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Press Release

Form 10-Q

November 4, 2010
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010

or

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 001-31895

 

 

ODYSSEY MARINE EXPLORATION, INC.

(Exact name of registrant as specified in its charter)

 

 

 

     
Nevada   84-1018684

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5215 W. Laurel Street, Tampa, Florida 33607

(Address of principal executive offices) (Zip code)

(813) 876-1776

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES       NO   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

 

             
Large accelerated filer:   ¨    Accelerated filer:   x
       
Non-accelerated filer:   ¨   (Do not check if a smaller Reporting company)    Smaller reporting company:   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes   ¨      No   x

The number of outstanding shares of the registrant’s Common Stock, $.0001 par value, as of November 1, 2010, was 66,770,926.

 

 

 

 


Table of Contents

 

  LOGO

 

             
          Page No.  

Part I:

   Financial Information         
     
Item 1.    Financial Statements:         
     
     Consolidated Balance Sheets      3   
     
     Consolidated Statements of Operations      4   
     
     Consolidated Statements of Cash Flows      5   
     
     Notes to the Consolidated Financial Statements      6 – 15   
     
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      15 – 22   
     
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      22   
     
Item 4.    Controls and Procedures      22   
     
Part II:    Other Information         
     
Item 1.    Legal Proceedings      22   
     
Item 1A.    Risk Factors      22   
     
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      22   
     
Item 3.    Defaults Upon Senior Securities      22   
     
Item 4.    [Removed and Reserved]      23   
     
Item 5.    Other Information      23   
     
Item 6.    Exhibits      23   
   
Signatures      23   

 

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Table of Contents

 

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

                 
     (Unaudited) 
September  30, 

2010
    December 31, 
2009
 

ASSETS

                

CURRENT ASSETS

                

Cash and cash equivalents

   $ 905,666      $ 2,145,449   

Restricted cash

     624,821        574,266   

Accounts receivable, net

     8,661,459        246,266   

Inventory

     614,987        637,882   

Other current assets

     537,171        299,865   
                  

Total current assets

     11,344,104        3,903,728   
     

PROPERTY AND EQUIPMENT

                

Equipment and office fixtures

     16,370,452        15,002,858   

Building and land

     4,671,231        4,491,143   

Accumulated depreciation

     (12,442,498     (10,826,125
                  

Total property and equipment, net

     8,599,185        8,667,876   
     

NON-CURRENT ASSETS

                

Restricted cash

     237,503        176,310   

Inventory

     5,833,628        5,950,475   

Investment in unconsolidated entity

     —          447,471   

Other non-current assets

     1,103,550        1,110,111   
                  

Total other assets

     7,174,681        7,684,367   
                  

Total assets

   $ 27,117,970      $ 20,255,971   
                  
     

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

CURRENT LIABILITIES

                

Accounts payable

   $ 3,197,864      $ 365,029   

Accrued expenses and other

     2,092,049        2,132,997   

Deferred revenue

     1,620,734        1,257,453   

Mortgage and loans payable

     6,933,445        5,100,794   
                  

Total current liabilities

     13,844,092        8,856,273   
     

NON-CURRENT LIABILITIES

                

Mortgage and loans payable

     2,813,827        2,950,331   

Subscription payable

     1,816,753        —     

Deferred income from Revenue Participation Certificates

     887,500        887,500   
                  

Total long-term liabilities

     5,518,080        3,837,831   
                  

Total liabilities

     19,362,172        12,694,104   
                  

STOCKHOLDERS’ EQUITY

                

Preferred stock - $.0001 par value; 9,361,200 shares authorized; none outstanding

     —          —     

Preferred stock series D convertible - $.0001 par value; 448,800 and 2,148,800 shares authorized at September 30, 2010 and December 31, 2009, respectively; 206,400 and 1,906,400 shares issued and outstanding, respectively

     21        191   

Preferred stock series E convertible - $.0001 par value; 0 and 20 shares authorized at September 30, 2010 and December 31, 2009, respectively; 0 and 13 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively

     —          —     

Common stock - $.0001 par value; 100,000,000 shares authorized; 66,770,926 and 59,425,947 issued and outstanding at September 30, 2010 and December 31, 2009, respectively

     6,677        5,943   

Additional paid-in capital

     122,601,233        114,490,556   

Accumulated deficit

     (114,852,133     (106,934,823
                  

Total stockholders’ equity

     7,755,798        7,561,867   
                  

Total liabilities and stockholders’ equity

   $ 27,117,970      $ 20,255,971   
                  

The accompanying notes are an integral part of these financial statements.

 

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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited

 

                                 
     Three Months Ended     Nine Months Ended  
     September 30, 
2010
    September 30, 
2009
    September 30, 
2010
    September 30, 
2009
 

REVENUE

                                

Artifact sales and other

   $ 41,444      $ 648,388      $ 338,693      $ 1,296,248   

Exhibit

     —          180,000        65,000        419,798   

Expedition

     9,788,324        17,000        16,689,208        162,710   
                                  

Total revenue

     9,829,768        845,388        17,092,901        1,878,756   
                                  

OPERATING EXPENSES

                                

Cost of sales – artifacts and other

     30,981        227,685        170,364        548,420   

Marketing, general and administrative

     2,171,790        2,069,624        6,742,075        6,911,517   

Operations and research

     6,607,436        2,879,497        15,272,354        8,936,755   
                                  

Total operating expenses

     8,810,207        5,176,806        22,184,793        16,396,692   
         

INCOME (LOSS) FROM OPERATIONS

     1,019,561        (4,331,418     (5,091,892     (14,517,936
         

OTHER INCOME (EXPENSE)

                                

Interest income

     698        6,194        3,371        36,460   

Interest expense

     (220,035     (84,512     (394,030     (250,976

Income (loss) from unconsolidated entity

     (2,112,011     —          (2,447,471     —     

Other

     4,474        13,484        12,712        61,140   
                                  

Total other income (expense)

     (2,326,874     (64,834     (2,825,418     (153,376
                                  

LOSS BEFORE INCOME TAXES

     (1,307,313     (4,396,252     (7,917,310     (14,671,312

Income tax benefit (provision)

     —          —          —          —     
                                  

NET LOSS

   $ (1,307,313   $ (4,396,252   $ (7,917,310   $ (14,671,312
                                  

NET LOSS PER SHARE

                                

Basic and diluted

   $ (.02   $ (.07   $ (.12   $ (.27
         

Weighted average number of common shares outstanding

                                

Basic and diluted

     66,770,926        58,626,194        65,245,071        55,159,192   

The accompanying notes are an integral part of these financial statements.

 

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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited

 

                 
     Nine Months Ended  
     September 30, 
2010
    September 30, 
2009
 

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net loss

   $ (7,917,310   $ (14,671,312

Adjustments to reconcile net loss to net cash used by operating activities:

                

Depreciation and amortization

     1,622,931        1,717,549   

Loan discount amortization

     110,123        —     

Loss from unconsolidated entity

     2,447,471        —     

Share-based compensation

     1,406,640        1,629,182   

(Increase) decrease in:

                

Restricted cash

     (111,748     (11,475

Accounts receivable

     (8,415,193     290,977   

Inventory

     139,742        486,543   

Other assets

     (237,306     88,878   

Increase (decrease) in:

                

Accounts payable

     2,832,835        (511,138

Accrued expenses and other

     456,017        (797,339

Deferred revenue

     363,281        —     

Subscription payable

     (182,047     —     
                  

NET CASH (USED) BY OPERATING ACTIVITIES

     (7,484,564     (11,778,135
                  

CASH FLOWS FROM INVESTING ACTIVITIES:

                

Purchase of property and equipment

     (1,547,684     (523,577

Investment in unconsolidated entity

     (1,200     —     
                  

NET CASH (USED) BY INVESTING ACTIVITIES

     (1,548,884     (523,577
                  

CASH FLOWS FROM FINANCING ACTIVITIES:

                

Proceeds from issuance of common stock

     6,243,000        5,106,250   

Fees on private offering

     (186,254     —     

Proceeds from issuance of preferred stock

     —          790,400   

Proceeds from issuance loan payable

     1,872,714        —     

Repayment of mortgage and loans payable

     (135,795     (207,620
                  

NET CASH PROVIDED BY FINANCING ACTIVITIES

     7,793,665        5,689,030   
                  

NET INCREASE (DECREASE) IN CASH

     (1,239,783     (6,612,682

CASH AT BEGINNING OF PERIOD

     2,145,449        10,740,358   
                  

CASH AT END OF PERIOD

   $ 905,666      $ 4,127,676   
                  

SUPPLEMENTARY INFORMATION:

                

Interest paid

   $ 283,932      $ 255,506   

Income taxes paid

   $ —        $ —     
     

NON-CASH TRANSACTIONS:

                

Prior period accrued compensation paid by equity instruments

   $ 496,964      $ 117,803   

Acquired non-controlling interest of Dorado Resources, Ltd. with the assumption of a subscription payable of an equal amount (See NOTE F)

   $ 1,998,800      $ —     

The accompanying notes are an integral part of these financial statements.

 

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ODYSSEY MARINE EXPLORATION, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Odyssey Marine Exploration, Inc. and subsidiaries (the “Company,” “Odyssey,” “us,” “we” or “our”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

In the opinion of management, these financial statements reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position as of September 30, 2010, and the results of operations and cash flows for the interim periods presented. Operating results for the nine-month period ended September 30, 2010, are not necessarily indicative of the results that may be expected for the full year. We have evaluated subsequent events for recognition or disclosure through the date this Form 10-Q is filed with the Securities and Exchange Commission.

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding our financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity, and have prepared them in accordance with our customary accounting practices.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Odyssey Marine Services, Inc., OVH, Inc., Odyssey Retriever, Inc. and Odyssey Marine Entertainment, Inc. All significant inter-company transactions and balances have been eliminated. Equity investments in which we exercise significant influence but do not control and are not the primary beneficiary are accounted for using the equity method.

Shipwreck Heritage Press, LLC was organized during 2005 to publish and distribute print media. The entity does not have any current activity and has not been capitalized, and therefore, it is not consolidated.

Use of Estimates

Management used estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.

Reclassifications

At December 31, 2009, a deferred revenue balance of $1,257,453 was included in the accrued expenses and other balance of $3,390,450. In the December 31, 2009 balance sheet presented, the deferred revenue balance has been reclassified into its own account. This reclassification has no effect on net income for the fiscal year ended December 31, 2009.

Revenue Recognition and Accounts Receivable

Revenue from product sales is recognized at the point of sale when legal title transfers. Legal title transfers when product is shipped or is available for shipment to customers. Exhibit or expedition revenue is recognized based upon the accrual method of accounting supported by contractual terms of an agreement. Bad debts are recorded as identified, and no allowance for bad debts has been recorded. A return allowance is established for sales which have a right of return. Accounts receivable is stated net of any recorded allowance for returns, if any.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash include cash on hand and cash in banks. We also consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

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Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, prepaid expense, accounts payable, accrued expense, loan payable and mortgage payable approximate fair value. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that we could realize in a current market exchange.

Inventory

Our inventory consists mainly of artifacts recovered from the SS Republic shipwreck as well as general branded merchandise and related packaging material. The value of recovered artifacts in inventory is comprised of the costs of recovery and conservation. Costs of recovery include direct operating costs such as vessel and related equipment operations and maintenance, crew and technical labor, fuel, provisions and supplies, port fees and depreciation. The SS Republic recovery costs also include the fee paid to an insurer to relinquish the insurer’s claim to the artifacts recovered from the shipwreck. Conservation costs include fees paid to conservators for cleaning and preparing the artifacts for sale. We continually monitor the recorded aggregate costs of the artifacts in inventory to ensure these costs do not exceed the net realizable value. Historical sales, publications or available public market data are used to assess market value.

Packaging materials and merchandise are recorded at average cost. We record our inventory at the lower of cost or market.

Long-Lived Assets

Our policy is to recognize impairment losses relating to long-lived assets in accordance with the Accounting Standards Codification (“ASC”) topic for Property, Plant and Equipment. Decisions are based on several factors, including, but not limited to, management’s plans for future operations, recent operating results and projected cash flows.

Comprehensive Income

Securities with a maturity greater than three months from purchase date are deemed available-for-sale and carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and reported as a separate component of stockholders’ equity. At September 30, 2010, we did not own securities with a maturity greater than three months.

Property and Equipment and Depreciation

Property and equipment is stated at historical cost. Depreciation is provided using the straight-line method at rates based on the assets’ estimated useful lives, which are normally between three and ten years. Leasehold improvements are amortized over their estimated useful lives or lease term, if shorter. Major overhaul items (such as engines or generators) that enhance or extend the useful life of vessel related assets qualify to be capitalized and depreciated over the useful life or remaining life of that asset, whichever is shorter. Certain major repair items required by industry standards to ensure a vessel’s seaworthiness also qualify to be capitalized and depreciated over the period of time until the next scheduled planned major maintenance for that item. All other repairs and maintenance are accounted for under the direct-expensing method and are expensed when incurred.

Earnings Per Share

Basic earnings per share (EPS) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if dilutive securities and other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in our earnings. We use the treasury stock method to compute potential common shares from stock options and warrants and the as-if-converted method to compute potential common shares from Preferred Stock or other convertible securities.

When a net loss occurs, potential common shares have an anti-dilutive effect on earnings per share and such shares are excluded from the diluted EPS calculation.

At September 30, 2010 and 2009, weighted average common shares outstanding year-to-date were 65,245,071 and 55,159,192, respectively. For the periods ended September 30, 2010 and 2009, in which net losses occurred, all potential common shares were excluded from diluted EPS because the effect of including such shares would be anti-dilutive.

 

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The potential common shares in the following table represent potential common shares calculated using the treasury stock method from outstanding options, stock awards and warrants that were excluded from the calculation of diluted EPS:

 

                                 
     Three Months Ended      Nine Months Ended  
     September 30,
2010
     September 30,
2009
     September 30,
2010
     September 30,
2009
 

Average market price during the period

   $ 1.47       $ 1.85       $ 1.38       $ 2.79   
         

In-the-money potential common shares excluded

     631,261         175,164         568,474         177,850   

Potential common shares from out-of-the-money options and warrants were also excluded from the computation of diluted EPS because calculation of the associated potential common shares has an anti-dilutive effect on EPS. The following table lists options and warrants that were excluded from diluted EPS:

 

                                 
     Three Months Ended      Nine Months Ended  
     September 30, 
2010
     September 30, 
2009
     September 30, 
2010
     September 30, 
2009
 

Out of the money options and warrants excluded:

                                   

Stock options with an exercise price of $1.74 per share

     71,500         —           71,500         —     

Stock options with an exercise price of $2.50 per share

     —           33,000         —           33,000   

Stock options with an exercise price of $3.50 per share

     1,382,916         1,417,916         1,382,916         1,417,916   

Stock options with an exercise price of $3.51 per share

     984,670         1,003,170         984,670         1,003,170   

Stock options with an exercise price of $3.53 per share

     211,900         214,300         211,900         214,300   

Stock options with an exercise price of $4.00 per share

     97,500         315,250         97,500         315,250   

Stock options with an exercise price of $5.00 per share

     650,000         650,000         650,000         650,000   

Stock options with an exercise price of $7.00 per share

     100,000         100,000         100,000         100,000   

Warrants with an exercise price of $2.25 per share

     2,670,000         —           2,670,000         —     

Warrants with an exercise price of $5.25 per share

     100,000         100,000         100,000         100,000   
                                     

Total anti-dilutive warrants and options excluded from EPS

     6,268,486         3,833,636         6,268,486         3,833,636   
                                     

Weighted average potential common shares from outstanding Convertible Preferred Stock calculated on an as-if-converted basis having an anti-dilutive effect on diluted EPS were excluded from potential common shares as follows:

 

                                 
     Three Months Ended      Nine Months Ended  
     September 30, 
2010
     September 30, 
2009
     September 30, 
2010
     September 30, 
2009
 

Potential common shares from Preferred Stock excluded from EPS

     206,400         3,906,400         206,400         3,903,789   
                                     

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income per share:

 

                                 
     Three Months Ended     Nine Months Ended  
     September 30, 
2010
    September 30, 
2009
    September 30, 
2010
    September 30, 
2009
 

Net loss

   $ (1,307,313   $ (4,396,252   $ (7,917,310   $ (14,671,312
                                  

Numerator, basic and diluted net income (loss) available to stockholders

   $ (1,307,313   $ (4,396,252   $ (7,917,310   $ (14,671,312
                                  

Denominator:

                                

Shares used in computation – basic:

                                

Weighted average common shares outstanding

     66,770,926        58,626,194        65,245,071        55,159,192   
                                  

Shares used in computation – diluted:

                                

Weighted average common shares outstanding

     66,770,926        58,626,194        65,245,071        55,159,192   

Dilutive effect of options and warrants outstanding

     —          —          —          —     
                                  

Shares used in computing diluted net income per share

     66,770,926        58,626,194        65,245,071        55,159,192   
                                  

Net loss per share – basic

   $ (0.02   $ (0.07   $ (0.12   $ (0.27

Net loss per share – diluted

   $ (0.02   $ (0.07   $ (0.12   $ (0.27

 

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Income Taxes

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized.

Stock-based compensation

Our stock-based compensation is recorded in accordance with the guidance in the ASC topic for Stock-Based Compensation. (See NOTE J)

NOTE C – RESTRICTED CASH

As required by the revolving credit facility entered into with Fifth Third Bank (the “Bank”) on February 7, 2008 and the renewal entered into on April 23, 2010 (See NOTE I), a balance of $500,000 was established in an interest-bearing account from which interest payments will be made. Upon each anniversary of the facility, we deposit into the account an amount sufficient to restore the balance to $500,000 for interest payments for the following facility year. The balance in this restricted cash account is held as additional collateral by the Bank and is not available for operations. Any funds remaining in this account at the end of the facility term will be returned to the Company. The balance in this account at September 30, 2010, was $399,690.

As required by the mortgage loan entered into with the Bank on July 11, 2008, $500,000 was deposited into an additional interest-bearing account from which principal and interest payments were made for the first one-year period. On each anniversary of the mortgage, we deposit or will deposit into the account an amount sufficient to ensure a balance of $500,000 for principal and interest payments for the subsequent year of the mortgage. The balance in this restricted cash account is held as additional collateral by the Bank and is not available for operations. Any funds remaining in this account at the end of the mortgage term will be returned to the Company. The balance in this account at September 30, 2010, was $462,634.

NOTE D – ACCOUNTS RECEIVABLE

Of the $8,661,459 accounts receivable at September 30, 2010, $1,570,000 is owed according to the terms of sale of research material for the “ Shantaram ” project in the second quarter of 2010 and $5,367,403 relates to charter activity with Dorado Ocean Resources, Ltd. The remaining balance at September 30, 2010 consists of trade receivables. The December 31, 2009 balance of $246,266 is all trade receivables.

NOTE E – INVENTORY

Our inventory consisted of the following:

 

                 
     September 30,
2010
    December 31,
2009
 

Artifacts

   $ 6,212,238      $ 6,317,383   

Packaging

     220,114        235,045   

Merchandise

     498,683        519,636   

Merchandise reserve

     (482,420     (483,707
                  

Total inventory

   $ 6,448,615      $ 6,588,357   
                  

Of these amounts, $5,833,628 and $5,950,475 is classified as non-current as of September 30, 2010 and December 31, 2009, respectively.

If we secure ownership rights to the recovered artifacts from the “ Black Swan ” project, we will capitalize into inventory all related costs to recover and conserve these artifacts. Recovery costs include operating costs to recover, legal fees to defend and secure ownership rights and other costs associated with bringing the artifacts into an appropriate archaeological state. We have capitalized costs of approximately $2.5 million related to recovery and conservation that have been reserved for at 100%. When and if ownership rights are secured, these deferred costs will be allocated to inventory and the reserve eliminated.

