Each Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Securities Act, complied when so filed
in all material respects with the provisions of the Securities Act. The SEC has
not issued any order preventing or suspending the use of any Prospectus.
(ii) The Company meets the requirements for the use of Form
S-1 under the Securities Act. The Registration Statement in the form in which it
became effective and also in such form as it may be when any post-effective
amendment thereto became effective and the Prospectus and any supplement or
amendment thereto when filed with the SEC under Rule 424(b) under the Securities
Act, complied in all material respects with the provisions of the Securities Act
and did not at any such times contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in the light of the
circumstances under which they made) not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to the Investor furnished to the Company in
writing by or on behalf of the Investor expressly for use therein.
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(iii) The Company has not distributed and, prior to the
completion of the sale of the Put Shares and Warrant Shares to the Investor,
will not distribute any offering material in connection with the offering and
sale of the Put Shares or Warrant Shares other than the Registration Statement,
the Prospectus or other materials, if any, permitted by the Securities Act.
Section 4.18 Use of Proceeds. The proceeds from the sale of the Put
Shares and Warrant Shares will be used by the Company for working capital and
general corporate purposes.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Effective Registration Statement. If it is necessary for
the Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Put Shares or Warrant Shares may commence,
the Company will cause the Registration Statement or such post-effective
amendment to become effective as soon as reasonably practicable and will advise
the Investor promptly and, if requested by the Investor, will confirm such
advice in writing, when it receives notice that the Registration Statement or
such post-effective amendment has become effective.
Section 5.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the Put
Shares.
Section 5.3 Quoting or Listing of Common Stock. The Company shall
maintain the quoting or listing of the Common Stock on a Principal Market, and
as soon as practicable (but in any event prior to the commencement of the
Commitment Period) to list the Put Shares on the Principal Market. The Company
further shall, if the Company applies to have the Common Stock traded on any
other Principal Market, include in such application the Put Shares, and shall
take such other action as is necessary or desirable to cause the Common Stock to
be listed on such other Principal Market as promptly as possible. The Company
shall take all action necessary to continue the quoting, listing and trading of
its Common Stock on the Principal Market and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the Principal Market.
Section 5.4 Exchange Act Registration. The Company shall cause its
Common Stock to become and continue to be registered under Section 12(g) or
12(b) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act. The Company will
take all action to obtain a listing and continue the listing and trading of its
Common Stock on the Principal Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market.
Section 5.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor shall be free of legends.
Section 5.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
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Section 5.7 Additional SEC Documents. In the event that the SEC
Documents furnished or submitted to the SEC by the Company are not available or
accessible by the Investor on XXXXX, the Company will deliver to the Investor,
as and when the originals thereof are submitted to the SEC for filing, copies of
all such SEC Documents.
Section 5.8 Blackout Period. The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of the
Registration Statement or Prospectus: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the Registration Statement or related Prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and (v) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the Prospectus.
The Company shall not deliver to the Investor any Put Purchase Notice during the
continuation of any of the foregoing events or if the Company has knowledge that
any of the foregoing events will occur within ten (10) days of such knowledge.
If the Registration Statement shall cease to be effective for any reason
whatsoever (other than as a result of any actions or omissions of the Investor),
the Company shall immediately take all necessary action to cause the
Registration Statement to be amended or supplemented so as to cure the default.
Failure to cure such default within fifteen (15) business days shall result in
the Company paying a liquidated damage penalty of $1,000 per day for so long as
more than 10,000 shares of Common Stock are held by the Investor. Additionally,
if the Registration Statement is not declared effective by the Effectiveness
Date (as defined in the Registration Rights Agreement), the amount of A Warrants
issued to the Investor shall increase by five percent (5%) for each thirty (30)
day period that the Registration Statement is not declared effective after the
Effectiveness Date (as defined in the Registration Rights Agreement). If the
Registration Statement is not declared effective by the 150th day after the date
hereof, the Investor shall have the right to terminate this Agreement and retain
the A Warrants.
Section 5.9 Disclosure of Material Information. In the event that any
or all of the information set forth on Schedule 7.2(a) hereto becomes material,
the Company shall make full and complete public disclosure if required by and in
accordance with all applicable law.