 

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NOTE F – INVESTMENT IN UNCONSOLIDATED ENTITY

During the quarter ended December 31, 2009 we invested $500,000 for a 25% interest (five membership units) in SMM Project, LLC (“SMM”) to pursue opportunities in the exploration of deep-ocean gold and copper deposits. SMM purchased a majority interest in Bluewater Metals Pty, Ltd. (“Bluewater”), an Australian company with licenses for mineral exploration of approximately 150,000 square kilometers of ocean floor in territorial waters controlled by four different countries in the South Pacific. Effective April 2010, SMM was acquired by Dorado Ocean Resources, Ltd. (“DOR”) through a stock exchange agreement. At that time, DOR also acquired the remaining interest in Bluewater. We were issued 450 DOR shares in exchange for our surrendered units in SMM. Additionally, we acquired 1,200 shares of DOR valued at $2,000,000 that resulted in a 41.25% ownership of DOR prior to any additional dilution that may result from additional financing. Currently we have a 40.8% ownership. Under the terms of the Share Subscription Agreement, we have the option to pay for this investment in cash or by providing marine services to DOR over a three-year period commencing April 2010. Subsequently we purchased geological equipment for DOR resulting in the reduced September 30, 2010 balance of $1,816,753. The focus of DOR is on the exploration and monetization of gold and copper-rich Seafloor Massive Sulfide (“SMS”) deposits. We have dedicated certain marine assets, including a ship and related marine exploration technology, to the endeavor on a reasonable commercial basis. In addition, we are providing proprietary expertise and personnel management to the new entity under contract.

For the three- and nine- month periods ended September 30, 2010, DOR incurred losses of $7,132,160 and $8,045,433, respectively. Our share of losses recognized in our income statement for the three- and nine- month periods ended September 30, 2010 are $2,112,011 and $2,447,471, respectively. We are only at risk for the carrying value of our investment which was $2,112,011 before recognizing any loss for the three month period ended September 30, 2010; otherwise, we would have recognized an allocable loss of $2,909,011 based on our current ownership percentage.

NOTE G – INCOME TAXES

As of September 30, 2010, the Company had consolidated income tax net operating loss (“NOL”) carryforwards for federal tax purposes of approximately $105 million. The NOL will expire in various years beginning in 2017 and ending in 2030.

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

         

Deferred tax assets:

        

Net operating loss and capital loss carryforwards

   $ 38,116,336   

Accrued expenses

     93,759   

Reserve for inventory

     169,405   

Start-up costs

     107,470   

Excess of book over tax depreciation

     1,027,998   

Stock option expense

     2,371,730   

Investment in unconsolidated entity

     877,892   

Less: valuation allowance

     (42,624,408
          
     $ 140,182   
          
   

Deferred tax liability:

        

Property and equipment basis

   $ 69,516   

Prepaid expenses

     70,666   
          
     $ 140,182   
          

Net deferred tax asset

   $ —     
          

As reflected above, we have recorded a net deferred tax asset of $0 at September 30, 2010. As required by the Accounting for Income Taxes topic in the ASC, we have evaluated whether it is more likely than not that the deferred tax assets will be realized. Based on the available evidence, we have concluded that it is more likely than not that those assets would not be realized without the recovery and rights of ownership or salvage rights of high value shipwrecks and thus a valuation allowance has been recorded as of September 30, 2010. While we have recovered more than 17 tons of silver and hundreds of gold coins and other artifacts from the “ Black Swan ” project, we do not have the ability to monetize the recovered cargo unless and until we are awarded title or a salvage award by the court or otherwisereach a settlement of the matter.

The change in the valuation allowance is as follows:

 

         

September 30, 2010

   $ 42,624,408   

December 31, 2009

     39,693,015   
          

Change in valuation allowance

   $ 2,931,393   
          

 

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Income taxes for the nine-month periods ended September 30, 2010 and 2009 differ from the amounts computed by applying the effective federal income tax rate of 34.0% to income (loss) before income taxes as a result of the following:

 

                 
     September 30, 
2010
    September 30, 
2009
 
     

Expected (benefit)

   $ (2,691,886   $ (4,988,246

State income taxes net of federal benefits

     (87,926     (212,304

Nondeductible expense

     12,327        12,630   

Stock options exercised

     —          4,285   

Change in valuation allowance

     2,931,393        5,096,257   

Effects of:

                

Change in apportionment estimate

     (164,387     87,471   

Other, net

     479        (93
                  
     $ —        $ —     
                  

We have not recognized a material adjustment in the liability for unrecognized tax benefits and have not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

The earliest tax year still subject to examination by a major taxing jurisdiction is 2006.

NOTE H – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company may be subject to a variety of claims and suits that arise from time to time in the ordinary course of business. Management is currently not aware of any claims or suits that will have a material adverse impact on its financial position or its results of operations.

Trends and Uncertainties

Based upon our current expectations, we believe our cash position should be sufficient to fund operating cash flows throughout the rest of 2010 taking into account our capital raises, expected revenues from multiple sources, including projected sales and syndicated projects, commercial salvage activities, surveys and our ability to realize our accounts receivable. While we have recovered more than 17 tons of silver coins and hundreds of gold coins and other artifacts from the “ Black Swan ” project, we will not be able to monetize any recovered cargo unless we are awarded title or a salvage award by the U.S. District Court. At the present time, we cannot determine how long that process may take, and there is no way to estimate the likelihood of receiving a salvage award from the U.S. District Court. We have also identified one potential high value target shipwreck, HMS Victory . However, unless there is an agreement with the U.K. government, we will not be able to conduct any archaeological recoveries on this project If cash flow is not sufficient to meet our projected business plan requirements, we will be required to raise additional capital or curtail expenses. While we have been successful in raising the necessary funds in the past, there can be no assurance that we can continue to do so.

NOTE I – MORTGAGE AND LOANS PAYABLE

The Company’s consolidated debt consisted of the following at September 30, 2010 and December 31, 2009:

 

                 
     September 30, 
2010
     December 31, 
2009
 
     

Revolving credit facility

   $ 5,000,000       $ 4,927,286   

Notes payable

     1,759,229         —     

Mortgage payable

     2,988,044         3,123,839   
                   
     $ 9,747,273       $ 8,051,125   
                   

Revolving Credit Facility

On February 7, 2008, we entered into a $5 million revolving credit facility with Fifth Third Bank (the “Bank”). The credit facility has a floating interest rate equal to the “Prime Rate” plus fifty basis points (.50%), requires monthly payments of interest only and was originally due in full February 7, 2010, and a 90-day extension was granted until May 7, 2010. On April 23, 2010, the Bank renewed the credit facility which is due in full on April 23, 2011. The facility requires us to pay the Bank an unused line fee equal to one-half percent (0.50%) per annum of the unused portion of the credit line. The line of credit is secured by a restricted cash balance (See NOTE C) as well as approximately 28,500 coins recovered from the SS Republic shipwreck, which amount will be reduced over the term by the amount of coins sold. The modified borrowing base is equal to forty percent

 

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(40%) of the eligible coin inventory calculated on a rolling twelve-month wholesale average value. Odyssey is required to comply with a number of customary affirmative and negative covenants. The significant covenants include: maintaining insurance on the inventory; ensuring the collateral is free from encumbrances and without the consent of the Bank, the Company cannot merge or consolidate with or into any other corporation or entity nor can the Company enter into a material debt agreement with a third party.

Notes Payable

On August 20, 2010, we entered into individual purchase agreements with certain investors pursuant to which we issued and sold promissory notes in the aggregate principal amount of $1,800,000 and warrants to purchase an aggregate of 270,000 shares of common stock. The notes bear interest at a rate equal to 5.0% per annum, and all principal and accrued interest thereunder is due and payable on or before December 18, 2010. If an event of default occurs, the notes will thereafter bear interest at a rate equal to 25% per annum. As of October 18, 2010, these notes were pre-paid and satisfied in their entirety. The warrants have an exercise price of $2.25 per share of common stock and will be exercisable in accordance with their terms at any time on or before the close of business on August 20, 2013. These warrants represented a discount on the notes payable, therefore were valued using the Black-Scholes valuation method and bifurcated establishing a discount on notes payable for $150,893 and a corresponding increase to paid-in-capital. The discount is being amortized to interest expense over the life of the note until October 18, 2010. The notes payable of $1,800,000 at September 30, 2010 is shown net of the discount remaining which is $40,771.

Mortgage Payable

On July 11, 2008, we entered into a mortgage loan with Fifth Third Bank. Pursuant to the Loan Agreement, we borrowed $2,580,000. The loan bears interest at a variable rate equal to the prime rate plus three-fourths of one percent (0.75%) per annum. The loan matures on July 11, 2013, and requires us to make monthly principal payments in the amount of $10,750 plus accrued interest. This loan is secured by a restricted cash balance (See NOTE C) as well as a first mortgage on our corporate office building. This loan contains customary representations and warranties, affirmative and negative covenants, conditions, and other provisions.

During May 2008, we entered into a mortgage loan in the principal amount of $679,000 with The Bank of Tampa to purchase our conservation lab and storage facility. This obligation has a monthly payment of $5,080 and a maturity date of May 14, 2015. Principal and interest payments are payable monthly. Interest is at a fixed annual rate of 6.45%. This debt is secured by the related mortgaged real property. The seller is carrying a second mortgage for $100,000 with interest due monthly and $25,000 of principal due each May commencing in May 2009. The interest is at a variable rate of 1.0% above the prime interest rate stated by BB&T, formerly Colonial Bank of Tampa. This obligation has a maturity date of May 14, 2012, and is also secured by the related mortgaged real property.

NOTE J – STOCKHOLDER’S EQUITY

Common Stock

On May 6, 2010, we issued 1,300,000 shares of common stock to one institutional investor upon conversion of 13 outstanding shares of our Series E Convertible Preferred Stock.

On April 20, 2010, we issued 600,000 shares of common stock to one institutional investor upon conversion of 600,000 outstanding shares of our Series D Convertible Preferred Stock.

On March 18, 2010, we issued 600,000 shares of common stock to one institutional investor upon conversion of 600,000 outstanding shares of our Series D Convertible Preferred Stock.

On February 12, 2010, we issued 500,000 shares of common stock to one institutional investor upon conversion of 500,000 outstanding shares of our Series D Convertible Preferred Stock.

During January 2010, we entered into individual purchase agreements with certain investors pursuant to which we sold an aggregate of 4,000,000 shares of Odyssey’s common stock and warrants to purchase up to 2,400,000 shares of common stock to such investors. The common stock and warrants were sold as units, with each unit consisting of one share of common stock and a warrant to purchase 0.6 shares of common stock. The purchase price for each unit was $1.565. The warrants have an exercise price of $2.25 per share of common stock and are exercisable in accordance with their terms at any time on or before the close of business on January 29, 2013. The net proceeds to us from the registered direct public offering, after deducting placement agent fees and its offering expenses, and excluding the proceeds, if any, from the exercise of the warrants issued in the offering, were approximately $6.1 million.

On May 22, 2009, we issued and sold 1,720,000 shares of common stock at a price of $2.965 per share, for an aggregate purchase price of $5,100,000 in cash, pursuant to a Common Stock Purchase Agreement between the Company and three funds managed by two accredited investors. During the three-month period ended June 30, 2009, we issued 4,241,200 shares of common stock to two accredited investors upon conversion of 4,241,200 shares of Series D Convertible Preferred Stock.

 

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On January 28, 2009, we issued 250,000 shares of common stock to one accredited investor upon conversion of 250,000 shares of Series D Convertible Preferred Stock.

Preferred Stock

During January 2009, three accredited investors exercised warrants for the purchase of 197,600 shares of Series D Convertible Preferred Stock for an aggregate exercise price of $790,400.

Stock-Based Compensation

We have two active stock incentive plans, the 1997 Stock Incentive Plan and the 2005 Stock Incentive Plan (“the Plan”). The 1997 Stock Incentive Plan expired on August 17, 2007. As of that date, options cannot be granted from that Plan but any granted and unexercised options will continue to exist until exercised or they expire. The Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units and stock appreciation rights. We initially reserved 2,500,000 of our authorized but unissued shares of common stock for issuance under the Plan, and, at the time the Plan was adopted, not more than 500,000 of these shares could be used for restricted stock awards and restricted stock units. On January 16, 2008, the Board of Directors approved amendments to the Plan to add 2,500,000 shares of common stock to the Plan, to allow any number of shares to be used for restricted stock awards, to clarify certain other provisions in the Plan and to submit the amended Plan for stockholder approval. The amended Plan was approved at the annual meeting of stockholders on May 7, 2008. On June 3, 2010, the stockholders approved the addition of 3,000,000 shares to the Plan. Any incentive option and non-qualified option granted under the Plan must provide for an exercise price of not less than the fair market value of the underlying shares on the date of grant, but the exercise price of any incentive option granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant.

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest. As share-based compensation expense recognized in the statement of operations is based on awards ultimately expected to vest, it will be reduced for forfeitures. The ASC topic Stock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The share based compensation charged against income for the nine-month periods ended September 30, 2010 and 2009 was $1,406,640 and $1,629,182, respectively, and for the three-month periods ended September 30 2010 and 2009 was $469,092 and $414,091, respectively.

The weighted average estimated fair value of stock options granted during the three-month period ended September 30, 2010, was $.84. We did not issue stock options in the three-month period ended September 30, 2009. The weighted average fair value of stock options granted is determined using the Black-Scholes option-pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the life of the option. The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in or variations from these assumptions can materially affect the fair value of the options.

 

                 
     September 30,
2010
    September 30,
2009
 

Risk-free interest rate

     .67     —     

Expected volatility of common stock

     70.54     —     

Dividend yield

     0     —     

Expected life of options

     3.3 years        —     

NOTE K – DEFERRED REVENUE

During the three-month period ended June 30, 2010, we entered into two marine search services contracts associated with the Robert Frasier Marine, Ltd. projects. These contracts are comprised of two components: sale of research and search operations. Cash payments for the sale of research are received and recorded as revenue upon execution of the contract. Cash payments for search operations are normally 50% on contract, 40% upon arrival at the site and 10% upon completion; however, revenue is recognized over the contractual period when services are performed. The period of time a search operation contract is active varies but will generally last over several months and may be accelerated or extended depending upon operational factors. At September 30, 2010, we have a $1,620,734 service obligation that will be recognized as revenue over the period of time the contractual services are provided. At December 31, 2009, related to another marine search services contract, we had deferred revenue of $1,257,453 which was earned in 2010. For the three-month and nine-month periods ended September 30, 2010, we earned charter expedition revenue of $679,132 and $3,151,680, respectively, relating to these contracts.

 

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NOTE L – CONCENTRATION OF CREDIT RISK

We maintain our cash in three financial institutions. The Federal Deposit Insurance Corporation insures up to $250,000 per legal entity per financial institution through December 31, 2013. On July 21, 2010, the Federal Deposit Insurance Corporation made the $250,000 insurance limit permanent. Previously, our main financial institution participated in the Transaction Guarantee Program which provided unlimited coverage to checking deposit accounts that do not earn interest. On July 1, 2010, our main financial institution opted out of the Transaction Guarantee Program. At September 30, 2010, our uninsured cash balance was approximately $1,600,000.

Our revolving credit facility and primary mortgage bear interest at variable rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the principal amount of such indebtedness remained the same. Interest on both of these debt instruments are equal to prime plus basis points as described in NOTE I. An increase in the prime rate could have an adverse effect on our operating cash flows and financial condition but we believe it would not be material.

NOTE M – SUBSEQUENT EVENTS

On October 6, 2010, we entered into separate purchase agreements with certain investors pursuant to sell 24 shares of Series G 8% Convertible Preferred Stock, par value $0.0001 per share, and warrants to purchase up to 1,800,000 shares of Odyssey’s common stock to such investors. The Series G preferred stock and warrants were offered as units, with each unit consisting of one share of Preferred Stock and a Warrant to purchase 75,000 shares of common stock. The purchase price for each unit was $250,000 (the “Financing Arrangement”). On October 12, 2010, we completed the Financing Arrangement which resulted in the sale of 24 units for cash proceeds of $5,050,000 and the exchange for face value $950,000 of 5.0% Promissory Notes, issued August 20, 2010 and due December 18, 2010 (also see NOTE I).

Our Series G Preferred Stock has a liquidation value of $250,000 per share and provides for cumulative dividends of $20,000 per share per annum (8% of the liquidation preference) payable upon declaration by our Board of Directors. The Series G Preferred Stock is convertible into shares of our common stock after April 11, 2011 at an initial conversion price of $1.785714. The initial conversion price is subject to adjustment for changes in our capital structure and for sales or issuances of common stock or contracts linked to our common stock at amounts or conversion prices below the initial conversion price. The Series G Preferred Stock is redeemable for cash at our option after December 15, 2010. For the period from December 15, 2010 to March 31, 2011, the cash redemption price is 100% of the liquidation value. Subsequently, the redemption price increases at a rate of 1% of the liquidation value each month. The Series G Preferred Stock is also redeemable for cash at the option of the investors after December 15, 2011 at a redemption price equal to our redemption price. Accordingly, the initial redemption price to the investors on December 15, 2011 is $272,500 per share (or 109% of the liquidation value). The Series G Preferred Stock votes with our common stock on an if-converted basis.

The Warrants were immediately exercisable by the investors at an initial exercise price of $2.50 per share. The exercise price is subject to adjustment for changes in our capital structure and for sales or issuances of common stock or contracts linked to our common stock at amounts or exercise prices below the initial exercise price. The Warrants, which expire on October 11, 2013, do not extend voting or any other rights of a shareholder to the investors. We have agreed to maintain effectiveness of a Registration Statement that applies to common shares underlying the Warrants.

We will account for the Financing Arrangement in the period it was completed. We will account for exchange of Series G Preferred Stock and Warrants for Promissory Notes as an extinguishment of the Promissory Notes, wherein the financial instruments issued will be recorded at their fair values, the carrying values of our Promissory Notes will be removed from our accounts and the difference will be reflected as a gain or a loss upon extinguishment. At the time of filing of this report, we have not completed the calculation of the fair values of the financial instruments issued.

We will account for the sale of Series G Preferred Stock and Warrants for cash as a financing transaction, wherein the net proceeds that we received will be allocated to the financial instruments and other components issued. For purposes of our allocation, we have concluded that the Warrants do not achieve conditions necessary for their classification in our stockholders’ equity. Accordingly, we will first allocate proceeds to the Warrants based upon their fair value. We have also concluded certain features embedded in the Series G Preferred Stock, including the conversion and redemption features, are required to be separated as a compound derivative financial instrument from the Series G Preferred Stock. Accordingly, we will next allocate proceeds to this compound derivative financial instrument based upon its fair value. We have not completed the calculation of fair values of the Warrants or the compound derivative financial instrument. The residual balance of the proceeds, after allocation to the Warrants and the compound derivative financial instrument, will be allocated to the Series G Preferred Stock.

The Warrants and the compound derivative financial instrument are required to be classified in liabilities and measured at their fair values both initially and subsequently, with changes in fair value reflected in our income. The Series G Preferred Stock is required to be classified outside of stockholders’ equity because it is a redeemable security. The residual value initially ascribed to

 

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the Series G Preferred Stock will be accreted to its redemption value, through charges to retained earnings using the effective interest method, over the period from issuance to the earliest redemption date of December 15, 2011. Also, following the issuance of the Series G Preferred Stock, charges for accretion and dividends, whether or not declared, will be reflected as a reduction to our income for purposes of computing income (loss) applicable to our common stockholders and income (loss) per common share.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion will assist in the understanding of our financial position and results of operations. The information below should be read in conjunction with the financial statements, the related notes to the financial statements and our Annual Report on Form 10-K for the year ended December 31, 2009.