Section 5.10 Other Financings. The Company covenants and agrees that it
will not, without the prior written consent of Investor, enter into any equity
financings containing any discount or variable pricing or issue any of its
equity securities (or instruments convertible into or exercisable for equity
securities) in any offerings priced at a discount to market or priced using a
variable pricing method with any third party until the later of (a) April 1,
2002 or (b) the expiration of the Commitment Period (the "Restrictive Period"),
other than as agreed to in writing by the parties; provided, however, that
during the
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Restrictive Period, the Company shall be entitled to issue equity securities to
strategic partners and/or in connection with mergers or acquisitions in which
the Company is the surviving entity, so long as such securities are "restricted
securities" pursuant to Rule 144 of the Securities Act. Any equity financing or
debt financing arranged by the investment banking firm of Xxxxxxxx Xxxxx Xxxxxx
& Xxxxx in connection with the development of the Company's space program and
expansion of the Company's airborne business is hereby excluded from the
financing restrictions contained in this Section 5.10. The Company shall notify
the Investor in writing no later than ten (10) Trading Days prior to the
issuance of any convertible security or securities issued at a discount to
market.
Section 5.11. Issuance of Put Shares. The sale and issuance of the Put
Shares shall be made in accordance with the provisions and requirements of
applicable federal and state law.
Section 5.12 Amendments to the Registration Statement. The Company will
not (i) file any amendment to the Registration Statement or make any amendment
or supplement to the Prospectus relating to the Investor in any way whatsoever
of which the Investor shall not previously have been advised or to which the
Investor shall reasonably object after being so advised or (ii) so long as, in
the reasonable opinion of counsel for the Investor, a Prospectus is required to
be delivered in connection with sales by any Investor or dealer, file any
information, documents or reports pursuant to the Exchange Act without
delivering a copy of such information, documents or reports to the Investor,
promptly following such filing.
Section 5.13 Prospectus Delivery. The Company shall file a prospectus
supplement to its Registration Statement on the first Trading Day immediately
following the end of each Valuation Period, and will deliver to the Investor,
without charge, in such quantities as reasonably requested by the Investor,
copies of each form of Prospectus and prospectus supplement on each Put Closing
Date. The Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Securities Act and
with the securities or Blue Sky laws of the jurisdictions in which the Put
Shares or Warrant Shares may be sold by the Investor, in connection with the
offering and sale of the Put Shares and Warrant Shares and for such period of
time thereafter as the Prospectus is required by the Securities Act to be
delivered in connection with sales of the Put Shares and Warrant Shares. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Investor is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Securities Act or any
other law, the Company will forthwith prepare and file with the SEC an
appropriate supplement or amendment thereto, and will expeditiously furnish to
the Investor a reasonable number of copies thereof.
ARTICLE VI
CONDITIONS TO DELIVERY OF PUT
PURCHASE NOTICES AND CONDITIONS TO PUT CLOSING
Section 6.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Put Closing is subject
to the satisfaction, at or before each such Put Closing, of each of the
conditions set forth below.
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(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor
shall be true and correct in all material respects as of the
date of this Agreement and as of the date of each such Put
Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all respects with
all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Investor at or prior to such Put Closing.
Section 6.2 Conditions Precedent to the Right of the Company to Deliver
a Put Purchase Notice and the Obligation of the Investor to purchase Put Shares.
The right of the Company to deliver a Put Purchase Notice and the obligation of
the Investor hereunder to acquire and pay for the Put Shares incident to a Put
Closing is subject to the satisfaction, (i) on the Put Date, (ii) for each day
during the Valuation Period, and (iii) on the applicable Put Closing Date (each
a "Condition Satisfaction Date"), of each of the following conditions:
(a) Effective Registration Statement. The Company
shall have the Put Shares and Warrant Shares registered under
the Registration Statement equal to or in excess of the number
of Put Shares and Warrant Shares issuable pursuant this
Agreement. The Registration Statement registering the offer
and sale of the Put Shares and Warrant Shares shall have been
declared effective by the SEC and shall have been amended or
supplemented, as required, to disclose the sale of the Put
Shares and Warrant Shares prior to each Put Closing Date, as
applicable, and there shall be no stop order suspending the
effectiveness of the Registration Statement.
(b) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
shall be true and correct in all material respects as of each
Condition Satisfaction Date as though made at each such time
(except for representations and warranties specifically made
as of a particular date) with respect to all periods, and as
to all events and circumstances occurring or existing to and
including each Condition Satisfaction Date, except for any
conditions which have temporarily caused any representations
or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the
Investor.
(c) Performance by the Company. The Company shall
have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition
Satisfaction Date, including but not limited to the
requirements for the Company and its transfer agent set forth
in Sections 8.1 and 8.2 to deliver Common Stock without
legends pursuant to the terms set forth in Sections 8.1 and
8.2, and Exhibit B hereto.
(d) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that
prohibits or directly or materially adversely affects any of
the transactions contemplated by this Agreement, and
16
no proceeding shall have been commenced that may have the
effect of prohibiting or materially adversely affecting any of
the transactions contemplated by this Agreement.
(e) Adverse Changes. Since the date of filing of the
Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has
occurred.
(f) No Suspension of Trading In or Delisting of
Common Stock. The trading of the Common Stock (including
without limitation the Put Shares) shall not have been
suspended by the SEC, the Principal Market or the NASD and the
Common Stock (including without limitation the Put Shares)
shall have been approved for listing or quotation and shall
have actually been listed or quoted on, and shall not have
been delisted from the Principal Market, nor shall the Company
have received any letter or notice of any suspension or
delisting or warning of such suspension or delisting. The
issuance of shares of Common Stock with respect to the
applicable Put Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(g) Legal Opinions. The Company's counsel shall
deliver to the Investor upon execution of this Agreement an
opinion in the form of Exhibit C hereto, addressing, among
other things, corporate matters and the exemption from
registration under the Securities Act of the issuance of the
Registrable Securities by the Company to the Investor under
this Agreement. The Company shall also have caused to be
delivered to the Investor, within five (5) Trading Days of the
Effective Date and upon the delivery of a Put Purchase Notice,
an updated opinion of the Company's counsel addressed to the
Investor; provided, however, that in the event that such an
opinion cannot be delivered by the Company's counsel to the
Investor, the Company shall not deliver a Put Purchase Notice.
If a Put Purchase Notice shall have been delivered in good
faith without knowledge by the Company that an opinion of
counsel cannot be delivered as required, at the option of the
Investor, either the applicable Put Closing Date shall
automatically be postponed for a period of up to five (5)
Trading Days until such an opinion is delivered to the
Investor, or such Put Closing shall otherwise be canceled.
Liquidated damages determined pursuant to Section 2.6 shall be
calculated and payable on the Put Closing Date.
(h) [Intentionally Omitted].
(i) Blue Sky. The Company shall have complied with
all blue sky laws to enable the Put Shares and Warrant Shares
to be issued and resold in the States of New York, New Jersey,
Florida, Connecticut and California.
(j) Ten Percent Limitation. The number of Put Shares
to be purchased on each Put Closing Date and the number of
Warrant Shares issuable upon any exercise of such Warrant by
the Investor shall not exceed the number of such shares that,
when aggregated with all other shares of Common Stock then
owned by the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor owning
more than 9.99% of all of such Common Stock as would be
outstanding on such Put Closing Date or such date of exercise
of the Warrant, as determined in accordance with Section 16 of
the Exchange Act and the regulations promulgated thereunder.
For purposes of this Section 6.2(j), in the event that the
amount of Common Stock
17
outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is
greater on a Put Closing Date than on the date upon which the
Put Purchase Notice associated with such Put Closing Date is
given, the amount of Common Stock outstanding on such Put
Closing Date shall govern for purposes of determining whether
the Investor, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Shares, would own
more than 9.99% of the Common Stock following such Put Closing
Date.
(k) Cross Default. The Company shall not be in
default of a term, covenant, warranty or undertaking of any
other agreement to which the Company and Investor are parties,
nor shall there have occurred an event of default under any
such other agreement, in each case which default would have a
material adverse effect on the financial condition of the
Company or the Company's ability to comply with its
obligations to the Investor.
(l) No Knowledge. The Company shall have no knowledge
of any event more likely than not to have the effect of
causing such Registration Statement to be suspended or
otherwise ineffective (which event is more likely than not to
occur within the Valuation Period during which the Put
Purchase Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have
elapsed since the immediately preceding Put Date.
(n) Shareholder Vote. The issuance of shares of
Common Stock with respect to the applicable Put Closing, if
any, shall not violate the shareholder approval requirements
of the Principal Market.
(o) Escrow Agreement. The parties hereto shall have
entered into an escrow agreement in the form of Exhibit D
hereto for the Purchase Prices due hereunder, providing for
the then prevailing interest on any funds deposited into the
escrow account established under such agreement.
(p) Escrow Shares. The Company shall maintain at all
times in the Escrow Account (as defined in the Escrow
Agreement) the greater of (a) 6,000,000 shares of Common Stock
and (b) 150% of the number of Put Shares issuable pursuant to
any upcoming Put, to enable the Escrow Agent to deliver the
Put Shares and the Warrant Shares to the Investor.
(q) Secretary's Certificate. The Investor shall have
received a Secretary's Certificate in substantially the form
and substance of Exhibit E hereto, executed by the Secretary
of the Company.
(r) Other. On each Condition Satisfaction Date, the
Investor shall have received such certificates and documents
as are required by this Agreement in order for the Investor to
confirm the Company's satisfaction of the conditions set forth
in this Section 6.2 including, without limitation, a
Compliance Certificate in substantially the form and substance
of Exhibit F hereto, executed by an executive officer of the
Company and to the effect that all the conditions to such Put
Closing shall have been satisfied as at the date of each such
certificate.