In addition to historical information, this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 regarding the Company’s expectations concerning its future operations, earnings and prospects. On the date the forward-looking statements are made, the statements represent the Company’s expectations, but the expectations concerning its future operations, earnings and prospects may change. The Company’s expectations involve risks and uncertainties (both favorable and unfavorable) and are based on many assumptions that the Company believes to be reasonable, but such assumptions may ultimately prove to be inaccurate or incomplete, in whole or in part. Accordingly, there can be no assurances that the Company’s expectations and the forward-looking statements will be correct. Please refer to the Company’s most recent Annual Report on Form 10-K for a description of risk factors that could cause actual results to differ (favorably or unfavorably) from the expectations stated in this discussion. Odyssey disclaims any obligation to update any of these forward-looking statements except as required by law.

Operational Update

We have numerous shipwreck projects in various stages of development around the world. In order to protect the targets of our planned search or recovery operations, in some cases we will defer disclosing specific information relating to our projects until we have located a shipwreck or targets of interest and determined a course of action to protect our property rights.

Additional information regarding our announced projects may be found in our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Reports on Form 10-Q for the quarters ending March 31, 2010 and June 30, 2010. Only projects with material status updates since those reports were filed are discussed below. We may have other projects in various stages of planning or execution that may not be disclosed for security or legal reasons until considered appropriate by management.

We may use our vessels, the Odyssey Explorer and Ocean Alert , or chartered vessels to conduct operations based on availability.

“ Atlas ” Search Project

Between 2005 and 2010, we searched more than 5,000 square nautical miles of seabed in the western English Channel and the Western Approaches to the Channel, recording over 270 shipwrecks. The shipwrecks discovered include site “35-F, ” the Marquise de Tourny , and HMS Victory (1744). Additional high-value targets are believed to be within the “Atlas” search area, and search operations are currently underway in this area.

HMS Victory Project

We discovered and conducted a preliminary investigation of the shipwreck of Admiral Balchin’s HMS Victory (which sank in 1744) during our 2008 “ Atlas ” season and we have been cooperating closely with the United Kingdom (UK) Ministry of Defence (the “MOD”) on the project. All activities at the site, including the recovery of two bronze cannon, have been conducted in accordance with protocols approved by the UK Government and Royal Navy officials. The Victory discovery was announced publicly February 2, 2009. On September 18, 2009, we announced an agreement with the UK Government on an 80% salvage award for the cannon recovered from the site. We have since received the cash payment as compensation under that agreement.

On March 25, 2010, the MOD and the Department for Culture Media and Sport published an official consultation document with a deadline for public submissions of June 30, 2010. Odyssey submitted a document to this process that included a proposal for additional archaeological work on the site. Although the UK is not a signatory to the United Nations Educational Scientific and Cultural Organization’s (UNESCO) Convention for the Protection of Underwater Cultural Heritage (“CPUCH”) and therefore not bound by CPUCH, Odyssey’s proposal is consistent with the archaeological principles of the Rules of CPUCH.

 

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Robert Fraser Projects (“ Enigma II ”, “ Firebrand ,” “ Shantaram ”)

In April 2010, we entered into agreements to provide project research and shipwreck search and survey services for a project code-named “Firebrand” associated with Robert Fraser Marine, Ltd. projects. Under the agreements, Odyssey furnished research related to “Firebrand” and its sinking and agreed to provide a research vessel, equipment and crew to search a specified area and inspect targets in that area. The contracts provided initial cash payments totaling approximately $3.2 million (of which $3.0 has been paid) as well as additional payments upon the sale of coins or artifacts from the “Firebrand” project. After repayment of salvage costs and fees, Odyssey will receive 75% of net revenue in aggregate until an additional £10.5 (approximately $17 million) has been received and then 50% in aggregate of all further net revenue. Search operations have commenced on the “ Firebrand ” project and are currently underway.

In June 2010, we entered into agreements to provide project research and shipwreck search and survey services for a project code-named “Shantaram” associated with Robert Fraser Marine, Ltd. projects. Under the agreements, Odyssey furnished research related to “Shantaram” and its sinking and provided a research vessel, equipment and crew to search a specified area and inspect targets in that area. The contract provides for cash payments totaling approximately U.S. $3.4 million representing initial cash payments of $1.7 million and additional payments of approximately $1.5 million within 30 days and $0.2 million upon project completion, plus additional payments upon the sale of coins or artifacts from the “ Shantaram ” project. After the re-payment of salvage costs and fees, we will receive 75% of net revenue in aggregate until an additional £11.4 million (approximately $18 million) has been received and then 50% in aggregate of all further net revenue. The survey of the “ Shantaram ” search block is complete. Targets of interest have been inspected by our remotely operated vehicle and several other targets remain to be inspected. An amount of approximately $1.5 million remains due which we are still expecting to receive. In the event of non-payment, Odyssey has secured collateral which includes the right to receive an additional percentage of the net proceeds assuming the target shipwreck is located.

In September 2010, we executed agreements to provide supplementary project research and shipwreck search and survey services for a project code-named “ Enigma II ” associated with Robert Fraser Marine, Ltd. projects. As part of the agreements for the “ Enigma II ” project, Odyssey furnished research related to the anticipated location of the “ Enigma II ” and agreed to provide the research vessel, equipment and crew to search a specified area and inspect targets in that area. The contract provided for initial cash payments totaling approximately $1.6 million to Odyssey, plus additional payments upon the sale of coins or artifacts from the “ Enigma II ” project. After the repayment of all recovery costs, Odyssey will receive 75% of net revenue in aggregate until an additional £5.2 million (approximately $8 million) has been received and then 60% in aggregate of all further net revenue. Survey operations have been completed and targets of interest have been inspected with a remotely operated vehicle.

Based on preliminary results, there is evidence suggesting that at least one of the “Robert Fraser Project” target shipwrecks has been located. Additional analysis and investigation is currently underway.

We expect to execute additional agreements for subsea mineral exploration and other projects in the fourth quarter. To protect the security of the operations and search areas, specific location details for search projects are not being released at this time.

ET 409 Project

In January 2010, Ethiopian Airlines Flight ET 409 crashed into the Mediterranean Sea shortly after take-off from Beirut International Airport in Lebanon. When ET 409 crashed, Lebanese authorities contacted Odyssey and asked the company to assist in the search and recovery efforts. The Alert returned to Beirut and was integrated into search operations that included the Lebanese Navy and Army, the US Navy (USS Ramage ) and a German Navy ship, the Laboe .

Before the plane wreckage was discovered, the Government of Lebanon asked Odyssey to provide additional capabilities for more complex technical documentation of the site. Odyssey sent the Odyssey Explorer , which was based in the UK, to Lebanon to assist. We were paid $1.4 million for the work completed to-date by the Lebanese government. We have also completed a video survey and photomosaic of the entire area of the wreckage and debris field under contract to the airline insurance company for a total contract price of $ 1.5 million. This groundbreaking project is believed to be the largest underwater geo-spatially accurate photomosaic ever completed, and required stitching together over 50,000 individual high resolution photos. Additional aircraft recovery work at the site is pending until a thorough review of the photomosaic has been completed by the accident investigation team.

“ Gairsoppa ” Project

In January 2010, Odyssey was awarded the exclusive salvage contract for the cargo of the SS Gairsoppa by the United Kingdom (UK) Government Department for Transport. The contract was awarded after a competitive bid process and is for two years, which commenced immediately. The SS Gairsoppa was a British cargo steamer enlisted in the service of the United Kingdom for the Ministry of War Transport during World War II. It was torpedoed by a German U-Boat in February 1941 in the North Atlantic while reportedly carrying a significant cargo of silver.

 

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Odyssey will assume the risk, expense, and responsibility for the search, cargo recovery, documentation, and marketing of the cargo. If the salvage is successful, Odyssey will be compensated with a salvage award which consists of 80% of the net value of the recovered cargo after deduction of expenses of search and salvage. This project aligns with our strategy to focus on partnership projects with several governments that provide straightforward legal ownership arrangements.

Due to August and September hurricanes adversely affecting the North Atlantic and availability of equipment for our Gairsoppa search, we are currently planning to begin search operations in second quarter of 2011.

Subsea Mineral Mining and Exploration Project

Odyssey currently owns 40.8% of Dorado Ocean Resources Ltd., a company created to bring together exclusive licenses and skills of world renowned deep-ocean geologist Dr. Timothy McConachy of Bluewater Metals, the deep-ocean survey and exploration expertise of Odyssey, and the offshore coring and mining expertise of Robert Goodden and Subsea Minerals.

We entered into a long-term charter agreement for a vessel, the Dorado Discovery , which underwent renovations and mobilization in Southeast Asia. The Dorado Discovery was deployed to the South Pacific in August to work on subsea mineral mining and exploration projects subject to a charter agreement with Dorado. We are providing proprietary expertise and personnel management to Dorado under contract on a commercially reasonable basis, and will continue to conduct operations to explore for deep-ocean SMS deposits in areas covered by exploration permits held by Dorado.

Preliminary results of our early exploration efforts are very encouraging. Operations to-date have supported reconnaissance of an epithermal gold deposit and two SMS (Seafloor Massive Sulfide) deposits. Detailed analyses of certain samples collected to-date indicate high gold, silver, lead and zinc content. However, much more work is needed to assess the commercial value, if any, of these deposits. We are in the very early stages of exploration of the Dorado tenements and remain excited about the prospects for this new venture.

Admiralty Legal Proceedings

An Admiralty arrest is a legal process in which Odyssey seeks recognition from the Court of Odyssey’s salvor-in-possession status for a specific shipwreck, site or cargo. It is the first legal step in establishing Odyssey’s rights to ownership or to a salvage award. If Odyssey is able to confirm that any entity has a potential legitimate legal claim to any materials recovered from any shipwreck site, we will provide legal notice to any and all potential claimants and pursue prompt resolutions of all claims.

“Black Swan” Arrest

We filed our notice of appeal with the Federal District Court for the Middle District of Florida and Eleventh Circuit Court of Appeals on January 15, 2010, and filed the appeal with the Eleventh Circuit on May 11, 2010. Spain issued their reply to our appeal on July 19, 2010, and Odyssey’s reply to Spain’s response was filed on August 19, 2010. Our case has been scheduled for oral argument during the week of February 28, 2011 in Atlanta, Georgia.

In its initial brief, Odyssey argued that the district court erroneously dismissed the case by using flawed legal analysis and by failing to acknowledge or understand several major aspects of the case, including the issue of sovereign immunity. The opening brief also points out several erroneous factual findings and legal conclusions made by the district court including the following:

 

 

The district court did not conduct an evidentiary hearing on the disputed issues of fact, unquestioningly accepting testimony presented by Spain. This was a violation of due process for all of the claimants as well as Odyssey.

 

 

The district court erred in failing to recognize that the Defendant in the case (an in rem proceeding) was NOT Spain or a vessel owned by Spain. The actual Defendant in the case was the group of coins and artifacts (the res in this case) discovered and recovered by Odyssey.

 

 

Descendant claimants have alleged to have ownership rights to the property recovered, claiming their ancestors placed it aboard the Mercedes (the vessel alleged by Spain to have been carrying the subject cargo) for shipment. The district court completely misunderstood their relationship to the property, referring to them as “descendants of those aboard the Mercedes ,” rather than the descendants of property owners.

 

 

Despite undisputed evidence to the contrary, the district court erroneously found that the Mercedes was not engaged in commercial activity. The majority of coins aboard the Mercedes were privately owned and commercially shipped, and the gun decks of the Mercedes had been reconfigured to accommodate paying passengers and cargo. In fact, in the aftermath of the sinking of the Mercedes , Spain went on diplomatic record to protest to the British government that the Mercedes was carrying private cargo and passengers, and therefore the British attack was an unwarranted provocation. Longstanding law, as codified in the FSIA (Foreign Sovereign Immunities Act) and the SMCA (Sunken Military Craft Act) states a vessel is NOT entitled to foreign sovereign immunity if it was engaged in commercial acts.

 

 

The district court also failed to recognize that under well-established admiralty law, cargo may be separated from a vessel, and the cargo may be subdivided to determine competing claims of ownership and salvage

 

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The case is currently pending in the Eleventh Circuit Court of Appeals in Atlanta, Georgia. All of Odyssey’s significant filings to date, including those made at the district court level, can be viewed athttp://www.shipwreck.net/blackswanlegal.php .

Critical Accounting Policies and Changes to Accounting Policies

There have been no material changes in our critical accounting estimates since December 31, 2009, nor have we adopted any accounting policy that has or will have a material impact on our consolidated financial statements.

Results of Operations

The dollar values discussed in the following tables, except as otherwise indicated, are approximations to the nearest $100,000 and therefore do not necessarily sum in columns or rows. For more detail refer to the Financial Statements in Part I, Item 1. For the three months ended September 30, 2010, we have shown Income From Operations of $1.0 million which is the first quarter in several years whereby we have shown a profit from operations.

Three months ended September 30, 2010, compared to three months ended September 30, 2009

 

                                 
Increase/(Decrease)                2010 vs. 2009  
(Dollars in millions)    2010     2009     $     %  

Artifact sales and other

   $ —        $ .6      $ (.6     (94 )% 

Exhibit

     —          .2        (.2     (100

Expedition charter

     9.8        —          9.8        57,478   
                                  

Total revenue

   $ 9.8      $ .8      $ 9.0        1,063
                                  

Cost of sales

     —          .2        (.2     (86

Marketing, general and administrative

     2.2        2.1        .1        5   

Operations and research

     6.6        2.9        3.7        129   
                                  

Total operating expenses

   $ 8.8      $ 5.2      $ 3.6        70
                                  

Other income (expense)

   $ (2.3   $ (.1   $ (2.3     (3,489 )% 
                                  

The explanations that follow are for the three months ended September 30, 2010, compared to the three months ended September 30, 2009.

Revenue

The increase in total revenue of $9.0 million was primarily related to a $9.8 million increase in expedition charter revenue associated with subsea mineral mining work in the South Pacific with Dorado Ocean Resources Ltd. ($5.1 million), syndicated shipwreck search projects which include Enigma II Shantaram and Firebrand ($2.5 million), government and insurance company services in the wake of the airline accident in the Eastern Mediterranean ($1.5 million) and other miscellaneous charter services ($.7 million). We are currently working under a charter agreement with Dorado Ocean Resources Ltd. which will extend into the fourth quarter 2010 and longer. We are also planning other syndicated projects in the South Pacific in late 2010 and in 2011.

Odyssey’s exhibit, SHIPWRECK! Pirates & Treasure , was not on display in the third quarter 2010, but opened at the Maryland Science Center in Baltimore on October 1, 2010. The exhibit will run through January 31, 2011, in the Legg Mason Gallery on the second floor of the science center. We have also seen a decline in artifact sales of $.6 million in the third quarter 2010 which we believe is due to general economic conditions, availability of new product offerings and merger of two of our major distributors.

Operating Expenses

Marketing, general and administrative expenses were $2.2 million in 2010 as compared to $2.1 million in 2009 primarily representing an increase in employee-related expenses offset in part by a decrease in outside professional services.

Operations and research expenses were $6.6 million in 2010 as compared to $2.9 million in 2009. The $3.7 million increase was due to higher vessel - related expenses in 2010 versus 2009 primarily attributable to the volume of projects underway and the addition of our two chartered vessels. The Dorado Discovery comprised $2.6 million of the increase and has recently completed renovations and mobilization in Southeast Asia and has been deployed to the South Pacific to work on subsea mineral mining and exploration projects under a charter agreement with Dorado Ocean Resources Ltd. Our second chartered vessel was deployed during the second quarter 2010 to work on the “ Shantaram ” project and has recently been sub-chartered to a third party which comprised $1.4 million of the increase. These increases in vessel-related expenses were offset in part by decreases Ocean Alert expenses of $.3 million while she is waiting to be deployed on the next project. We are currently anticipating several options for the Ocean Alert including charter, use on the recovery of the aircraft which crashed in the Easter Mediterranean and potential sale.

 

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Other Income (Expense)

Other income (expense) represents income from investments, interest expense on loans and gain (loss) on our equity investment in Dorado Ocean Resources Ltd. For the third quarter 2010, $2.1 million represents our portion of the loss on the equity investment. See Note F of the Notes to the Consolidated Financial Statements.

Nine months ended September 30, 2010, compared to nine months ended September 30, 2009

 

                                 
Increase/(Decrease)                2010 vs. 2009  
(Dollars in millions)    2010     2009     $     %  

Artifact sales and other

   $ .3      $ 1.3      $ (1.0     (74 )% 

Exhibit

     .1        .4        (.3     (85

Expedition charter

     16.7        .2        16.5        10,157   
                                  

Total revenue

   $ 17.1      $ 1.9      $ 15.2        810
                                  

Cost of sales

     .2        .5        (.4     (69

Marketing, general and administrative

     6.7        6.9        (.2     (2

Operations and research

     15.3        8.9        6.3        71   
                                  

Total operating expenses

   $ 22.2      $ 16.4      $ 5.8        35
                                  

Other income (expense)

   $ (2.8   $ (.2   $ (2.7     (1,742 )% 
                                  

The explanations that follow are for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009.

Revenue

The increase in revenue of $15.2 million was primarily related to a $16.5 million increase in expedition charter revenue associated with several syndicated shipwreck search projects including Enigma I and II Shantaram and Firebrand ($8.0 million), subsea mineral mining work in the South Pacific with Dorado Ocean Resources Ltd. ($5.1 million), government and insurance company services in the wake of the airline accident in the Eastern Mediterranean ($2.9 million) and other miscellaneous charter and expedition services ($.5 million). We are currently working under a charter agreement with Dorado Ocean Resources Ltd. which will extend into the fourth quarter 2010 and longer. We are also planning other syndicated projects in the South Pacific in late 2010 and in 2011.

Exhibit revenue decreased $.3 million in 2010 because Odyssey’s exhibit, SHIPWRECK! Pirates & Treasure , was on tour for one month in 2010 versus six months on two separate tours in 2009. The exhibit opened at the Maryland Science Center in Baltimore on October 1, 2010. The exhibit will run through January 31, 2011, in the Legg Mason Gallery on the second floor of the science center. Artifact and other sales decreased $1.0 million in 2010 versus 2009 which we believe is due to general economic conditions, availability of new product offerings and merger of two of our major distributors.

Operating Expenses

Cost of sales for coins decreased 69% for 2010 versus 2009 primarily because of fewer coins sold in 2010. There is no cost of sales component associated with the exhibits and expedition charter revenues.

Marketing, general and administrative expenses were $6.7 million in 2010 as compared to $6.9 million in 2009. The decrease of $.2 million was primarily attributable to lower professional services and depreciation expenses.

Operations and research expenses were $15.3 million in 2010 as compared to $8.9 million in 2009. The $6.3 million increase was due to higher vessel - related expenses in 2010 versus 2009 primarily attributable to the volume of projects underway and the addition of our two chartered vessels. The Dorado Discovery comprised $3.7 million of the increase and has recently completed renovations and mobilization in Southeast Asia and has been deployed to the South Pacific to work on subsea mineral mining and exploration projects under a charter agreement with Dorado Ocean Resources Ltd. Our second chartered vessel was deployed during the second quarter 2010 to work on the “ Shantaram ” project and has recently been sub-chartered to a third party which comprised $2.6 million of the increase.

 

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Other Income (Expense)

Other income (expense) represents income from investments, interest expense on loans and gain (loss) on our equity investment in Dorado Ocean Resources Ltd. For the nine months 2010, $2.5 million represents our portion of the loss on the equity investment. See Note F of the Notes to the Consolidated Financial Statements.