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ARTICLE VII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 7.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information.
(a) Except as set forth on Schedule 7.2(a) hereof, the Company
represents and warrants that the Company and its officers, directors, employees
and agents have not disclosed any non-public information to the Investor or
advisors to or representatives of the Investor. The Company covenants and agrees
that it shall refrain from disclosing, and shall cause its officers, directors,
employees and agents to refrain from disclosing, unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.
(b) The Company acknowledges and understands that the Investor
is entering into this Agreement at the request of the Company and in good faith
reliance on (i) the Company's representation set forth in Section 4.16 that
neither it nor its agents have disclosed to the Investor any material non-public
information; and (ii) the Company's covenant set forth in Section 5.9 that if
all or any portion of the information set forth on Schedule 7.2(a) becomes
material, the Company shall timely make full and complete public disclosure of
all or such portion of such information that shall have become material as
required by and in accordance with applicable law.
(c) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally
19
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 7.2 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE VIII
LEGENDS
Section 8.1 Legend. Unless otherwise provided below, each certificate
representing the Put Shares and Warrant Shares shall be stamped or otherwise
imprinted with a legend substantially in the following form (the "Legend"):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") 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 EARTH SEARCH
SCIENCES, INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION
OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
As soon as practicable after the execution and delivery hereof, the
Company shall issue to the transfer agent instructions in substantially the form
of Exhibit B hereto. Such instructions shall be irrevocable by the Company from
and after the date thereof or from and after the issuance thereof. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent to issue to the Investor, certificates evidencing the Put Shares
or Warrant Shares incident to a Put and issued on a Put Closing Date, free of
the Legend, without consultation by the transfer agent with the Company or its
counsel and without the need for any further advice or instruction or
documentation to the transfer agent by or from the Company or its counsel or the
Investor; provided, that (a) the Registration Statement shall then be effective,
(b) the Investor confirms to the transfer agent and the Company that it has or
intends to sell such Put Shares or Warrant Shares to a third party that is not
an affiliate of the Investor or the Company and the Investor agrees to redeliver
the certificate representing such Put Shares or Warrant Shares to the transfer
agent to add the Legend in the event the Put Shares or Warrant Shares are not
sold, and (c) if reasonably requested by the transfer agent or the Company, the
Investor confirms to the transfer agent and the Company that the Investor has
complied with the prospectus delivery requirement under the Securities Act. At
any time after the Effective Date, upon surrender of one or more certificates
evidencing Common Stock that bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to replace
those surrendered, the transfer agent shall
20
reissue such shares of Common Stock free of the Legend.
Section 8.2. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Put Shares or Warrant Shares and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VIII.
Section 8.3. Investor's Compliance. Nothing in this Article VIII shall
affect in any way the Investor's obligations to comply with all applicable
securities laws upon resale of the Put Shares and the Warrant Shares.
ARTICLE IX
CHOICE OF LAW/VENUE
Section 9.1 Choice of Law/Venue. This Agreement and the Warrants shall
be governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of laws. Any action brought by
either party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the city and/or state of New York. Both parties and
the individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
actual reasonable attorneys' fees and costs. In the event that any provision of
this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of any
agreement.
ARTICLE X
ASSIGNMENT; AMENDMENT; TERMINATION
Section 10.1 Assignment. Neither this Agreement nor any rights or
obligations of the Investor or the Company hereunder may be assigned by either
party to any other person. Notwithstanding the foregoing, (a) the provisions of
this Agreement shall inure to the benefit of, and be enforceable by, and be
binding upon, any transferee of any of the Common Stock purchased or acquired by
the Investor hereunder with respect to the Common Stock held by such person
unless such Common Stock is free from restrictions on further transfer of such
Common Stock, and (b) the Investor's interest in this Agreement may be assigned
at any time, in whole or in part, to any other person or entity (including any
affiliate of the Investor) effective upon written notice to the Company. The
assignee shall assume the obligations of the Investor under this Agreement.
Notwithstanding such assignment by Investor, Investor shall still be liable for
any obligations under this Agreement not assumed by the assignee. The Company
shall have the right to require any assignee to execute a counterpart of this
Agreement.
Section 10.2 Termination. This Agreement shall terminate (i) upon
mutual consent of the Company and the Investor or (ii) twelve (12) months after
the commencement of the Commitment Period unless at least 20% (i.e., $2,000,000)
of the Commitment Amount is purchased during the first twelve
21
(12) months from the Effective Date, in which case this Agreement shall
terminate twenty-four (24) months after the commencement of the Commitment
Period; provided, however, that the provisions of Articles V, VII, VIII, IX, X,
XI and XII shall survive the termination of this Agreement.
Section 10.3 Amendment. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by both parties hereto.
ARTICLE XI
NOTICES; INDEMNIFICATION
Section 11.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company:
Earth Search Sciences, Inc.
0000 Xxxxxxx Xxxxxxx 00
Xxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Chief Financial Officer
With a copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
51st Floor, 0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
If to the Investor:
Alpha Venture Capital, Inc.
Xxxxxx Xxxxxxxxx
00
Xxxx Xxxxxxx
Telephone No: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xx. Xxxxx Xxxxxx, Director
With a copy to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone No.:(000) 000-0000
Facsimile No: (000) 000-0000
Attention: Xxxxxxxxxxx X. Xxxxxxx, Esq.
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 11.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 11.2 Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Investor, its partners, Affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act or is controlled by the Investor (the "Control Person") from and
against any Damages, joint or several, and any action in respect thereof to
which the Investor, its partners, Affiliates, officers, directors, employees,
and duly authorized agents, and any such Control Person becomes subject to,
resulting from, arising out of or relating to any misrepresentation, breach of
warranty or nonfulfillment of or failure to perform any covenant or agreement on
the part of Company contained in this Agreement in any event as such Damages are
incurred.
(b) The Investor agrees to indemnify and hold harmless the
Company, its partners, Affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Control Persons from and against any Damages,
joint or several, and any action in respect thereof to which the Company, its
partners, Affiliates, officers, directors, employees, and duly authorized
agents, and any such Control Person becomes subject to, resulting from, arising
out of or relating to any misrepresentation, breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part of
Investor contained in this Agreement in an aggregate amount not to exceed
one-quarter of the Commitment Amount.
Section 11.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 11.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 11.2 (an
"Indemnified Party") might seek indemnity under Section 11.2 is asserted against
or sought to be collected from such Indemnified Party by a person other than the
Company, the Investor or any affiliate of the Company or (a "Third Party
Claim"), the Indemnified Party shall deliver a written notification, enclosing a
copy of all papers served, if any, and
23
specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim for indemnification that is being asserted under any
provision of Section 11.2 against any person (the "Indemnifying Party"),
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim Notice")
with reasonable promptness to the Indemnifying Party. If the Indemnified Party
fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party will not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been irreparably prejudiced by such failure of the Indemnified Party.
The Indemnifying Party will notify the Indemnified Party as soon as practicable
within the period ending thirty (30) calendar days following receipt by the
Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined
below) (the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability to the Indemnified Party under Section
11.2 and whether the Indemnifying Party desires, at its sole cost and expense,
to defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
11.3(a), then the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently defended by the
Indemnifying Party to a final conclusion or will be settled at the discretion of
the Indemnifying Party (but only with the consent of the Indemnified Party in
the case of any settlement that provides for any relief which affects the
Indemnified Party, other than the payment of monetary damages or that provides
for the payment of monetary damages as to which the Indemnified Party will not
be indemnified in full pursuant to Section 11.2). The Indemnifying Party will
have full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any time
if it irrevocably waives its right to indemnity under Section 11.2 with respect
to 100% of such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 11.3(a), or if the Indemnifying Party
gives such notice but fails to defend vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the
24
Indemnifying Party will, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute Period
that the Indemnifying Party disputes its liability or the amount of its
liability hereunder to the Indemnified Party with respect to such Third Party
Claim and if such dispute is resolved in favor of the Indemnifying Party in the
manner provided in clause (iii) below, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this clause (ii) or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party will
reimburse the Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause (ii), and
the Indemnifying Party will bear its own costs and expenses with respect to such
participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 11.2 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the Loss in the amount
specified in the Claim Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 11.2 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the Indemnified Party will
proceed in good faith to negotiate a resolution of such dispute (the "Resolution
Period"), and if not resolved through negotiations within the Resolution Period,
such dispute shall be resolved by arbitration in accordance with paragraph (c)
of this Section 11.3.
(b) In the event any Indemnified Party should have a claim
under Section 11.2 against the Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver a written notification of a
claim for indemnity under Section 11.2 specifying the nature of and basis for
such claim, together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such claim (an "Indemnity
Notice") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that the Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim or the amount
of the claim described in such Indemnity Notice or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim or the amount of the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 11.2 and
the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability or
the amount of its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party will proceed in good faith to negotiate a resolution
of such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration in accordance with
paragraph (c) of this Section 11.3.
(c) If the parties are unable to resolve a dispute as
contemplated by Sections 11.3(a) and (b) hereof, the parties agree that such
dispute shall be settled by arbitration as their sole and exclusive remedy with
respect to such dispute, such arbitration to be held in the State of New York,
under the rules promulgated by the American Arbitration Association, as amended
from time to time. Any
25
decision rendered in such arbitration proceeding shall be non-appealable, final
and binding upon the parties. All expenses incurred in any arbitration
proceeding shall be borne equally by the parties.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder.