Liquidity and Capital Resources

 

                 
(Dollars in thousands)    2010     2009  

Summary of Cash Flows:

                

Net cash (used) by operating activities

   $ (7,485   $ (11,778

Net cash (used) by investing activities

     (1,549     (524

Net cash provided by financing activities

     7,794        5,689   
                  

Net increase (decrease) in cash and cash equivalents

   $ (1,240   $ (6,613
     

Beginning cash and cash equivalents

     2,145        10,740   
                  

Ending cash and cash equivalents

   $ 906      $ 4,128   
                  

Discussion of Cash Flows

Net cash used in operating activities for the first nine months of 2010 was $7.5 million. This amount primarily reflected an operating loss of $7.9 million offset in part by non-cash items including depreciation and loan discount amortization ($1.7 million), share-based compensation ($1.4 million) and loss from unconsolidated entity ($2.4 million). Working capital changes also included an increase in accounts receivable of $8.4 million ($1.6 million represents the amount due on the “ Shantaram ” project, $5.4 represents amount due from Dorado Ocean Resources, Ltd. and $.8 million due from an insurance adjuster in the wake of the airline accident in the Eastern Mediterranean ), an increase in accounts payable of $2.8 million ($1.7 million represents ship charters and fuel), an increase in deferred revenue of $.4 million ($1.6 million representing deferred revenue outstanding on the “ Firebrand ” project offset by recognition of revenue for projects “ Enigma ” and “ Shantaram ”), and other net sources of working capital of $.1 million. Net cash used in operating activities for the first nine months of 2009 was $11.8 million. This amount primarily reflected an operating loss of $14.7 million and non-cash items including depreciation and amortization ($1.7 million) and share-based compensation ($1.6 million), a decrease in inventory, accounts receivable and other assets ($.9 million), offset in part by a decrease in accounts payable and accrued expenses ($1.3 million).

Cash flows used in investing activities for the first nine months of 2010 were $1.5 million which primarily represented marine property and equipment purchases primarily for our business venture into subsea mineral mining and exploration. Cash flows used in investing activities was $.5 million for the first nine months in 2009 which primarily reflected the purchase of property and equipment for our marine operations group which included extensive capitalized upgrades to the Ocean Alert ($.3 million).

Cash flows provided by financing activities for the first nine months of 2010 were $7.8 million which included $6.2 million proceeds from the issuance and sale of common stock in January 2010 offset by fees related to the private offering of $.2 million and $1.8 million proceeds from the issuance of promissory notes in August 2010. Cash flows provided by financing activities for the first nine months of 2009 were $5.7 million which included $5.1 million proceeds from the issuance and sale of common stock in May 2009 and $.8 million proceeds from the exercise of warrants to purchase preferred stock in the first quarter. Cash proceeds were offset in part by repayments of mortgage and loans payable of $.2 million.

General Discussion 2010

At September 30, 2010, we had cash and cash equivalents of $.9 million, a decrease of $1.2 million from the December 31, 2009, balance of $2.1 million.

Equity-Related

In November 2009, we invested $500,000 for a 25% interest in SMM Project, LLC (“SMM”) to pursue opportunities in the exploration of deep-ocean gold and copper deposits. SMM purchased a majority interest in Bluewater Metals Pty, Ltd. (“Bluewater”), an Australian company with licenses for mineral exploration of approximately 150,000 square kilometers of ocean floor in territorial waters controlled by four different countries in the South Pacific. The focus will be on the exploration and monetization of gold and copper-rich Seafloor Massive Sulfide (SMS) deposits through a new business entity, Dorado Ocean Resources (DOR), which has acquired the remaining interest in Bluewater. Odyssey will dedicate certain marine assets, including a ship and related marine exploration technology, to the endeavor.

During January 2010, we entered into individual purchase agreements with certain investors pursuant to which we sold an aggregate of 4,000,000 shares of Odyssey’s common stock and warrants to purchase up to 2,400,000 shares of common stock to

 

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such investors. The common stock and warrants were sold as units, with each unit consisting of one share of common stock and a warrant to purchase 0.6 shares of common stock. The purchase price for each unit was $1.565. The warrants have an exercise price of $2.25 per share of common stock and are exercisable in accordance with their terms at any time on or before the close of business on January 29, 2013. The net proceeds to us from the registered direct public offering, after deducting placement agent fees and its offering expenses, and excluding the proceeds, if any, from the exercise of the warrants issued in the offering, were approximately $6.1 million.

On February 12, 2010, we issued 500,000 shares of common stock to one institutional investor. The shares of common stock were issued upon conversion of 500,000 outstanding shares of our Series D Convertible Preferred Stock that was originally purchased in January 2007.

On March 18, 2010, we issued 600,000 shares of common stock to one institutional investor. The shares of common stock were issued upon conversion of 600,000 outstanding shares of the Odyssey’s Series D Convertible Preferred Stock which was originally purchased in May 2007.

On April 20, 2010, we issued 600,000 shares of common stock to one institutional investor. The shares of common stock were issued upon conversion of 600,000 outstanding shares of the Company’s Series D Convertible Preferred Stock which was originally purchased in May 2007.

On April 30, 2010, SMM was acquired by DOR through a stock exchange agreement. We were issued 450 DOR shares in exchange for our surrendered shares in SMM. Additionally, we invested $2 million dollars for 1,200 shares of DOR resulting in a 41.25% ownership of DOR. Under the terms of the Share Subscription Agreement, we have the option to pay for this investment in cash or by providing marine services to DOR over a three-year period.

On May 6, 2010, we issued 1,300,000 shares of common stock to one institutional investor. The shares of common stock were issued upon conversion of 13 outstanding shares of the Odyssey’s Series E Convertible Preferred Stock which was originally purchased in September 2007. The Series E Convertible Preferred Stock was convertible into 100,000 shares common for every one share of preferred. As a result of the conversion, there are no longer any shares of Series E Convertible Preferred Stock outstanding and only 206,400 Series D which are convertible to common on a one-for-one basis.

On June 3, 2010, shareholders approved the proposal at the annual meeting to amend the 2005 Incentive Stock Plan by adding 3,000,000 shares of common stock to the Plan. An S-8 Registration was filed in August 2010 for the additional shares.

On August 20, 2010, we entered into individual purchase agreements with certain investors to issue and sell promissory notes in the principal amount of $1.8 million and warrants to purchase an aggregate of 270,000 shares of common stock. The notes bear interest at a rate equal to 5.0% per annum, and all principal and accrued interest was due and payable on or before December 18, 2010. The warrants had an exercise price of $2.25 per share of common stock and will be exercisable in accordance with their terms at any time on or before the close of business on August 20, 2013. All the notes were paid in full as of October 18, 2010.

On October 6, 2010, we entered into separate purchase agreements with certain investors pursuant to sell 24 shares of Series G 8% Convertible Preferred Stock, par value $0.0001 per share, and warrants to purchase up to 1,800,000 shares of Odyssey’s common stock to such investors. The Series G preferred stock and warrants were offered as units, with each unit consisting of one share of Preferred Stock and a Warrant to purchase 75,000 shares of common stock. The purchase price for each unit was $250,000. The transaction closed on October 12, 2010, and we sold 20 of the units for cash, and four of the units were issued upon tender of an aggregate of $1.0 million of principal amount of the promissory notes that Odyssey issued in August 2010 by the holders thereof. Accordingly, the net cash proceeds to Odyssey were approximately $5.0 million. See NOTE M to the Consolidate Financial Statements for further information and the planned accounting for this transaction.

Bank Credit Facility

On April 23, 2010, we renewed our $5.0 million revolving credit facility with Fifth Third Bank (the “Bank”). The original two-year $5.0 million credit facility was entered into on February 7, 2008, and a 90-day extension was granted until May 7, 2010. The renewed credit facility has a floating interest rate equal to the “Prime Rate” plus one hundred and fifty basis points (1.50%), requires monthly payments of interest only, and is due in full April 23, 2011. The Company will also be required to pay the Bank an unused line fee equal to 0.50% per annum of the unused portion of the credit line.

The line of credit is secured by approximately 28,500 numismatic coins recovered from the SS Republic shipwreck, which amount will be reduced over the term by the amount of coins sold by the Company. The coins used as collateral are held by a custodian for the security of the Bank. The borrowing base is equal to forty percent (40%) of the eligible coin inventory valued on a rolling twelve-month wholesale average value. The Company is required to comply with a number of customary covenants.

Trends and Uncertainties

Based upon our current expectations, we believe our cash position should be sufficient to fund operating cash flows throughout the rest of 2010 taking into account our capital raises, expected revenues from multiple sources, including projected sales and syndicated projects, commercial salvage activities, surveys and our ability to realize our accounts receivable. While we

 

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have recovered more than 17 tons of silver coins and hundreds of gold coins and other artifacts from the “ Black Swan” project, we will not be able to monetize any recovered cargo unless we are awarded title or a salvage award by the U.S. District Court. At the present time, we cannot determine how long that process may take, and there is no way to estimate the likelihood of receiving a salvage award from the U.S. District Court. We have also identified one potential high value target shipwreck, HMS Victory . However, unless there is an agreement with the U.K. government, we will not be able to conduct any archaeological recoveries on this project If cash flow is not sufficient to meet our projected business plan requirements, we will be required to raise additional capital or curtail expenses. While we have been successful in raising the necessary funds in the past, there can be no assurance that we can continue to do so.

New Accounting Pronouncements

As of September 30, 2010, the impact of recent accounting pronouncements on our business is not considered to be material.

Off-Balance Sheet Arrangements

We do not engage in off-balance sheet financing arrangements. In particular, we do not have any interest in so-called limited purpose entities, which include special purpose entities (SPEs) and structured finance entities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. Our revolving credit facility and primary mortgage bear interest at variable rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the principal amount of such indebtedness remained the same. Interest on both of these debt instruments are equal to prime plus basis points as described in NOTE I. An increase in the prime rate could have an adverse effect on our operating cash flows and financial condition, but we believe it would not be material. We do not believe we have other material market risk exposure and have not entered into any market risk sensitive instruments to mitigate these risks or for trading or speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

Odyssey maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this report, based on an evaluation carried out under the supervision and with the participation of Odyssey’s management, including the chief executive officer (CEO) and chief financial officer (CFO), of the effectiveness of our disclosure controls and procedures, the CEO and CFO have concluded that Odyssey’s disclosure controls and procedures are effective. There have been no significant changes in the Company’s internal controls over financial reporting during the third quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not currently a party to any material litigation other than the admiralty proceedings described in this report. From time to time in the ordinary course of business, the Company may be subject to or may assert a variety of claims or lawsuits.

See the information set forth under the heading “Operational Update – Admiralty Legal Proceedings” in Part I, Item 2 of this report for disclosure regarding certain admiralty legal proceedings in which Odyssey is involved. Such information is hereby incorporated by reference into this Part II, Item 1.

 

ITEM 1A. Risk Factors

For information regarding risk factors, please refer to Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 2009, with respect to the Risk Factors. Investors should consider the Risk Factors prior to making an investment decision with respect to the Company’s securities.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

 

22

 


Table of Contents

 

ITEM 4. [Removed and Reserved]

ITEM 5. Other Information

None.

ITEM 6. Exhibits

 

     
  3.1    Certificate of Designation for the Series G 8% Convertible Preferred Stock (Filed herewith electronically)
   
  3.2    Amendment to Certificate of Designation for the Series G 8% Convertible Preferred Stock (Filed herewith electronically)
   
  3.3    Certificate of Correction to Amendment to Certificate of Designation for the Series G 8% Convertible Preferred Stock (Filed herewith electronically)
   
  4.1    Reference is hereby made to Exhibit 10.1
   
  4.2    Form of Warrant to Purchase Common Stock, dated October 11, 2010 (Filed herewith electronically)
   
10.1    Form of Securities Purchase Agreement, dated August 20, 2010, for 5% Notes and Warrants, which includes as Attachment A thereto a Form of Note and as Attachment B thereto a Form of Warrant (Filed herewith electronically)
   
10.2    Form of Purchase Agreement, dated October 6, 2010, for the Series G 8% Convertible Preferred Stock, including Amendment No. 1 thereto dated October 6, 2010 (Filed herewith electronically)
   
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith electronically)
   
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith electronically)
   
32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Filed herewith electronically)
   
32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Filed herewith electronically)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

             
        ODYSSEY MARINE EXPLORATION, INC.
       
Date: November 4, 2010       By:  

/s/ Michael J. Holmes

            Michael J. Holmes, Chief Financial
            Officer and Authorized Officer

 

23

 

Exhibit 3.1

 

     
LOGO   

ROSS MILLER

Secretary of State

204 North Carson Street, Suite 1

Carson City, Nevada 89701-4520

(775) 684-5708

Website: www.nvsos.gov

 

         

Certificate of Designation

(PURSUANT TO NRS 78. 1955)

       

 

         
USE BLACK INK ONLY - DO NOT HIGHLIGHT         ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Designation For

Nevada Profit Corporations

(Pursuant to NRS 68.1955)

1. Name of corporation:

Odyssey Marine Exploration, Inc.

2. By resolution of the board of directors pursuant to a provision in the articles of incorporation this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock.

24 shares of Series G 8% Convertible Preferred Stock, par value $0.0001 per share. See Exhibit A attached to this certificate for the voting powers, designations, limitations, restrictions and relative rights of such series. Exhibit A is incorporated herein by reference.

3. Effective date of filing: (optional)

(must not be later than 90 days after the certificate is filed)

4. Signature: (required)

 

         
X  

/s/ Michael J. Holmes

    
Signature of Officer    Michael J. Holmes, Chief Financial Officer     

Filing Fee: $175.00

IMPORTANT : Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.

 

     
This form must be accompanied by appropriate fees.   Nevada Secretary of State Amend Designation - Before
    Revised: 3-6-09

 


 

C ERTIFICATE OF D ESIGNATION

OF

S ERIES  G 8% C ONVERTIBLE P REFERRED S TOCK

OF

O DYSSEY M ARINE E XPLORATION , I NC .

 

 

Pursuant to Section 78.1955 of the

Nevada Revised Statutes

 

 

The undersigned does hereby certify that pursuant to the authority conferred upon the Board of Directors of ODYSSEY MARINE EXPLORATION, INC. , a Nevada corporation (the “ Corporation ”), by its Articles of Incorporation, as amended, and Section 78.315 of the Nevada Revised Statutes, the Board of Directors, by unanimous written consent, duly approved and adopted the following resolution (referred to herein as the “ Resolution ”):

RESOLVED, that pursuant to the authority conferred on the Board of Directors of the Corporation (“ Board of Directors ”) by Article IV of the Articles of Incorporation of the Corporation (the “ Articles”), the Board of Directors does hereby create and authorize for issuance a series of preferred stock, par value $0.0001 per share, of the Corporation, consisting of up to twenty-four (24) shares, and hereby fixes the voting powers, designations, preferences, and relative, participating, optional and other special rights, and qualifications, limitations, and restrictions thereof, of the shares of such series, in addition to those set forth in the Articles, as follows:

SECTION 1. DESIGNATION OF SERIES G PREFERRED STOCK. The shares of the series of preferred stock created and authorized by this Resolution shall be designated “Series G 8% Convertible Preferred Stock” (the “ Series G Preferred Stock ”). The total number of authorized shares constituting the Series G Preferred Stock shall be twenty-four (24). The number of shares constituting this series of preferred stock of the Corporation may be increased or decreased at any time, from time to time, in accordance with applicable law up to the maximum number of shares of preferred stock authorized under the Articles, less all shares at the time authorized of any other series of preferred stock of the Corporation; provided, however, that no decrease shall reduce the number of shares of this series to a number less than that of the then-outstanding shares of Series G Preferred Stock. The stated par value of the Series G Preferred Stock shall be $0.0001 per share. Shares of the Series G Preferred Stock shall be dated the date of issue (the “ Issuance Date ”).

SECTION 2. DIVIDEND RIGHTS.

2.1 Dividend Payments. Subject to Section 7 and to the rights of any series of preferred stock that may from time to time come in existence, the holders of the Series G Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available for such purpose, cash dividends at a rate of $20,000.00 per share per annum (computed on the basis of a 360-day year, 30-day month), payable semi-annually on April 1 and October 1 of each year, commencing April 1, 2011. Such dividend shall be cumulative and shall accrue, whether or not earned

 


or declared, from and after the date of issue of the Series G Preferred Stock. Dividends shall be paid to the holders of record as of a date, not more than thirty (30) days prior to the dividend payment date, as may be fixed by the Board of Directors.

2.2 Dividends or Certain Other Distributions on Common Stock. While any shares of Series G Preferred Stock are outstanding, no dividend or other distribution (other than a dividend or distribution paid in Common Stock or other capital stock of the Corporation ranking senior to the Series G Preferred Stock) shall be declared, paid, or set aside for payment on any class of the Common Stock or on any other capital stock of the Corporation ranking junior to the Series G Preferred Stock as to dividends, nor shall any Common Stock or capital stock of the Corporation ranking junior to the Series G Preferred Stock be redeemed, purchased, retired, or otherwise acquired directly or indirectly by the Corporation for any consideration (or any monies paid for the account of, or set aside for payment for, or paid to or made available for a sinking or similar fund for, such purposes), except by conversion into or exchange of shares of Common Stock or other capital stock of the Corporation ranking junior to the Series G Preferred Stock as to dividends, unless, in each case, dividends on all outstanding shares of the Series G Preferred Stock contemporaneously are declared and paid. While any shares of Series G Preferred Stock are outstanding, the Corporation will not, without the prior affirmative vote or written consent of the holders of a majority of the shares of Series G Preferred Stock outstanding at the time, authorize or issue any series of preferred stock that ranks, with respect to the various rights set forth in Section 2.1 or this Section 2.2, senior to the Series G Preferred Stock.

SECTION 3. LIQUIDATION RIGHTS AND RANK. Subject to the rights of any series of preferred stock that may from time to time come in existence, in the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or involuntary (a “ Liquidation ”), each holder of the Series G Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders (whether representing capital or surplus), before any payment or distribution shall be made on the Common Stock or any capital stock of the Corporation ranking junior to the Series G Preferred Stock as to the payment of dividends or the distribution of assets (“ Junior Stock ”), an amount per share of Series G Preferred Stock equal to the sum of (a) $250,000 plus (b) any accrued but unpaid dividends (the “ Liquidation Preference ”). If, upon any Liquidation of the Corporation, the assets of the Corporation, or the proceeds of those assets, available for distribution shall be insufficient to pay in full the amount of the Liquidation Preference, then all of the assets available shall be distributed among the holders of the Series G Preferred Stock. After the payment in full of the Liquidation Preference has been made to the holders of the Series G Preferred Stock, such holders shall not be entitled to any further participation in any distribution of the assets of the Corporation in respect of the shares of Series G Preferred Stock owned by such holders. For purposes of this Section 3, a sale, conveyance, exchange, or transfer of all or substantially all of the properties or assets of the Corporation for cash, securities, or other consideration, or the consolidation, merger, or other business combination of the Corporation with one or more corporations or other entities, shall be deemed to be a Liquidation. The Series G Preferred Stock shall, with respect to the various rights set forth in this Section 3, rank (a) junior to the Corporation’s Series D Convertible Preferred Stock, par value $0.0001 per share; (b) senior to all other series of Preferred Stock and to any other capital stock that is not Preferred Stock; and (c) pari passu with any series of Preferred Stock of the Corporation hereafter created specifically ranking on parity with the Series G Preferred Stock.

 

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SECTION 4. VOTING RIGHTS.

4.1 General Voting Rights. The holder of each share of Series G Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series G Preferred Stock could then be converted (assuming for this purpose that the Series G Preferred Stock were convertible immediately upon issuance as opposed to on or after April 15, 2011), and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the Corporation’s bylaws, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series G Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

4.2 Class Voting Rights. So long as shares of the Series G Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of the Series G Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series G Preferred Stock vote separately as a class, (a) authorize, create, issue or increase the authorized or issued amount of any class of debt or equity securities, ranking pari passu or senior to the Series G Preferred Stock, with respect to the distribution of assets on liquidation, dissolution or winding up; (b) amend, alter or repeal the provisions of the Series G Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the Series G Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (c) repurchase, redeem or pay dividends on, shares of Common Stock or any other shares of Junior Stock (other than (i) in connection with any employee stock option plan or employee stock purchase plan which is approved by the Board of Directors and is existing as of Issuance Date (as defined below), (ii) de minimus repurchases from employees of the Corporation, and (iii) any contractual redemption obligations existing as of Issuance Date as disclosed in the Corporation’s public filings with the Securities and Exchange Commission); (d) amend the Corporation’s articles or bylaws so as to affect materially and adversely any right, preference, privilege or voting power of the Series G Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (e) effect any distribution with respect to Junior Stock other than as permitted hereby; or (f) if the Series G Preferred Stock has not been redeemed in whole by April 15, 2011, incur any indebtedness for borrowed money or issue any debt securities, or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person for borrowed money. Notwithstanding the foregoing to the contrary, the Corporation may (A) issue the Warrants (as defined in Section 5.8(b)) and (B) renew, extend or modify the Corporation’s existing $5.0 million revolving credit facility with Fifth Third Bank, so long as the amount of indebtedness incurred or that may be incurred thereunder is not increased.

 

3

 


 

SECTION 5. CONVERSION RIGHTS.

5.1 Right to Convert. At any time and from time to time on or after April 15, 2011, any holder thereof may convert any or all of the shares of Series G Preferred Stock held by such holder into shares of Common Stock. Each share of Series G Preferred Stock shall be convertible, at the option of the holder thereof, at any time on or after April 15, 2011, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock (rounded up to the nearest whole share) as is determined by dividing $250,000 by the applicable Conversion Price for the Series G Preferred Stock (the conversion rate for the Series G Preferred Stock into Common Stock is referred to herein as the “ Conversion Rate ”), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for the Series G Preferred Stock shall be $1.785714; provided, however , that the Conversion Price for the Series G Preferred Stock shall be subject to adjustment as set forth in Section 5.3 below.

5.2 Conversion Procedure.

(a) Notice and Surrender of Certificates. Any holder of shares of Series G Preferred Stock desiring to convert any portion thereof into shares of Common Stock pursuant to Section 5.1 shall give written notice that such holder elects to convert a stated number of Series G Preferred Stock into Common Stock (a “ Holder Conversion Notice ”) and shall surrender each certificate representing the Series G Preferred Stock to be converted, duly executed in favor of the Corporation or in blank accompanied by proper instruments of transfer, at the principal business office of the Corporation (or at such other place as may be designated by Corporation). Any Holder Conversion Notice shall set forth the name or names (with the address or addresses) in which the certificate or certificates for shares of the Common Stock shall be issued.

(b) Effective Time of Conversion. To the extent permitted by law, the conversion of the Series G Preferred Stock pursuant to Section 5.1 into Common Stock shall be deemed to have been effected immediately prior to the close of business on the date on which all the conditions in Section 5.2(a) of this Resolution have been satisfied, and at such time, the rights of the holder of such shares of Series G Preferred Stock so converted shall cease, and the person or persons in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the share of Common Stock represented thereby. The date on which the conversion of the Series G Preferred Stock pursuant to this Section 5.2(b) into Common Stock shall be deemed to have been effected is hereinafter referred to as the “ Effective Conversion Date ”. Except as otherwise provided herein, no payment or adjustment shall be made in respect of the Common Stock delivered upon conversion of the Series G Preferred Stock.

(c) Issuance of Common Stock Certificates. As soon as practicable after the Effective Conversion Date, but no later than three (3) business days after the Effective Conversion Date, the Corporation shall issue and deliver, or cause to be issued and delivered, to the converting holder a certificate or certificates for the number of whole shares of Common Stock issuable by reason of the conversion of such shares of Series G Preferred Stock, registered in such name or names and such denominations as the converting holder has specified, subject to compliance with applicable laws to the extent such designation shall involve a transfer, together with a check in the amount of any

 

4

 


accumulated but unpaid dividends. If requested by a converting holder, and subject to the such holder providing the Corporation with such instructions and information as the Corporation may reasonably request, delivery of shares of Common Stock issuable by reason of the conversion of shares of Series G Preferred Stock shall be made by electronic book-entry at the Depository Trust Company. In case the number of shares of Series G Preferred Stock represented by the certificate or certificates surrendered for conversion pursuant to this Section 5.2 exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder thereof a new certificate for the number of shares of Series G Preferred Stock represented by the certificate or certificates surrendered that are not to be converted.

5.3 Adjustments to Conversion Rate.

(a) Subdivision or Combination of Common Stock. If the Corporation at any time: (i) pays a dividend or makes a distribution on its Common Stock in shares of Common Stock, (ii) subdivides (by stock split, recapitalization, or otherwise) its outstanding Common Stock into a greater number of shares, or (iii) combines (by reverse stock split or otherwise) its outstanding Common Stock into a smaller number of shares, then the Conversion Rate in effect at the time of the record date for such dividend or distribution, or the effective date of such subdivision or combination, shall be proportionately adjusted immediately thereafter so that the holder of any shares of the Series G Preferred Stock surrendered for conversion after such event will receive the kind and amount of shares that such holder would have received if the Series G Preferred Stock had been converted immediately prior to the happening of the event. Such adjustment shall be made successively whenever any of the events referred to in this Section 5.3(a) occur.

(b) Merger or Consolidation. If there is a reorganization, or a merger or consolidation of the Corporation with or into any other entity which results in a conversion, exchange, or cancellation of the Common Stock, or a sale of all or substantially all of the assets of the Corporation, on a consolidated basis (except for sales or dispositions to a wholly owned subsidiary of the Corporation), upon any subsequent conversion of the Series G Preferred Stock, each holder of the Series G Preferred Stock will be entitled to receive the kind and amount of securities, cash, and other property or assets which the holder would have received if the holder had converted the shares of Series G Preferred Stock into Common Stock in accordance with Section 5 hereof immediately prior to the first of these events and had retained all the securities, cash, and other property or assets received as a result of those events.

(c) Adjustments for Issuance of Additional Shares of Common Stock. In the event the Corporation, shall, at any time or from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing Section 5.3(a) or Section 5.3(b) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date (the “ Additional Shares of Common Stock ”), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to the lowest price per share at which any such share of Common Stock has been issued or sold.

(d) Issuance of Common Stock Equivalents . If the Corporation, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities ”), or any rights or warrants or

 

5

 


options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively, the “ Common Stock Equivalents ”), and the aggregate of the price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Corporation for issuance of such Common Stock Equivalent divided by the number of shares of Common Stock issuable pursuant to such Common Stock Equivalent (the “ Aggregate Per Common Share Price ”) shall be less than the Conversion Price, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended or adjusted shall make the Aggregate Per Common Share Price be less than Conversion Price in effect at the time of such amendment or adjustment, then the Conversion Price then in effect shall be adjusted pursuant to Section 5.3(c) above assuming that all Additional Shares of Common Stock have been issued pursuant to the Convertible Securities or Common Stock Equivalents for a purchase price equal to the Aggregate Per Common Share Price. No adjustment of the Conversion Price shall be made under this Section 5.3(d) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefore, if any adjustment shall previously have been made to the Conversion Price upon the issuance of such warrants or other rights pursuant to this Section 5.3(d). No adjustment shall be made to the Conversion Price upon the issuance of Common Stock pursuant to the exercise, conversion or exchange of any Convertible Security or Common Stock Equivalent where an adjustment to the Conversion Price was made as a result of the issuance or purchase of any Convertible Security or Common Stock Equivalent.

(e) Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment to the Conversion Price upon (i) the issuance of Common Stock or grants of options to purchase Common Stock pursuant to any stock option plans and employee stock purchase plans approved by the Corporation’s board of directors, so long as such issuances in the aggregate do not exceed the number of shares of Common Stock (or options to purchase such number of shares of Common Stock) issuable pursuant to such plans as they exist on the date hereof or (ii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date hereof (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the holders).

(f) De Minimus Adjustments. No adjustment in the Conversion Rate will be made unless the adjustment would require a change of at least one percent (1.0%) in the Conversion Rate; provided, however,that any adjustments that are not made because of this Section 5.3(f) will be carried forward and taken into account in any subsequent adjustment; and provided, further, that any adjustment must be made in accordance with this Section 5 (without regard to this Section 5.3(f)) not later than the time the adjustment may be required in order to preserve the tax-free nature, if any, of a distribution to the holders of shares of the Common Stock. All calculations under this Section 5 will be made to the nearest full share.

5.4 Notices.

(a) Notice of Conversion Rate Adjustments. Upon any adjustment of the Conversion Rate pursuant to the provisions of Section 5.3 of this Resolution, the Corporation shall promptly give written notice thereof to each holder of record of the

 

6

 


Series G Preferred Stock. Such notice shall set forth (i) the adjusted Conversion Rate, (ii) a description of the events which caused the adjustment, (iii) a description of the method of calculation of the adjustment, and (v) the date on which the adjustments become effective.

(b) Other Notices. If any of the following shall occur:

(i) the Corporation shall declare a dividend or authorize any other distribution on its Common Stock, including those of the type identified in Section 5.3(a) hereof;

(ii) any reorganization, reclassification, or similar change of the Common Stock, or a merger or consolidation, or the sale, conveyance, exchange, or transfer of all or substantially all of the assets of the Corporation, or

(iii) the voluntary or involuntary Liquidation of the Corporation;

then, and in any such case, the Corporation shall deliver to each holder of record of the Series G Preferred Stock written notice thereof at least twenty (20) days prior to the earliest applicable date specified below with respect to which notice is to be given, which notice shall state the following: (x) the date on which a record is to be taken for the purpose of such dividend, distribution, or rights, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, or rights are to be determined; (y) the date on which such reclassification, reorganization, merger or consolidation, or sale, conveyance, exchange, or transfer of all or substantially all of the assets of the Corporation, or Liquidation, is expected to become effective, and the date, if any, as of which the holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, reorganization, merger or consolidation, or sale, conveyance, exchange, or transfer or Liquidation; and (z) if any matters referred to in the foregoing clauses (x) and (y) are to be voted upon by holders of Common Stock, the date as of which those stockholders to be entitled to vote are to be determined.

5.5 Reservation of Shares of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized and unissued shares of Common Stock, such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of the Series G Preferred Stock from time to time outstanding, but shares of Common Stock held in the treasury of the Corporation may, at the discretion of the Corporation, be delivered upon any conversion of the Series G Preferred Stock.

5.6 Issue and Other Taxes. The Corporation shall pay any and all documentary stamp or similar issue or other taxes that may be payable in respect of any issuance or delivery of shares of Common Stock on conversion of Series G Preferred Stock pursuant hereto. The Corporation, however, shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of any shares of Common Stock in a name other than that in which the shares of the Series G Preferred Stock so converted were registered and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

 

7

 


 

5.7 Closing of Corporate Books. The Corporation shall not close its books against the transfer of the Series G Preferred Stock or of any shares of Common Stock issued or issuable upon conversion of Series G Preferred Stock in any manner that interferes with the timely conversion of the Series G Preferred Stock.

5.8 Limitations Upon Conversion Rights. Notwithstanding any provision of this Resolution to the contrary:

(a) No holder may convert any shares of Series G Preferred Stock hereunder to the extent such exercise would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of shares of Series G Preferred Stock held by such holder after application of this Section; provided, however, that upon a holder of shares of Series G Preferred Stock providing the Corporation with sixty-one (61) days written notice (a “ Waiver Notice ”) that such holder would like to waive this Section 5.8(a) with regard to any or all shares of Common Stock issuable upon conversion of Series G Preferred Stock held by such holder, this Section 5.8(a) shall be of no force or effect with regard to those shares of Common Stock referenced in the Waiver Notice.

(b) The Corporation shall not issue any shares of Common Stock upon exercise of shares of Series G Preferred Stock if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Corporation may issue upon conversion or exercise (as the case may be) of all outstanding shares of Series G Preferred Stock and the outstanding warrants issued in connection with the issuance of the Series G Preferred Stock (the “ Warrants ”) without breaching the Corporation’s obligations under the rules or regulations of the Principal Market (as defined below) (the number of shares which may be issued without violating such rules and regulations, the “ Exchange Cap ”) (it being understood that, as of the Issuance Date, NASDAQ Listing Rule 5635(d) requires stockholder approval of the sale, issuance or potential issuance by a company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock), except that such limitation shall not apply in the event that the Corporation (i) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for issuances of shares of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Corporation that such approval is not required. As used in this Resolution, “ Principal Market ” means The NASDAQ Stock Market or such other national securities exchange or quotation system on which the Common Stock is traded or quoted.

SECTION 6. STATUS OF CONVERTED STOCK. All shares of Series G Preferred Stock converted into Common Stock shall be retired and cancelled and shall be restored to the status of authorized but unissued shares of preferred stock of the Corporation, without designation as to series, and may thereafter be issued.

SECTION 7. REDEMPTION.

7.1 Corporation’s Right to Redeem. At any time and from time to time after December 15, 2010, shares of the Series G Preferred Stock may be redeemed at the

 

8

 


Corporation’s option, in whole but not in part, for the Redemption Price (as defined herein). For purposes of this Resolution, “ Redemption Price ” means 100.0% of the Liquidation Preference from the date of issuance through March 31, 2011. Commencing on April 1, 2011, and on the first day of each month thereafter, the Redemption Price shall increase by 1.0%. For example, on April 1, 2011, the Redemption Price shall increase to 101.0% of the Liquidation Price, and on May 1, 2011, the Redemption Price shall increase to 102.0% of the Liquidation Price. There is no sinking fund requirement for redemption of the Series G Preferred Stock. The date fixed for redemption pursuant to this Section 7.1 is hereinafter called the “ Redemption Date .”

7.2 Notice of Redemption by the Corporation. Notice of intention to redeem shares of Series G Preferred Stock (a “ Corporation Redemption Notice ”) shall be given by the Corporation to the holders of the Series G Preferred Stock by giving notice thereof to the holders of record on the Redemption Date. A Corporation Redemption Notice shall be deemed to have been given or made for all purposes (a) upon personal delivery, (b) upon confirmation receipt that the communication was successfully sent to the applicable number if sent by facsimile; (c) one day after being sent, when sent by professional overnight courier service, or (d) five days after posting when sent by registered or certified mail. Any notices to holders of the Series G Preferred Stock shall be sent to their respective addresses on the books of the Corporation.

7.3 Holders’ Right to Require Redemption. At any time and from time to time after December 15, 2011, each holder of shares of the Series G Preferred Stock may require the Corporation to redeem, in whole or in part, any of such holder’s shares of Series G Preferred Stock for the Redemption Price.

7.4 Notice of Redemption by Holder. Any holder of shares of Series G Preferred Stock desiring to have any portion thereof converted pursuant to this Section 7.4 shall give written notice that such holder elects to have redeemed a stated number of Series G Preferred Stock (a “ Holder Redemption Notice ”) and shall surrender each certificate representing the Series G Preferred Stock to be redeemed, duly executed in favor of the Corporation or in blank accompanied by proper instruments of transfer, at the principal business office of the Corporation (or at such other place as may be designated by Corporation).

7.5 Related Matters. Any holder of Series G Preferred Stock whose shares are to be redeemed by the Corporation pursuant to this Section 7 shall retain all rights as a holder of Series G Preferred Stock (including the right to convert pursuant to Section 5 above) until the Corporation delivers the Redemption Price to such holder. In addition, notwithstanding any other provision of this Resolution to the contrary:

(a) If the Corporation delivers a Corporation Redemption Notice pursuant to Section 7.2 above on or before April 15, 2011, then the Corporation must deliver the Redemption Price to the holders of shares of Series G Preferred Stock within five business days of the date on which the Corporation Redemption Notice is deemed to be given pursuant to Section 7.2, and if the Corporation fails to deliver the Redemption Price within such period, the applicable Corporation Redemption Notice shall be deemed void ab initio .

(b) If the Corporation delivers a Corporation Redemption Notice pursuant to Section 7.2 above after April 15, 2011, then the Redemption Date set forth in such

 

9

 


Corporation Redemption Notice must be at least five business days after the date on which the Corporation Redemption Notice is deemed to be given pursuant to Section 7.2. In such case, any holder of shares of Series G Preferred Stock may elect instead to convert such holder’s shares of Series G Preferred Stock into shares of Common Stock by delivering a Conversion Notice to the Corporation prior to the Redemption Date. In addition, if the Corporation fails to deliver the Redemption Price on the Redemption Date, any holder who did not deliver a Conversion Notice shall continue to have the right to convert such holder’s shares of Series G Preferred Stock as if a Corporation Redemption Notice had not been given.

(c) If a holder of Series G Preferred Stock delivers a Holder Redemption Notice to the Corporation pursuant to Section 7.4, then the Corporation must deliver the Redemption Price for the shares of Series G Preferred Stock to such holder within 20 business days of the Corporation’s receipt of the Holder Redemption Notice, and such holder may not elect to convert the shares of Series G Preferred Stock covered by the Holder Redemption Notice into shares of Common Stock during such 20-day period. If the Corporation fails to deliver the Redemption Price during such 20-day period, then such holder’s Holder Redemption Notice remains valid, but such holder shall retain all rights as a holder of Series G Preferred Stock (including the right to convert pursuant to Section 5 above) until the Corporation delivers the Redemption Price to such holder.

SECTION 8. PRE-EMPTIVE RIGHTS. The holders of the Series G Preferred Stock will not have any pre-emptive right, in their capacity as such, to subscribe for or to purchase any shares or any other securities that may be issued by the Corporation.

SECTION 9. MISCELLANEOUS.

9.1 Observance of Terms. The Corporation, whether by amendment of its Articles of Incorporation, or through any reorganization, transfer of assets, merger, liquidation, issue or sale of securities or any other voluntary action, will not avoid or seek to avoid the observance or performance of any of the terms to be observed hereunder by the Corporation, but at all times in good faith will assist in the carrying out of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series G Preferred Stock against impairment.

9.2 Amendment and Waiver. No amendment, modification, or waiver shall be binding or effective with respect to any provision of this Resolution without the prior affirmative vote or written consent of the holders of a majority of the shares of Series G Preferred Stock outstanding at the time the action is taken; provided, however, no amendment, modification, or waiver may, without the consent of each holder of Series G Preferred Stock affected thereby: (a) reduce the Liquidation Preference of, or dividend on, the Series G Preferred Stock; (b) change the place or currency of payment of the Liquidation Preference of, or dividend on, any Series G Preferred Stock; (c) impair the right to institute suit for the enforcement of any payment on, or with respect to, the Series G Preferred Stock; (d) adversely affect the right to convert the Series G Preferred Stock; or (e) reduce the percentage of outstanding Series G Preferred Stock necessary to modify or amend the terms thereof or to grant waivers with respect thereto.

9.3 Notices. Except as otherwise expressly provided in this Resolution, whenever a notice or other communication is required or permitted to be given to holders

 

10

 


of Series G Preferred Stock, the notice or other communication shall be deemed to be properly given (a) upon personal delivery, (b) upon confirmation receipt that the communication was successfully sent to the applicable number if sent by facsimile; (c) one day after being sent, when sent by professional overnight courier service, or (d) five days after posting when sent by registered or certified mail, in each case to holders of the Series G Preferred Stock at their respective addresses on the books of the Corporation, as of a record date or dates determined in accordance with the Articles and Bylaws of the Corporation, this Resolution and applicable law, as in effect from time to time.

9.4 Limited Rights. Except as may be otherwise required by applicable law, the Series G Preferred Stock shall not have any designations, preferences, limitations, or relative rights, other than those specifically set forth in this Resolution and in the Articles.