Section 12.2 Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party
except as described on Schedule 12.2.
Section 12.3 Publicity. Except as required by applicable law, the
Company shall not issue any press release or otherwise make any public statement
or announcement with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement without the prior consent of the
Investor.
Section 12.4 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 12.5 Entire Agreement. This Agreement with the Exhibits hereto,
the Registration Rights Agreement, the Escrow Agreement and the Warrants set
forth the entire agreement and understanding of the parties relating to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
to this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as if fully set forth herein.
Section 12.6 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Put Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 12.7 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.8 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
EARTH SEARCH SCIENCES, INC.
By: _____________________________________
Name: Xxxx Xxxxxxx
Title: Chief Financial Officer
ALPHA VENTURE CAPITAL, INC.
By: _____________________________________
Name: Xxxxx Xxxxxx
Title: Director
27
SCHEDULE 4.3
------------
OUTSTANDING OPTIONS AND WARRANTS
28
SCHEDULE 4.14
-------------
JUDGMENTS
29
EXHIBIT A
FORM OF
PUT PURCHASE NOTICE
Reference is made to the Common Stock Purchase Agreement dated
as of May 23, 2001 (the "Agreement ") between Earth Search Sciences, Inc., a
Utah corporation (the "Company") and Alpha Venture Capital, Inc., a corporation
organized and existing under the laws of the Xxxx Islands. Capitalized terms
used and not otherwise defined herein shall have the meanings given such terms
in the Agreement.
In accordance with and pursuant to Section 2.2 of the
Agreement, the Company hereby issues this Put Purchase Notice to exercise a Put
request for the Put Amount indicated below.
Put Amount: ____________________________________
Valuation Period start date: ___________________
Valuation Period end date: _____________________
Put Closing Date: ______________________________
Dated: _____________________________
_________________________________
By:______________________________
Name:
Title:
Address:
Facsimile No.:
Wire Instructions: _______________
Contact Name: ___________________
30
EXHIBIT B
INSTRUCTIONS TO TRANSFER AGENT
EARTH SEARCH SCIENCES, INC.
________________, 2001
[Name and address
of Transfer Agent]
Ladies & Gentlemen:
Reference is made to that certain Common Stock Purchase Agreement (the
"Agreement") between Alpha Venture Capital, Inc. (the "Investor") and Earth
Search Sciences, Inc. (the "Company"). Pursuant and subject to the terms and
conditions set forth in the Agreement the Investor has agreed to purchase from
the Company and the Company has agreed to sell to the Investor from time to time
during the term of the Agreement shares (the "Shares") of Common Stock of the
Company, $0.001 par value (the "Common Stock") and certain warrants (the
"Warrants") which shall be exercisable into shares of Common Stock. The shares
of Common Stock issuable upon exercise of the Warrants are referred to herein as
"Warrant Shares." The Shares and Warrant Shares are collectively referred to
herein as "Underlying Shares."
This letter shall serve as our irrevocable authorization and direction
to you (provided that you are the transfer agent for the Company with respect to
its Common Stock at such time) to issue Underlying Shares from time to time upon
notice from the Company to issue such Underlying Shares, provided you have
previously received an opinion of our counsel regarding the exemption and
validity of the issuance under the Securities Act of 1933, as amended. So long
as you have previously received (w) a notice of effectiveness of the Company's
outside counsel substantially in the form of Exhibit I attached hereto (which
the Company shall direct be delivered to you by such outside counsel upon the
effectiveness of the registration statement covering resales of Underlying
Shares) stating that a registration statement covering resales of Underlying
Shares has been declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and that Underlying Shares may be
issued (or reissued if they have been issued at a time when there was not such
an effective registration statement) or resold without any restrictive legend
(the "Notice of Effectiveness"), (x) a copy of such registration statement, (y)
an appropriate representation that the resale prospectus contained in the
registration statement has been delivered in compliance with applicable rules
and regulations and (z) with respect to the issuance of replacement Warrant
Shares, the certificates representing the originally issued Warrant Shares have
been returned to you as transfer agent, then certificates representing
Underlying Shares shall not bear any legend restricting transfer of Underlying
Shares thereby and should not be subject to any stop-transfer restriction;
provided, however, that if you have not previously received a copy of the Notice
of Effectiveness, such registration statement and such representation or you
have received a subsequent notice by the Company or its counsel of the
suspension or termination of the effectiveness of the registration statement or
the imposition of a Blackout Period as set forth in the Section 5.8 of the
Agreement, then certificates representing Underlying Shares shall bear the
following legend:
31
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") 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 THAT ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR EARTH SEARCH SCIENCES,
INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION OF ITS
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
Please be advised that the Investor has relied upon this instruction
letter as an inducement to enter into the Agreement and, accordingly, the
Investor, is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ______________________.