9.5 Headings. The headings and various subdivisions in this Resolution are for convenience only and will not affect the meaning or interpretation of any of the provisions of this Resolution.

RESOLVED FURTHER, that the Chief Executive Officer, the President, and the Secretary of the Corporation hereby are authorized and directed to prepare, execute, verify, file and record a certificate of designation of preferences in accordance with the foregoing resolutions and the provisions of the Nevada Revised Statutes.

[Remainder of page intentionally left blank.]

 

11

 


 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its President and attested by its Secretary on October 6, 2010.

 

     

O DYSSEY M ARINE E XPLORATION , I NC .

   
By:  

/s/ Michael J. Holmes

    Michael J. Holmes
    Chief Financial Officer
 
Attested to by:
   
   

/s/ David A. Morris

    David A. Morris, Secretary

 

                 
STATE OF FLORIDA   )               
         
COUNTY OF HILLSBOROUGH             )               

The foregoing instrument was acknowledged before me on October      , 2010, by Michael J. Holmes, in his capacity as Chief Financial Officer of, and David A. Morris, in his capacity as Secretary of, Odyssey Marine Exploration, Inc., a Nevada corporation, on behalf of the corporation. Each of them is personally known to me.

 

     

 

Signature of Notary Public

State of Florida

   
My Commission Expires:  

 

 

12

 

Exhibit 3.2

 

     
LOGO   

ROSS MILLER

Secretary of State

204 North Carson Street, Suite 1

Carson City, Nevada 89701-4520

(775) 684-5708

Website: www.nvsos.gov

 

         

Amendment to

Certificate of Designation

Before Issuance of Class or Series

(PURSUANT TO NRS 78.1955)

       

 

         
USE BLACK INK ONLY - DO NOT HIGHLIGHT         ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Certificate of Designation

For Nevada Profit Corporations

(Pursuant to NRS 78.1955 - Before Issuance of Class or Series)

1. Name of corporation:

Odyssey Marine Exploration, Inc.

2. The original class or series of stock set forth:

Series G 8% Convertible Preferred Stock

3. By a resolution of the board of directors the original class or series is amended as follows:

Section 4.1 is hereby amended by deleting the following parenthetical in its entirety:

“(assuming for this purpose that the Series G Preferred Stock were convertible immediately upon issuance as opposed to on or after April 15, 2011)”

4. As of the date of this certificate no shares of the class or series of stock have been issued.

5. Effective date of filing: (optional)

(must not be later than 90 days after the certificate is filed)

6. Signature: (required)

 

         
X  

/s/ Michael J. Holmes

    
Signature of Officer    Michael J. Holmes, Chief Financial Officer     

Filing Fee: $175.00

IMPORTANT : Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.

 

     
This form must be accompanied by appropriate fees.   Nevada Secretary of State Amend Designation - Before
    Revised: 3-6-09

 


 

E XHIBIT A

TO

A MENDMENT TO C ERTIFICATE OF D ESIGNATION

B EFORE I SSUANCE OF C LASS OR S ERIES

 

 

O DYSSEY M ARINE E XPLORATION , I NC .

 

 

S ERIES G 8% C ONVERTIBLE P REFERRED S TOCK

The Certificate of Designation of the Series G 8% Convertible Preferred Stock, par value $0.001 per share, of Odyssey Marine Exploration, Inc. is hereby amended as follows:

A. Section 4.1 is hereby amended by inserting the following at the end thereof:

“Notwithstanding the foregoing, no holder may exercise its right to vote any shares of Series G Preferred Stock hereunder to the extent such exercise would result in such holder having the right to vote in excess of 9.9% of the then issued and outstanding shares of Common Stock (calculated for this purpose assuming the exercise or conversion of all securities then held by such holder that are convertible into or exercisable for shares of Common Stock); provided, however, that upon a holder of shares of Series G Preferred Stock providing the Corporation with sixty-one (61) days written notice (a “Voting Rights Waiver Notice”) that such holder would like to waive this Section 4.1 with regard to the exercise of its right to vote any or all shares Series G Preferred Stock held by such holder, this Section 4.1 shall be of no force or effect with regard to those shares of Series G Preferred Stock referenced in the Voting Rights Waiver Notice.”

B. Section 5.8(a) is hereby amended by deleting it in its entirety and inserting in lieu thereof the following:

“(a) No holder may convert any shares of Series G Preferred Stock hereunder to the extent such exercise would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of shares of Series G Preferred Stock held by such holder after application of this Section; provided, however, that upon a holder of shares of Series G Preferred Stock providing the Corporation with sixty-one (61) days written notice (a “ Beneficial Ownership Waiver Notice ”) that such holder would like to waive this Section 5.8(a) with regard to any or all shares of Common Stock issuable upon conversion of Series G Preferred Stock held by such holder, this Section 5.8(a) shall be of no force or effect with regard to those shares of Common Stock referenced in the Beneficial Ownership Waiver Notice.”

 

Exhibit 3.3

 

     
LOGO   

ROSS MILLER

Secretary of State

204 North Carson Street, Suite 1

Carson City, Nevada 89701-4520

(775) 684-5708

Website: www.nvsos.gov

 

         

Certificate of Correction

(PURSUANT TO NRS CHAPTERS 78,

78A, 80, 81, 82, 84, 86, 87, 87A, 88,

88A, 89 AND 92A)

       

 

         
USE BLACK INK ONLY - DO NOT HIGHLIGHT         ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Correction

(Pursuant to NRS Chapters 78, 78A, 80, 81, 82, 84, 86, 87, 87A, 88, 88A, 89 and 92A)

1. The name of the entity for which correction is being made:

Odyssey Marine Exploration, Inc.

2. Description of the original document for which correction is being made:

Amendment to Certificate of Designation Before Issuance of Class or Series

3. Filing date of the original document for which correction is being made: October 8, 2010

4. Description of the inaccuracy or defect:

Paragraph 3 of the Amendment to Certificate of Designation incorrectly stated the amendments to the Certificate of Designation.

5. Correction of the inaccuracy or defect:

Paragraph 3 of the Amendment to Certificate of Designation is hereby corrected in its entirety to read as follows:

“3. By a resolution of the board of directors the original class or series is amended as follows:

Sections 4.1 and 5.8(a) of the Certificate of Designation of the Series G 8% Convertible Preferred Stock are hereby amended as set forth in Exhibit A attached to this Amendment to Certificate of Designation Before Issuance of Class or Series. Exhibit A is incorporated herein by reference.”

6. Signature:

 

                 
X  

/s/ Michael J. Holmes

       Chief Financial Officer    10/11/10
Authorized Signature        Title *    Date

* If entity is a corporation, it must be signed by an officer if stock has been issued, OR an incorporator or director if stock has not been issued; a limited-liability company, by a manager or managing members; a limited partnership or limited-liability limited partnership, by a general partner; a limited-liability partnership, by a managing partner; a business trust, by a trustee.

IMPORTANT : Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.

 

     
This form must be accompanied by appropriate fees.   Nevada Secretary of State Correction
    Revised: 3-26-09

 


 

E XHIBIT A

TO

A MENDMENT TO C ERTIFICATE OF D ESIGNATION

B EFORE I SSUANCE OF C LASS OR S ERIES

 

 

O DYSSEY M ARINE E XPLORATION , I NC .

 

 

S ERIES G 8% C ONVERTIBLE P REFERRED S TOCK

The Certificate of Designation of the Series G 8% Convertible Preferred Stock, par value $0.001 per share, of Odyssey Marine Exploration, Inc. is hereby amended as follows:

A. Section 4.1 is hereby amended by inserting the following at the end thereof:

“Notwithstanding the foregoing, no holder may exercise its right to vote any shares of Series G Preferred Stock hereunder to the extent such exercise would result in such holder having the right to vote in excess of 9.9% of the then issued and outstanding shares of Common Stock (calculated for this purpose assuming the exercise or conversion of all securities then held by such holder that are convertible into or exercisable for shares of Common Stock); provided, however, that upon a holder of shares of Series G Preferred Stock providing the Corporation with sixty-one (61) days written notice (a “Voting Rights Waiver Notice”) that such holder would like to waive this Section 4.1 with regard to the exercise of its right to vote any or all shares Series G Preferred Stock held by such holder, this Section 4.1 shall be of no force or effect with regard to those shares of Series G Preferred Stock referenced in the Voting Rights Waiver Notice.”

B. Section 5.8(a) is hereby amended by deleting it in its entirety and inserting in lieu thereof the following:

“(a) No holder may convert any shares of Series G Preferred Stock hereunder to the extent such exercise would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of shares of Series G Preferred Stock held by such holder after application of this Section; provided, however, that upon a holder of shares of Series G Preferred Stock providing the Corporation with sixty-one (61) days written notice (a “ Beneficial Ownership Waiver Notice ”) that such holder would like to waive this Section 5.8(a) with regard to any or all shares of Common Stock issuable upon conversion of Series G Preferred Stock held by such holder, this Section 5.8(a) shall be of no force or effect with regard to those shares of Common Stock referenced in the Beneficial Ownership Waiver Notice.”

 

Exhibit 4.2

W ARRANT TO P URCHASE

C OMMON S TOCK

OF

O DYSSEY M ARINE E XPLORATION , I NC .

 

 

Warrant No «warrant»

Date of Issuance: October 11, 2010 (“ Issuance Date ”)

THIS WARRANT TO PURCHASE COMMON STOCK CERTIFIES that, for value received, «INVESTOR» (the “ Holder ”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issuance Date (the “ Initial Exercise Date ”), and on or prior to the close of business on October 11, 2013 (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Odyssey Marine Exploration, Inc., a Nevada corporation (the “ Company ”), up to «Warrant_Amt» shares (the “ Warrant Shares ”) of common stock, par value $0.0001 per share, of the Company (the “ Common Stock ”). The purchase price of one share of Common Stock (the “ Exercise Price ”) under this Warrant shall be $2.50, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. Capitalized terms used and not otherwise defined in their initial use shall have the meanings set forth in Section 18 herein. This Warrant is issued under the Company’s Registration Statement on Form S-3 (No. 333-162971) (including all information or documents incorporated by reference therein, the “ Registration Statement ”).

Section 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and Section 8 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. If requested by the Company, the transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.

Section 2. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

Section 3. Exercise of Warrant.

(a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by the delivery of a Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or by means of a cashless exercise pursuant to Section 3(c), the Holder shall be entitled to receive a certificate for the

 

(1) Three years from date of issuance.

 


number of Warrant Shares so purchased. Certificates for shares purchased hereunder shall be delivered to the Holder within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or cashless exercise pursuant to Section 3(c) below) and all taxes required to be paid by the Holder, if any, pursuant to Section 6 prior to the issuance of such shares, have been paid.

(b) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

(c) This Warrant may also be exercised in whole or in part by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) x (X)] by (A), where:

 

         

(A)

  =    the average Closing Price for the five (5) consecutive Trading Days immediately preceding the date of such election;
     

(B)

  =    the Exercise Price of this Warrant, as adjusted; and
     

(X)

  =    the number of Warrant Shares issuable upon exercise of this Warrant or the portion thereof being exercised in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

Section 4. Limitations on Exercise. Notwithstanding any provision of this Warrant to the contrary:

(a) No Holder may exercise this Warrant to the extent such exercise would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant held by the Holder after application of this Section; provided, however, that upon the Holder providing the Company with sixty-one (61) days written notice (a “ Waiver Notice ”) that such holder would like to waive this Section 4(a) with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 4(a) shall be of no force or effect with regard to those Warrant Shares referenced in the Waiver Notice; provided ,further that this provision shall be of no further force or effect during the sixty-one (61) days immediately preceding the expiration of the term of this Warrant.

(b) The Company shall not issue any shares of Common Stock upon exercise of shares of this Warrant if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may issue upon conversion or exercise (as the case may be) of all outstanding shares of Series G 8% Preferred Stock, par value $0.0001 per share (“ Series G Preferred Stock”) and all outstanding warrants issued in connection with the issuance of the Series G Preferred Stock without breaching the Company’s obligations under the rules or regulations of the Principal Market (as defined below) (the number of shares which may be issued without violating such rules and regulations, the “ Exchange Cap ”) (it being understood that, as of the Issuance Date, NASDAQ Listing Rule 5635(d) requires stockholder approval of the sale, issuance or potential issuance by a company of common stock (or securities convertible into or exercisable common stock) equal to 20% or

 

2

 


more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock), except that such limitation shall not apply in the event that the Company (i) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for issuances of shares of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Company that such approval is not required. As used in this Warrant, “Principal Market” means The NASDAQ Stock Market or such other national securities exchange or quotation system on which the Common Stock is traded or quoted.

Section 5. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

Section 6. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

Section 7. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 8. Transfer, Division and Combination.

(a) Subject to compliance with any applicable securities laws and the conditions set forth in Sections 1 and 8(e) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, so long as the amount of Warrant Shares transferred is equal to at least 10,000 shares (on an as-exercised basis), upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

(b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 8(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

(c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 8.

 

3

 


 

(d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants.

(e) If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act.

Section 9. No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a stockholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment.

Section 10. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

Section 11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

Section 12. Adjustments of Exercise Price and Number of Warrant Shares.

(a) The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following: in case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such

 

4

 


adjustment and dividing by the number of Warrant Shares or other securities of the Company that are purchasable pursuant hereto immediately after such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.

(b) In the event the Company, shall, at any time or from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in Section 12(a) above or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the “ Additional Shares of Common Stock ”), at a price per share less than the Exercise Price, or without consideration, the Exercise Price then in effect upon each such issuance shall be adjusted to the lowest price per share at which any such share of Common Stock has been issued or sold.

(c) If the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“ Convertible Securities ”), or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively, the “ Common Stock Equivalents ”) and the aggregate of the price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Company for issuance of such Common Stock Equivalent divided by the number of shares of Common Stock issuable pursuant to such Common Stock Equivalent (the “ Aggregate Per Common Share Price ”) shall be less than the Exercise Price, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended or adjusted shall make the Aggregate Per Common Share Price be less than Exercise Price in effect at the time of such amendment or adjustment, then the Exercise Price then in effect shall be adjusted pursuant to Section 12(b) above assuming that all Additional Shares of Common Stock have been issued pursuant to the Convertible Securities or Common Stock Equivalents for a purchase price equal to the Aggregate Per Common Share Price. No adjustment of the Exercise Price shall be made under this Section 12(c) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefore, if any adjustment shall previously have been made to the Exercise Price upon the issuance of such warrants or other rights pursuant to this Section 12(c). No adjustment shall be made to the Exercise Price upon the issuance of Common Stock pursuant to the exercise, conversion or exchange of any Convertible Security or Common Stock Equivalent where an adjustment to the Exercise Price was made as a result of the issuance or purchase of any Convertible Security or Common Stock Equivalent.

(d) Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment to the Exercise Price upon (i) any issuance of Common Stock or grants of options to purchase Common Stock pursuant to any stock option plans and employee stock purchase plans approved by the Company’s board of directors, so long as such issuances in the aggregate do not exceed the number of shares of Common Stock (or options to purchase such number of shares of Common Stock) issuable pursuant to such plans as they exist on the date hereof or (ii) any issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date hereof (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the holders).

Section 13. Reorganization, Reclassification, Merger, etc.

(a) In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation or other entity (where the Company is not the surviving entity or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another

 

5

 


corporation or other entity and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“ Other Property ”), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 13. For purposes of this Section 13, “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 13 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets.

(b) Notwithstanding anything to the contrary, in the event of a consolidation or merger with or into another corporation or other entity (where the Company is not the surviving entity), or a sale, transfer or disposition of all or substantially all of the Company’s property, assets, business or capital stock to another corporation that is approved by the Company’s Board of Directors and where the consideration paid to the holders of the Common Stock consists solely of cash (a “ Black-Scholes Takeout Event ”), if the consideration per share of Common Stock in any Black-Scholes Takeout Event (the “ Takeout Event Price ”) is equal to or less than the Exercise Price then in effect, then, the Company (or the successor entity to this Warrant) shall, within five Business Days after the consummation of any such Black-Scholes Takeout Event, purchase this Warrant from the Holder by paying to the Holder, cash in an amount equal to the value of the remaining unexercised portion of this Warrant on the date of such Black-Scholes Takeout Event, which value shall be determined in accordance with the Black-Scholes option pricing model using an expected volatility equal to the 100 day historical price volatility obtained from the HVT function on Bloomberg L.P. as of the Trading Day immediately prior to the public announcement of the Black-Scholes Takeout Event.

Section 14. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

 

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Section 15. Notice of Corporate Action. If at any time:

(a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or

(b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or other entity or,

(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at least 15 days’ prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 15 days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (A) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (B) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(e). Failure to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution, subscription or purchase rights, or proposed reorganization, reclassification, recapitalization, merger, consolidation, sale, transfer, disposition, conveyance, dissolution, liquidation or winding up.

Section 16. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not

 

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increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

Section 17. Miscellaneous.

(a) Registration Statement. The Company covenants and agrees keep the Registration Statement effective (and the prospectus supplement relating to the offer and sale by the Company of the Series G Preferred Stock and the warrants issued in connection therewith available for use) pursuant to Rule 415 on a delayed or continuous basis at all times during the period during which this Warrant may be exercised by the Holder.

(b) Governing Law and Jurisdiction. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of Florida, without giving effect to the principles of conflicts of law. Each party hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of New York or any federal court of the Southern District of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(c) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

(d) Non-Waiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

(e) Notices. All notices required under this Warrant and shall be deemed to have been given or made for all purposes (i) upon personal delivery, (ii) upon confirmation receipt that the communication was successfully sent to the applicable number if sent by facsimile; (iii) one day after being sent, when sent by professional overnight courier service, or (iv) five days after posting when sent by registered or certified mail. Notices to the Company shall be sent to the principal office of the Company (or at such

 

8

 


other place as the Company shall notify the Holder in writing). Notices to the Holder shall be sent to the address of the Holder on the books of the Company (or at such other place as the Holder shall notify the Company hereof in writing).

(f) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(g) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant without the requirement of posting a bond or other security. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

(h) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

(i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

(j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

Section 18. Additional Definitions.

(a) “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

(b) “Closing Price” means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the last reported closing bid price for regular session trading on such day), or (b) if there is no such price on such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the closing bid price for regular session trading on such day), or (c) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “pink sheets” published by the Pink Sheets LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined in good faith by the Company’s Board of Directors.

 

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(c) “Securities Act” means the Securities Act of 1933, as amended.

(d) “Trading Day” means (A) a day on which the Common Stock is traded on a Trading Market (as defined below), or (B) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded on the over the counter market, as reported by the OTC Bulletin Board, or (C) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the “pink sheets” published by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (A), (B) and (C) hereof, then Trading Day shall mean a Business Day.

(e) “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: The American Stock Exchange, the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market.

[Signatures on following page.]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

 

             

Dated: October 11, 2010

      O DYSSEY M ARINE E XPLORATION , I NC .
       
        By:  

 

     
        Name: Michael J. Holmes
        Title: Chief Financial Officer

 

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N OTICE OF E XERCISE

 

 

 

To: Odyssey Marine Exploration, Inc.

5215 West Laurel Street

Tampa, FL 33607

(1) The undersigned hereby elects to purchase [                      ] Warrant Shares of Odyssey Marine Exploration, Inc. pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

 

  ¨ in lawful money of the United States; or

 

  ¨ the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 3(d), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 3(d).

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

   

The Warrant Shares shall be delivered to the following:

 

     

 

   
   

 

   
   

 

   

(4) The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

     
[Purchaser]
   
By:  

 

     
   
Name:  

 

     
   
Title:  

 

     
   
Dated:  

 

 


 

A SSIGNMENT F ORM

(To assign the foregoing warrant, execute this form

and supply the required information. Do not use this

form to exercise the warrant.)

 

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to                                                                                   , whose address is                                              

 

 

 

 

 

             
Dated:                            Holder’s Signature:  

 

       
        Holder’s Address:  

 

       
           

 

       
           

 

 

     
Signature Guaranteed:    
     

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Odyssey Marine Exploration, Inc.

5215 West Laurel Street

Tampa, FL 33607

 

Exhibit 10.1

S ECURITIES P URCHASE A GREEMENT

(N OTES AND W ARRANTS )

 

 

THIS SECURITIES PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into effective as of August 20, 2010, by and among ODYSSEY MARINE EXPLORATION, INC. , a Nevada corporation (the “ Company ”), and the investor(s) listed on Schedule A attached hereto, each of which is herein individually referred to as an “ Investor ” and all of which are herein collectively referred to as the “ Investors .”

Background Information:

The Company proposes to authorize, issue, and sell to the Investors, and the Investors propose to purchase and accept from the Company, (a) promissory notes in the aggregate principal amount of $1.8 million bearing interest at the rate of 5.0% per annum, in substantially the form attached hereto as Exhibit A (the “ Notes ”) and (b) warrants, in substantially the form attached hereto as Exhibit B (the “Warrants ”), to purchase shares of common stock, par value $0.0001 per share (the “ Common Stock ”), of the Company at an exercise price per share equal to $2.25 (the “ Exercise Price ”). Each Investor shall be entitled to receive a Warrant to purchase 0.15 shares of Common Stock for each one dollar of principal amount of the Note issued to such Investor (rounded up to the nearest whole number). Upon the terms and conditions set forth in this Agreement, each Investor shall be issued a Note in the principal amount and a Warrant to purchase the number of shares of Common Stock set forth opposite such Investor’s name onSchedule A attached hereto. The purpose of this Agreement is to set forth the terms and conditions upon which the Company will issue and sell the Notes and the Warrants to the Investors and the Investors will purchase the Notes and the Warrants from the Company, as well as certain other related matters. The Notes, the Warrants, and the Warrant Shares (as defined below) are sometimes hereinafter collectively referred to as the “ Securities ”).

NOW, THEREFORE, in consideration of the foregoing recitals and the terms, conditions, and provisions hereof, the parties hereto, intending to be legally bound hereby, agree as follows:

Article 1

Purchase and Sale of Securities

Section 1.1 Sale and Issuance of Notes and Warrants.

(a) On or prior to the Closing (as defined below), the Company shall have authorized (i) the sale and issuance to the Investors of the Notes, (ii) the sale and issuance to the Investors of the Warrants, and (iii) the issuance of the shares of Common Stock to be issuable upon exercise of the Warrants (the “ Warrant Shares ”).

(b) Subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to the Investors and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Investors, severally but not jointly, agree to purchase the Notes and the Warrants for an aggregate purchase price of $2.0 million (the “ Purchase Price ”).

Section 1.2 Closing. The consummation of purchase and sale of the Notes and the Warrants (the “ Closing ”) shall take place at the offices of the Company, located at 5215 West Laurel Street, Tampa, Florida, on August 20, 2010, or at such other time and place as the Company and the Investors acquiring

 


in the aggregate a majority of the principal amount of the Notes sold pursuant to this Agreement agree upon orally or in writing (as applicable, the “ Closing Date ”). Subject to the terms and conditions of this Agreement, at the Closing, , or as soon as practicable thereafter, the Company shall deliver or cause to be delivered to each Investor (x) its Note for the principal amount set forth opposite the name of such Investor on Schedule A attached hereto, (y) a Warrant to purchase such number of shares of Common Stock as is set forth opposite the name of such Investor on Schedule A attached hereto, and (z) any other deliveries as required by Article 4. At the Closing, each Investor shall deliver its portion of Purchase Price by wire transfer to an account designated by the Company.

Article 2

Representations and Warranties

of the Company

The Company hereby represents and warrants to the Investors as follows:

Section 2.1 Organization. The Company is duly organized, validly existing, and in good standing under the laws of the State of Nevada. The Company and each of its Subsidiaries (as defined in Rule 405 under the Securities Act of 1933, as amended (the “ Securities Act ”)) has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and as described in the documents filed by the Company under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), including, without limitation, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31 and June 30, 2010, the Company’s Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held June 3, 2010, and the Company’s Current Reports on Form 8-K, since January 1, 2010 (collectively, the “ Exchange Act Documents ”), and is registered or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the location of the properties owned or leased by it requires such qualification and where the failure to be so qualified would have a material adverse effect upon the condition (financial or otherwise), earnings, business, properties or operations of the Company and its Subsidiaries, considered as one enterprise (a “ Material Adverse Effect ”), and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.

Section 2.2 Due Authorization and Valid Issuance. The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, and this Agreement has been duly authorized and validly executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally, and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Notes and the Warrants have been duly authorized and, upon issuance in accordance with the terms of this Agreement, shall be validly issued and free from all taxes, liens and charges with respect to the issue thereof, and the Notes shall be fully paid and nonassessable. As of the Closing Date, the Company shall have duly authorized and reserved for issuance a number of shares of Common Stock which equals the number of Warrant Shares. Upon exercise in accordance with the Warrants, the Warrant Shares will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.

 

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Section 2.3 Non-Contravention. The execution and delivery of this Agreement, the issuance and sale of the Securities under this Agreement, the fulfillment of the terms of this Agreement and the consummation of the transactions contemplated hereby will not (a) conflict with or constitute a violation of, or default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party or by which it or any of its Subsidiaries or their respective properties are bound, (ii) the articles of incorporation, bylaws or other organizational documents of the Company or any Subsidiary, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary or their respective properties, except in the case of clauses (i) and (iii) for any such conflicts, violations or defaults which are not reasonably likely to have a Material Adverse Effect, or (b) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or any Subsidiary or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them is bound or to which any of the material property or assets of the Company or any Subsidiary is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States or any other person is required for the execution and delivery of this Agreement and the valid issuance and sale of the Notes and the Warrants to be sold pursuant to this Agreement, other than such as have been made or obtained, and except for any post-closing securities filings or notifications required to be made under federal or state securities laws or under the rules of The NASDAQ Stock Market.

Section 2.4 Capitalization. As of the date of this Agreement, the authorized capital stock of the Company consists of (a) 100,000,000 shares of Common Stock, of which as of the date of this Agreement, 66,770,926 shares are issued and outstanding, 7,280,047 shares are reserved for issuance pursuant to the Company’s employee incentive plan or plans, and 2,500,000 shares are reserved for issuance pursuant to securities (other than the Warrants to be issued and sold pursuant to this Agreement) exercisable or exchangeable for, or convertible into, shares of Common Stock, and (b) 9,361,200 shares of preferred stock, of which 448,800 shares have been designated as Series D Shares, of which 206,400 shares are issued and outstanding as of the date of this Agreement. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed in the Exchange Act Documents: (a) no shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (b) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries; (c) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (d) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act; (e) there are no outstanding securities or instruments of the Company or any of its Subsidiaries that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a

 

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security of the Company or any of its Subsidiaries; (f) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Notes, the Warrants, or the Warrant Shares; (g) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (h) the Company and its Subsidiaries have no liabilities or obligations required to be disclosed in the Exchange Act Documents but not so disclosed in the Exchange Act Documents, other than those incurred in the ordinary course of the Company’s or any Subsidiary’s respective businesses and which, individually or in the aggregate, do not or would not have a Material Adverse Effect.

Section 2.5 Legal Proceedings. There is no material legal or governmental proceeding pending or, to the knowledge of the Company, threatened to which the Company or any Subsidiary is or may be a party or of which the business or property of the Company or any Subsidiary is subject that is not disclosed in the Exchange Act Documents.

Section 2.6 No Violations. Neither the Company nor any Subsidiary is in violation of its articles of incorporation, bylaws, or other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary, which violation, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, or is in default (and there exists no condition which, with the passage of time or otherwise, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or by which the properties of the Company or any Subsidiary are bound, which would be reasonably likely to have a Material Adverse Effect.

Section 2.7 Governmental Permits, Etc. With the exception of the matters which are dealt with separately in Sections 2.1, 2.12, 2.13, and 2.14, each of the Company and its Subsidiaries has all necessary franchises, licenses, certificates and other authorizations from any foreign, federal, state or local government or governmental agency, department, or body that are currently necessary for the operation of the business of the Company and its Subsidiaries as currently conducted and as described in the Exchange Act Documents, except where the failure to currently possess such franchises, licenses, certificates or other authorizations would not reasonably be expected to have a Material Adverse Effect.

Section 2.8 Intellectual Property. Except as specifically disclosed in the Exchange Act Documents (a) each of the Company and its Subsidiaries owns or possesses sufficient rights to use all material patents, patent rights, trademarks, copyrights, licenses, inventions, trade secrets, trade names and know-how (collectively, “ Intellectual Property ”) described or referred to in the Exchange Act Documents as owned or possessed by it or that are necessary for the conduct of its business as now conducted or as proposed to be conducted as described in the Exchange Act Documents except where the failure to currently own or possess such rights would not have a Material Adverse Effect, (b) neither the Company nor any of its Subsidiaries is infringing, or has received any notice of, or has any knowledge of, any asserted infringement by the Company or any of its Subsidiaries of, any rights of a third party with respect to any Intellectual Property that, individually or in the aggregate, would have a Material Adverse Effect and (c) neither the Company nor any of its Subsidiaries has received any notice of, or has any knowledge of, infringement by a third party with respect to any Intellectual Property rights of the Company or of any Subsidiary that, individually or in the aggregate, would have a Material Adverse Effect.

Section 2.9 Exchange Act Documents; Financial Statements. As of their respective dates, the Exchange Act Documents complied in all material respects with the requirements of the Exchange Act

 

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and the rules and regulations of United States Securities and Exchange Commission (the “ SEC ”) promulgated thereunder applicable to the Exchange Act Documents, and none of the Exchange Act Documents, at the time they were filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company and the related notes contained in the Exchange Act Documents present fairly in all material respects, in accordance with generally accepted accounting principles, the financial position of the Company and its Subsidiaries as of the dates indicated, and the results of its operations and cash flows for the periods therein specified consistent with the books and records of the Company and its Subsidiaries. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, except as may be disclosed in the notes to such financial statements, and except as disclosed in the Exchange Act Documents. The other financial information contained in the Exchange Act Documents has been prepared on a basis consistent with the financial statements of the Company.

Section 2.10 No Material Adverse Change. Except as disclosed in the Exchange Act Documents, since December 31, 2009, there has not been (a) any material adverse change in the financial condition of the Company and its Subsidiaries considered as one enterprise, (b) any material adverse event affecting the Company or its Subsidiaries, (c) any obligation, direct or contingent, that is material to the Company and its Subsidiaries considered as one enterprise, incurred by the Company, except obligations incurred in the ordinary course of business, (d) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its Subsidiaries, or (e) any loss or damage (whether or not insured) to the physical property of the Company or any of its Subsidiaries which has been sustained which has had a Material Adverse Effect.

Section 2.11 NASDAQ Stock Market Compliance. The Common Stock is registered pursuant to Section 12(b) or Section 12(g) of the Exchange Act and is listed or quoted on the NASDAQ Capital Market (the “ Principal Market ”), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or de-listing the Common Stock from the Principal Market, nor, except as disclosed in the Exchange Act Documents, has the Company received any notification that the SEC or the Principal Market is contemplating terminating such registration or listing.

Section 2.12 Reporting Status. The Company has filed in a timely manner all documents that the Company was required to file under the Exchange Act during the 12 months preceding the date of this Agreement.

Section 2.13 Listing. The Company shall comply with all requirements of the Principal Market with respect to the issuance of the Securities and the listing of the Warrant Shares on the Principal Market.

Section 2.14 No Manipulation of Stock. The Company has not taken and will not, in violation of applicable law, take any action designed to or that would reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Notes.

Section 2.15 Company not an “Investment Company.” The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the “ Investment Company Act ”). The Company is not, and immediately after receipt of payment for the Notes and the Warrants will not be, an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act and shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

 

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Section 2.16 Foreign Corrupt Practices. Neither the Company nor, to the knowledge of the Company, any agent or other person acting on behalf of the Company has (a) directly or indirectly, used any corrupt funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (b) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (c) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (d) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

Section 2.17 Contracts. The contracts described in the Exchange Act Documents that are material to the Company are in full force and effect on the date of this Agreement, and neither the Company nor, to the Company’s knowledge, any other party to such contracts is in breach of or default under any of such contracts which would have a Material Adverse Effect.

Section 2.18 Taxes. The Company has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been or might be asserted or threatened against it which would have a Material Adverse Effect.

Section 2.19 Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the issuance of the Notes to be sold to the Investors pursuant to this Agreement will be, or will have been, fully paid or provided for by the Company and all laws imposing such taxes will be or will have been fully complied with.

Section 2.20 Internal Accounting and Disclosure Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (c) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (d) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure.

Section 2.21 Registration Statement. The Company’s Registration Statement on Form S-3 (No. 333-162971) (including all information or documents incorporated by reference therein, the “ Registration Statement ”) has been declared effective by the SEC and is effective on the date hereof, and the Company has not received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so. The offering, sale and issuance of the Warrants and the Warrant Shares to the Investor are or will be registered under the Securities Act by the Registration Statement, and the Warrants and the Warrant Shares will be freely transferable and tradable by the Investor without restriction created by the Company.

 

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Section 2.22 Disclosure. The representations and warranties of the Company contained in this Article 2, as of the date of this Agreement and as of the Closing Date, do not and will not intentionally contain any untrue statement of a material fact or intentionally omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

Article 3

Representations and Warranties

of the Investors

Each Investor, severally and not jointly, hereby represents and warrants to the Company as follows:

Section 3.1 Authorization. Such Investor has full power and authority to enter into this Agreement, and this Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally, and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 3.2 Purchase Entirely for Own Account. This Agreement is made with such Investor in reliance upon such Investor’s representation to the Company, which by such Investor’s execution of this Agreement such Investor hereby confirms, that the Securities to be received by such Investor are being or will be acquired for investment for such Investor’s own account, not as a nominee or agent, and not with a view to the distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities.

Section 3.3 Disclosure of Information. Such Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Notes and the Warrants. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Notes and the Warrants and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Article 2 of this Agreement or the right of such Investor to rely thereon.

Section 3.4 Investment Experience. Such Investor is a sophisticated investor and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Securities.

Section 3.5 Accredited Investor. Such Investor is an “accredited investor” within the meaning of SEC Rule 501 of Regulation D, as presently in effect.

Section 3.6 Restricted Securities. Such Investor understands that the Securities will be characterized as “restricted securities” under the federal securities laws inasmuch as they are being

 

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acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances. In this connection, such Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

Section 3.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Securities unless and until:

(a) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and, if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Securities Act.

Section 3.8 Certain Transactions. Such Investor has not, during the seven (7) days prior to the date of this Agreement, directly or indirectly traded in the Common Stock or established any hedge or other position in the Common Stock that is outstanding on the Closing Date and that is designed to or could reasonably be expected to lead to or result in a direct or indirect sale, offer to sell, solicitation of offers to buy, disposition of, loan, pledge or grant of any right with respect to the Common Stock by such Investor or any other person or entity. Such prohibited hedging or other transactions would include, without limitation, effecting any short sale or having in effect any short position (whether or not such sale or position is against the box and regardless of when such position was entered into) or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to the Common Stock or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Stock.

Section 3.9 Legend. Such Investor acknowledges and agrees that the certificates evidencing the Notes may bear the following legend:

These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act.

Section 3.10 Exculpation Among Investors. Such Investor acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Such Investor agrees that no Investor nor the respective controlling persons, officers, directors, partners, agents, or employees of any Investor shall be liable to any other Investor for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the issuance and purchase of the Notes and the Warrants.

Section 3.11 Further Representations by Foreign Investors. If an Investor is not a United States person, such Investor hereby represents that he or she has satisfied himself or herself as to the full observance of the laws of his or her jurisdiction in connection with any invitation to subscribe for the

 

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Securities or any use of this Agreement, including (a) the legal requirements within his jurisdiction for the purchase of the Securities, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. Such Investor’s subscription and payment for, and its continued beneficial ownership of the Securities, will not violate any applicable securities or other laws of his or her jurisdiction.

Article 4

Conditions to the Investors’

Obligations at Closing

The obligations of each Investor under subsection 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent thereto:

Section 4.1 Representations and Warranties. The representations and warranties of the Company contained in Article 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing.

Section 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

Section 4.3 Compliance Certificate. The President or other appropriate officer of the Company shall deliver to the Investors at the Closing a certificate stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.

Section 4.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance, sale and purchase of the Notes and the Warrants pursuant to this Agreement shall be duly obtained and effective as of the Closing.

Section 4.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.

Article 5

Conditions to the Company’s

Obligations at Closing

The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor:

Section 5.1 Representations and Warranties. The representations and warranties of the Investors contained in Article 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing.

Section 5.2 Payment of Purchase Price. The Investors shall have delivered the Purchase Price.

 

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Section 5.3 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance, sale and purchase of the Notes and the Warrants pursuant to this Agreement shall be duly obtained and effective as of the Closing.

Article 6

Miscellaneous

Section 6.1 Survival of Warranties. The warranties, representations and covenants of the Company and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company.

Section 6.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

Section 6.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Florida without reference to principles of choice or conflict of law thereunder.

Section 6.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Section 6.5 Titles 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 6.6 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at 5215 West Laurel Street, Tampa, Florida 33607 (Facsimile 813-876-1777) and to the Investors at the addresses set forth Schedule A attached hereto (or at such other addresses as shall be specified by notice given in accordance with this Section 6.6).

Section 6.7 Finder’s Fee. Each party represents that it neither is nor will be obligated for any finders’ fee or commission in connection with this transaction. Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and to hold harmless each Investor from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, partners, employees, or representatives is responsible.

 

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Section 6.8 Expenses. Each of the parties to this Agreement shall bear its own expenses in connection with this Agreement and the transactions contemplated by this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

Section 6.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the principal amount of the Notes purchased hereunder. Any amendment or waiver effected in accordance with this section shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company.

Section 6.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

Section 6.11 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.

Section 6.12 Prospectus Supplement. The Company also shall deliver to the Investor and file with the SEC a prospectus supplement with respect to the Registration Statement (as defined below) reflecting the offering of the Warrants and the Warrant Shares in conformity with the Securities Act, including Rule 424(b) thereunder.

[Remainder of page intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

     
O DYSSEY M ARINE E XPLORATION , I NC .
   
By:  

 

    Michael J. Holmes, Chief Financial Officer

[S IGNATURES P AGES OF I NVESTORS FOLLOW ]

 

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I NVESTOR ’ S C OUNTERPART S IGNATURE P AGE

TO

S ECURITIES P URCHASE A GREEMENT

A MONG

O DYSSEY M ARINE E XPLORATION , I NC .

AND

A LL THE I NVESTORS

 

     

 

(Print Name of Investor)
   
By:  

 

     
   
Name:  

 

        (Print Name of Signatory)
   
Title:  

 

 

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SCHEDULE A

Schedule of Investors

 

 

 

 


 

EXHIBIT A

Form of Note

 

 

 

See attached.

 


 

EXHIBIT B

Form of Warrant

 

 

 

See attached.

 


 

Exhibit 10.1 Attachment A

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

P ROMISSORY N OTE

 

 

 

     
$ «Amount»    Tampa, Florida
     August 20, 2010

FOR VALUE RECEIVED ODYSSEY MARINE EXPLORATION, INC. , a Nevada corporation (the “ Company ”), promises to pay to «Name» , (the “ Investor ”), in lawful money of the United States of America, the principal sum of «Spell_Amt» ($«Amount») , together with interest in arrears on the unpaid principal balance at an annual rate equal to five percent (5.0%), in the manner provided below. Interest shall be calculated on the basis of a year of 365 days and charged for the actual number of days elapsed.