Very truly yours,
EARTH SEARCH SCIENCES, INC.
By: __________________________
Name: ________________________
Title: _______________________
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By: ________________________________
Name: _________________________
Title: ________________________
Tel.: _________________________
32
Exhibit I
[FORM OF NOTICE OF EFFECTIVENESS]
[Addressee]
[Address]
TO WHOM IT MAY CONCERN:
We are counsel to Earth Search Sciences, Inc., a Utah corporation (the
"Company"), and we have represented the Company in connection with that certain
Common Stock Purchase Agreement (the "Agreement") between the Company and the
Investor named therein, pursuant to which the Company agreed to issue shares
(the "Shares") of its common stock (the "Common Stock") from time to time during
the term of the Agreement and warrants to purchase shares of the Common Stock
(the "Warrant Shares"). Pursuant to the Agreement, the Company agreed to
register the Common Stock and the Warrant Shares.
In connection with the foregoing, we have been advised that the
Registration Statement (File No. 333-______________) of the Company (the
"Registration Statement"), a copy of which is enclosed, was declared effective
at ____________M., eastern time, on ____________, 2001. Upon issuance of the
Underlying Shares referred to in the Company's instruction letter attached, and
provided that you have received from the Company a copy of the representation
pursuant to item (y) in the second paragraph of such instruction letter, you are
authorized to issue certificates for the Company's Common Stock without
restrictive legends. We have no knowledge as of the date hereof, after
telephonic inquiry of a member of the Securities and Exchange Commission's staff
that any stop order suspending the effectiveness of the Registration Statement
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the Securities and Exchange Commission and, accordingly, the
Underlying Shares are available for resale under the Securities Act of 1933, as
amended, in the manner specified in, and pursuant to the terms of the
Registration Statement.
Very truly yours,
33
EXHIBIT C
OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Utah. The Company has the
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified to
do business as a foreign corporation and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Common Stock Purchase Agreement, the
Registration Rights Agreement, the Escrow Agreement and the Warrants and to
issue and sell the Common Stock, the Warrants and the Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares"). The execution, delivery and
performance of the Common Stock Purchase Agreement by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. The Common Stock Purchase Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Warrants have been duly executed and
delivered by the Company, and each constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms. The Common Stock is not subject to preemptive rights under the
Company's certificate of incorporation or bylaws.
3. The Common Stock and the Warrants have been duly authorized and the
Common Stock, when delivered against payment in full as provided in the Common
Stock Purchase Agreement, will be validly issued, fully paid and nonassessable.
The Warrant Shares have been duly authorized and reserved for issuance, and,
when delivered upon exercise or against payment in full as provided in the
Warrants, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Common Stock Purchase Agreement and the consummation by the Company
of the transactions contemplated thereby (i) do not violate any provision of the
Company's certificate of incorporation or bylaws, (ii) do not conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company is a party, (iii) does not create or impose a
lien, charge or encumbrance on any property of the Company under any agreement
or any commitment to which the Company is a party or by which the Company is
bound or by which any of its respective properties or assets are bound, or (iv)
does not result in a violation of any federal, state, local or foreign statute,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries are bound or affected, except, in all cases other than violations
pursuant to clause (i) above, for such conflicts, defaults, terminations,
amendments,
34
acceleration, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect.
5. There is no action, suit, claim, investigation or proceeding pending
or threatened against the Company or any subsidiary which questions the validity
of the Common Stock Purchase Agreement or the transactions contemplated hereby
or any action taken or to be taken pursuant hereto or thereto. There is no
action, suit, claim, investigation or proceeding pending or, to our knowledge,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets and which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect.
6. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
in connection with the valid execution and delivery of the Common Stock Purchase
Agreement, or the offer, sale or issuance of the Common Stock and the Warrants
or the consummation of any other transaction contemplated by the Common Stock
Purchase Agreement (other than any filings which may be required to be made by
the Company with the Commission, or the OTC Bulletin Board or an Alternate
Market subsequent to the Closing, and, any registration statement which may be
filed pursuant to the Common Stock Purchase Agreement).
7. The offer, issuance and sale of the Common Stock and the Warrants
pursuant to the Common Stock Purchase Agreement, and the issuance of the Warrant
Shares to the Investor, pursuant to the Common Stock Purchase Agreement will be
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Rule 4(2) thereunder.
8. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
35
EXHIBIT D
FORM OF ESCROW AGREEMENT
36
EXHIBIT E
SECRETARY'S CERTIFICATE
EARTH SEARCH SCIENCES, INC.
___________, 2001
The undersigned, _______________, Secretary of Earth Search Sciences,
Inc., a Utah corporation (the "Company"), delivers this certificate in
connection with the issuance and sale of shares of common stock of the Company
in an aggregate amount of up to $10,000,000 to Alpha Venture Capital, Inc. (the
"Investor") pursuant to the Common Stock Purchase Agreement, dated as of May 23,
2001 (the "Agreement"), by and between the Company and the Investor, and hereby
certifies on the date hereof, that (capitalized terms used herein without
definition have the meanings assigned to them in the Agreement):
1. Attached hereto as Exhibit A is a true, complete and correct copy of
the Certificate of Incorporation of the Company and all amendments thereto as
filed with the Secretary of State of the State of Utah. The Certificate of
Incorporation of the Company has not been further amended or restated, and no
document with respect to any amendment to the Certificate of Incorporation of
the Company has been filed in the office of the Secretary of State of the State
of Utah since _________ __, ____, the date shown on the Company's latest
amendment to its Certificate of Incorporation, which is in full force and effect
on the date hereof, and no action has been taken by the Company in contemplation
of any such amendment or the dissolution, merger or consolidation of the
Company.
2. Attached hereto as Exhibit B is a true and complete copy of the
By-laws of the Company, as amended and restated through, and as in full force
and effect on, the date hereof, and no proposal for any amendment, repeal or
other modification to the By-laws of the Company has taken or is currently
pending before the Board of Directors or stockholders of the Company.
3. Attached hereto as Exhibit C is a true and correct copy of all
written actions and resolutions of the Board of Directors (including any
committees thereof) of the Company relating to the transactions contemplated by
the Agreement; said actions and resolutions have not been amended, rescinded or
modified since their adoption and remain in full force and effect as of the date
hereof; said actions and resolutions are the only resolutions adopted by the
Board of Directors of the Company, or any committee thereof, pertaining to (A)
the offering of the Common Stock to be sold by the Company pursuant to the
Agreement, (B) the execution and delivery of the Agreement and (C) all other
transactions in connection with the foregoing.
4. Each person who, as an officer of the Company, or as
attorney-in-fact of an officer of the Company, signed (A) the Agreement, (B) the
Registration Statement and (C) any other document delivered prior hereto or on
the date hereof in connection with the transactions contemplated by the
Agreement, was duly elected, qualified and acting as such officer or duly
appointed and acting as such attorney-in-fact, and the signature of each such
person appearing on any such document is his genuine signature.
5. The Agreement as executed and delivered on behalf of the Company has
been approved by the Board of Directors of the Company.
6. The actions, resolutions and other records of the Company relating
to all of the proceedings
37
of the Stockholders of the Company, the Board of Directors of the Company and
any committees thereof made available to the Investor and its counsel are the
true, correct and complete copies thereof, with respect to all proceedings of
said Stockholders, Board of Directors and committees thereof. Such records and
other documents of the Company made available to the Investor and its counsel
were true and complete in all respects. There have been no material changes,
additions or alterations in said records and other documents that have not been
disclosed to the Investor.
IN WITNESS WHEREOF, I have signed my name as of the date first above
written.
By:
----------------------------------------
Name:
Title: Secretary
I, _______________, Chief Executive Officer of Earth Search Sciences,
Inc., do hereby certify that ______________ is the duly elected, qualified and
acting Secretary of the above mentioned company, and that the signature set
forth above is her true and genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name as of the date first
above written.
By:
-----------------------------------------
Name:
Title: Chief Executive Officer
38
EXHIBIT F
COMPLIANCE CERTIFICATE
EARTH SEARCH SCIENCES, INC.
The undersigned, ________________, hereby certifies, with respect to
shares of common stock of Earth Search Sciences, Inc. (the "Company") issuable
in connection with the Put Purchase Notice, dated ________ (the "Notice"),
delivered pursuant to Article II of the Common Stock Purchase Agreement, dated
May 23, 2001, by and among the Company and Alpha Venture Capital, Inc. (the
"Agreement"), as follows:
1. The undersigned is the duly elected Chief Executive Officer of the
Company.
2. The representations and warranties of the Company set forth in
Article IV of the Agreement are true and correct in all material respects as
though made on and as of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Put Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in Article VI and Article VII of the
Agreement.
The undersigned has executed this Certificate this ____ day of ______,
2001.
EARTH SEARCH SCIENCES, INC.
By:_____________________________________
Name:
Title: Chief Executive Officer
39
EXHIBIT G
FORM OF WARRANT
40