This Note has been executed and delivered pursuant to and in accordance with the terms and conditions of the Securities Purchase Agreement, dated August 20, 2010 (the “ Agreement ”), by and among,inter alia , the Company and the Investor, and is subject to the terms and conditions of the Agreement, which are, by this reference, incorporated herein and made a part hereof. Capitalized terms used in this Note without definition shall have the respective meanings set forth in the Agreement.

Section 1. Payments.

1.1. Interest Rate. As long as there is no existing uncured Event of Default (as defined below), interest shall accrue and be payable on the outstanding principal amount at a fixed rate of interest equal to five percent (5.0%) per annum. Interest shall be calculated on the basis of a year of 365 days applied to the actual days on which there exists an unpaid balance under this Note.

1.2. Default Interest Rate. Upon an Event of Default, as hereafter defined, the Investor, in the Investor’s sole discretion and without notice or demand, may raise the rate of interest accruing on the outstanding principal amount to a rate of interest equal to the lesser of (a) twenty-five percent (25.0%) or (b) the maximum rate allowed by applicable law. Such default interest rate shall continue, in the Investor’s sole discretion, until all defaults are cured.

1.3. Principal and Interest Repayment. The entire unpaid principal amount of this Note as well as all accrued and unpaid interest and all other sums due under this Note that remain unpaid shall be due and payable on or before December 18, 2010.

1.4. Repayment Extension. If any payment of principal or interest shall be due on a Saturday, Sunday or any other day on which banking institutions in the State of Florida are required or permitted to be closed, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing interest under this Note.

 


 

1.5. Manner of Payment. All payments of principal and interest on this Note shall be made by check at such place in the United States of America as the Investor shall designate to the Company in writing or by such other manner as the Company and the Investor may agree.

1.6. Prepayment. The Company may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding principal balance due under this Note, provided that each such prepayment is accompanied by accrued interest on the amount of principal prepaid calculated to the date of such prepayment.

Section 2. Defaults.

2.1. Events. The occurrence of any one or more of the following events with respect to the Company shall constitute an event of default hereunder (“ Event of Default ”):

(a) if the Company shall fail to pay when due any payment of principal or interest on this Note and such failure continues for five (5) days after the Investor notifies the Company thereof in writing;

(b) if, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors (a “ Bankruptcy Law ”), the Company shall (i) commence a voluntary case or proceeding; (ii) consent to the entry of an order for relief against it in an involuntary case; (iii) consent to the appointment of a trustee, receiver, assignee, liquidator or similar official; (iv) make an assignment for the benefit of its creditors; or (v) admit in writing its inability to pay its debts as they become due;

(c) If a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (i) is for relief against the Company in an involuntary case; (ii) appoints a trustee, receiver, assignee, liquidator or similar official for the Company or substantially all of the Company’s properties; or (iii) orders the liquidation of the Company, and in each case the order or decree is not dismissed within 60 days.

2.2. Remedies. Upon the occurrence of an Event of Default hereunder (unless all Events of Default have been cured or waived by the Investor), the Investor may, at its option, (i) by written notice to the Company, declare the entire unpaid principal balance of this Note, together with all accrued interest thereon, immediately due and payable regardless of any prior forbearance and (ii) exercise any and all rights and remedies available to it under applicable law, including, without limitation, the right to collect from the Company all sums due under this Note. The Company shall pay all reasonable costs and expenses incurred by or on behalf of the Investor in connection with the Investor’s exercise of any or all of its rights and remedies under this Note, including, without limitation, reasonable attorneys’ fees.

Section 3. Miscellaneous.

3.1. Waiver. The rights and remedies of the Investor under this Note shall be cumulative and not alternative. No waiver by the Investor of any right or remedy under this Note shall be effective unless in a writing signed by the Investor. Neither the failure nor any delay in exercising any right, power or privilege under this Note will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege by the Investor will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right of the Investor arising out of this Note can be discharged by the Investor, in whole or in part, by a waiver or renunciation of the claim or right unless in a writing signed by the Investor; (b) no waiver that may be given by the Investor will be

 

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applicable except in the specific instance for which it is given; and (c) no notice to or demand on the Company will be deemed to be a waiver of any obligation of the Company or of the right of the Investor to take further action without notice or demand as provided in this Note. The Company hereby waives presentment, demand, protest and notice of dishonor and protest.

3.2. Notices. Any notice required or permitted to be given hereunder shall be given in accordance with Section 6.6 of the Agreement.

3.3. Severability. If any provision in this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

3.4. Governing Law. This Note will be governed by and construed under the laws of the State of Florida without regard to conflicts-of-laws principles that would require the application of any other law.

3.5. Section Headings; Construction. The headings of Sections in this Note are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Note unless otherwise specified. All words used in this Note will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the words “hereof’ and “hereunder” and similar references refer to this Note in its entirety and not to any specific section or subsection hereof, the words “including” or “includes” do limit the preceding words or terms and the word “or” is used in the inclusive sense.

IN WITNESS WHEREOF, the Company has executed and delivered this Note as of the date first stated above.

 

     
O DYSSEY M ARINE E XPLORATION , I NC .
   
By:  

 

        Michael J. Holmes, Chief Financial Officer

 

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Exhibit 10.1 – Attachment B

W ARRANT TO P URCHASE

C OMMON S TOCK

OF

O DYSSEY M ARINE E XPLORATION , I NC .

 

 

Warrant No:                     

Date of Issuance: August 20, 2010 (“ Issuance Date ”)

THIS WARRANT TO PURCHASE COMMON STOCK CERTIFIES that, for value received, [                      ] (the “ Holder ”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issuance Date (the “ Initial Exercise Date ”), and on or prior to the close of business on August 20, 2013 (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Odyssey Marine Exploration, Inc., a Nevada corporation (the “ Company ”), up to [                      ] shares (the “ Warrant Shares ”) of common stock, par value $0.0001 per share, of the Company (the “ Common Stock ”). The purchase price of one share of Common Stock (the “ Exercise Price ”) under this Warrant shall be $2.25, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. Capitalized terms used and not otherwise defined in their initial use shall have the meanings set forth in Section 18 herein.

Section 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and Section 7 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. If requested by the Company, the transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.

Section 2. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

Section 3. Exercise of Warrant.

(a) Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by the delivery of a Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or by means of a cashless exercise pursuant to Section 3(d), the Holder shall be entitled to receive a certificate for the number of Warrant Shares so purchased. Certificates for shares purchased hereunder shall be delivered to the Holder within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid.

 


 

(b) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

(c) If, but only if, at any time after the Initial Exercise Date there is no effective Registration Statement registering the Warrant Shares, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) x (X)] by (A), where:

 

         

(A)

  =    the Closing Price on the Trading Day immediately preceding the date of such election;
     

(B)

  =    the Exercise Price of this Warrant, as adjusted; and
     

(X)

  =    the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

Section 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

Section 5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

Section 6. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 7. Transfer, Division and Combination.

(a) Subject to compliance with any applicable securities laws and the conditions set forth in Sections 1 and 7(e) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, so long as the amount of Warrant Shares transferred is equal to at least 5,000 shares (on an as-exercised basis), upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

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(b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

(c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7.

(d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants.

(e) If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act.

Section 8. No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment.

Section 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

Section 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

Section 11. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to

 

3

 


holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company that are purchasable pursuant hereto immediately after such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.

Section 12. Reorganization, Reclassification, Merger, etc.

(a) In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“ Other Property ”), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets.

(b) Notwithstanding anything to the contrary, in the event of a consolidation or merger with or into another corporation (where the Company is not the surviving corporation), or a sale, transfer or disposition of all or substantially all of the Company’s property, assets, business or capital stock to

 

4

 


another corporation that is approved by the Company’s Board of Directors and where the consideration paid to the holders of the Common Stock consists solely of cash (a “ Black-Scholes Takeout Event ”), if the consideration per share of Common Stock in any Black-Scholes Takeout Event (the “ Takeout Event Price ”) is equal to or less than the Exercise Price then in effect, then, the Company (or the successor entity to this Warrant) shall, within five Business Days after the consummation of the any such Black-Scholes Takeout Event, purchase this Warrant from the Holder by paying to the Holder, cash in an amount equal to the value of the remaining unexercised portion of this Warrant on the date of such Black-Scholes Takeout Event, which value shall be determined in accordance with the Black-Scholes option pricing model using an expected volatility equal to the 100 day historical price volatility obtained from the HVT function on Bloomberg L.P. as of the Trading Day immediately prior to the public announcement of the Black-Scholes Takeout Event.

Section 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

Section 14. Notice of Corporate Action. If at any time:

(a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or

(b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or,

(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at least 15 days’ prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 15 days’ prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (A) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (B) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d). Failure to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution, subscription or purchase rights, or proposed reorganization, reclassification, recapitalization, merger, consolidation, sale, transfer, disposition, conveyance, dissolution, liquidation or winding up.

 

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Section 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

Section 16. Miscellaneous.

(a) Jurisdiction. This Warrant shall constitute a contract under the laws of Florida, without regard to its conflict of law, principles or rules.

(b) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

(c) Non-Waiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

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(d) Notices. All notices required under this Warrant and shall be deemed to have been given or made for all purposes (i) upon personal delivery, (ii) upon confirmation receipt that the communication was successfully sent to the applicable number if sent by facsimile; (iii) one day after being sent, when sent by professional overnight courier service, or (iv) five days after posting when sent by registered or certified mail. Notices to the Company shall be sent to the principal office of the Company (or at such other place as the Company shall notify the Holder in writing). Notices to the Holder shall be sent to the address of the Holder on the books of the Company (or at such other place as the Holder shall notify the Company hereof in writing).

(e) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

(g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

(h) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

(i) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(j) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

Section 17. Additional Definitions.

(a) “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

(b) “Closing Price” means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the last reported closing bid price for regular session trading on such day), or (b) if there is no such price on such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the closing bid price for regular session trading on such day), or (c) if the Common Stock is not then listed or quoted on the Trading

 

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Market and if prices for the Common Stock are then reported in the “pink sheets” published by the Pink Sheets LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined in good faith by the Company’s Board of Directors.

(c) “Registration Statement” means a registration statement filed with the Securities and Exchange Commission.

(d) “Securities Act” means the Securities Act of 1933, as amended.

(e) “Trading Day” means (A) a day on which the Common Stock is traded on a Trading Market (as defined below), or (B) if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded on the over the counter market, as reported by the OTC Bulletin Board, or (C) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the “pink sheets” published by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (A), (B) and (C) hereof, then Trading Day shall mean a Business Day.

(f) “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: The American Stock Exchange, the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market.

[Signatures on following page.]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

 

             
Dated: August 20, 2010       O DYSSEY M ARINE E XPLORATION , I NC .
       
        By:  

 

       
           

David A. Morris

           

Secretary

 

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N OTICE OF E XERCISE

 

 

 

To: Odyssey Marine Exploration, Inc.

(1) The undersigned hereby elects to purchase [                      ] Warrant Shares of Odyssey Marine Exploration, Inc. pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

 

  ¨ in lawful money of the United States; or

 

  ¨ the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 3(d), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 3(d).

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

   

The Warrant Shares shall be delivered to the following:

 

     

 

   
   

 

   
   

 

   

(4) The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

     
[Purchaser]
   
By:  

 

     
   
Name:  

 

     
   
Title:  

 

     
   
Dated:  

 

Address for Odyssey Marine Exploration, Inc.

5215 West Laurel Street, 2 nd Floor

Tampa, FL 33607

Office: (813) 877-1776

Fax: (813) 830-6609

 


 

A SSIGNMENT F ORM

(To assign the foregoing warrant, execute this form

and supply the required information. Do not use this

form to exercise the warrant.)

 

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to                                                                                   , whose address is                                         

 

 

 

 

 

             
Dated:                            Holder’s Signature:  

 

       
        Holder’s Address:  

 

       
           

 

       
           

 

 

     
Signature Guaranteed:    
     

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Address for Odyssey Marine Exploration, Inc.

5215 West Laurel Street, 2 nd Floor

Tampa, FL 33607

Office: (813) 877-1776

Fax: (813) 830-6609

 

Exhibit 10.2

P URCHASE A GREEMENT

 

 

October 6, 2010

Odyssey Marine Exploration, Inc.

5215 Laurel Street

Suite 210

Tampa, Florida 33607

Ladies and Gentlemen:

The undersigned (the “ Investor ” and, together with the other Persons (as defined below) who agree to purchase Securities (as defined below) pursuant to agreements in substantially the form of this Agreement (as defined below, the “ Investors ”)) hereby confirms its agreement with you as follows:

1. This Purchase Agreement (this “ Agreement ”) is made as of October 6, 2010 (the “ Effective Date ”), between Odyssey Marine Exploration, Inc., a Nevada corporation (the “ Company ”), and the Investor.

2. The Company and the Investor agree that the Investor will purchase from the Company, severally and not jointly with any third party purchasers of the Company’s securities, and the Company will issue and sell to the Investor,              units (the “ Units ”) of the Company, with each Unit consisting of (a) one share of the Company’s Series G 8% Convertible Preferred Stock, par value $0.0001 per share (the “Preferred Stock ”), and (b) a warrant (the “ Warrants ”) to purchase 75,000 shares of the Company’s common stock, par value $0.0001 per share (the “ Common Stock ”) at an exercise price of $2.50 per share, for a purchase price of $250,000 per Unit. The Units will not be issued or certificated. The voting powers, designations, preferences, and relative, participating, optional and other special rights, and qualifications, limitations, and restrictions of the Preferred Stock are set forth in the Certificate of Designation attached hereto as Annex 1 (the “ Certificate of Designation ”) filed or to be filed with the Nevada Secretary of State. The shares of Preferred Stock and the Warrants are (x) immediately separable and will be issued separately and (y) sometimes hereinafter collectively referred to as the “ Securities .”

3. Subject to the satisfaction or waiver of the conditions set forth in Section 7 of this Agreement, the completion of the purchase by the Investor and sale by the Company of the Units pursuant to this Agreement (the “ Closing ”) shall occur on the date that is three business days after the Effective Date, which date and time may be postponed by agreement between the Investors and the Company (such date and time of delivery and payment for the Securities being herein called the “Closing Date”). At the Closing, the Company shall deliver to the Investor (a) the number of shares of Preferred Stock constituting a part of the number of Units as set forth above in Section 2 and (b) a Warrant to purchase the number of shares of Common Stock constituting a part of the number of Units as set forth above in Section 2, by delivery of a stock certificate representing such shares of Preferred Stock and a Warrant to the Investor at the following address:

 

     
Investor (Name):  

 

   
Street Address:  

 

   
City, State and Zip Code:  

 

   
Attention:  

 

   
Telephone Number:  

 

 


 

On or before the Closing Date, the Investor shall remit by wire transfer (or deliver by check) the amount of funds equal to the aggregate purchase price for the Units being purchased by the Investor to the Company pursuant to instructions provided to the Investor with this Agreement.

The Company also shall deliver to the Investor and file with the Securities and Exchange Commission (the “ Commission ”) a prospectus supplement (the “ Supplement ”) with respect to the Registration Statement (as defined below) reflecting the offering of the Units in conformity with the Securities Act of 1933, as amended (the “ Securities Act ”), including Rule 424(b) thereunder.

4. The Investor acknowledges that the Company intends to enter into purchase agreements in substantially the same form as this Agreement with certain other investors and intends to offer and sell up to 24 Units. The Investor acknowledges and agrees that there is no minimum offering amount for the Units contemplated to be sold by the Company.

5. The Company hereby makes the following representations, warranties and covenants to the Investor:

(a) The Company has been duly incorporated and is validly existing as a corporation with active status under the laws of the State of Nevada, with the requisite corporate power and authority to own, lease and operate its properties and conduct its business as described or incorporated by reference in the Supplement.

(b) The Company has the requisite corporate power and authority to execute, deliver, and perform its obligations under this Agreement. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereunder have been duly authorized by all necessary corporate action on the part of the Company, and no further consent or action is required by the Company, its board of directors, or its stockholders. This Agreement has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other similar law affecting the enforcement of creditors’ rights generally or by general principles of equity.

(c) The Company’s execution, delivery, and performance of this Agreement and its consummation of the transactions contemplated hereby will not (i) conflict with or result in a violation of, the Company’s articles of incorporation or bylaws, (ii) violate or conflict with, or result in a breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries (as defined below) pursuant to, or require the consent of any other party to, any indenture, mortgage, loan or credit agreement, deed of trust, note, contract, franchise, lease or other agreement, obligation, condition, covenant or instrument to which it is a party or by which it may be bound or to which any of its property or assets is subject, or (iii) assuming the accuracy of the Investor’s representations in this Agreement, result in a violation of any law, rule, regulation, judgment, order or decree (including United States federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company, any of its Subsidiaries, or its securities are subject), applicable to the Company or by which any material property or asset of the Company or any of its Subsidiaries is bound or affected, except with respect to clauses (ii) and (iii) for such conflicts, breaches, defaults or violations as would not, individually or in the aggregate, have a material adverse effect on the assets, liabilities, financial condition, or results of operations of the Company and its Subsidiaries taken as a whole (a “ Material Adverse Effect ”). As used in this Agreement, “ Subsidiaries ” means any subsidiary of the Company.

 

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(d) The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of this Agreement, other than (i) the filing of the Supplement, (ii) the filings required in connection with the issuance and listing of the shares of Common Stock issuable upon conversion of the Preferred Stock and the exercise of the Warrants on the Nasdaq Capital Market, (iii) such filings as are required to be made under applicable state securities laws, and (iv) in all other cases, where the failure to obtain such consent, waiver, authorization or order, or to give such notice or make such filing or registration would not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the issuance and sale of the Units and the potential issuance of the shares of Common Stock issuable upon conversion of the Preferred Stock and the exercise of the Warrants (prior to the operation of any applicable anti-dilution provisions) without the approval of the Company’s stockholders does not violate Rule 5635(d) of the NASDAQ Listing Rules. For purposes of this Agreement, “ Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

(e) The Securities have been duly authorized and, when issued, delivered and paid for in accordance with the terms hereof, will be validly issued, fully paid, and non-assessable and will not be sold in violation of statutory or contractual preemptive rights, resale rights, rights of first refusal, or similar rights. The shares of Common Stock issuable upon conversion of the Preferred Stock and the exercise of the Warrants have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Certificate of Designation or the Warrants, as the case may be, will be duly and validly issued, fully paid, and such shares of Common Stock will not be sold in violation of applicable state and federal securities laws, statutory or contractual preemptive rights, resale rights, rights of first refusal, or similar rights.

(f) The Preferred Stock, the Warrants, and the shares of Common Stock issuable upon conversion of the Preferred Stock and the exercise of the Warrants are being offered and sold pursuant to the Registration Statement, the prospectus included therein, and the Supplement. The Company’s Registration Statement on Form S-3 (No. 333-162971) (including all information or documents incorporated by reference therein, the “ Registration Statement ”) has been declared effective by the Commission and is effective on the date hereof, and the Company has not received notice that the Commission has issued or intends to issue a stop order with respect to the Registration Statement or that the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so. The offering, sale and issuance of the Securities to the Investor are registered under the Securities Act by the Registration Statement, and the Securities will be freely transferable and tradable by the Investor without restriction created by the Company. The Securities are being issued as described in the Registration Statement.

(g) As of the date of this Agreement, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, of which as of the date hereof, 66,770,926 shares are issued and outstanding, 7,250,047 shares are reserved for issuance pursuant to the Company’s employee incentive plans, 2,670,000 shares are reserved for issuance pursuant to securities (other than the Preferred Stock or the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock as of the date hereof, and 100,000 shares are reserved for issuance pursuant to securities (other than the Preferred Stock or the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock (but not exercisable or exchangeable for, or convertible as of the date hereof), and (ii) 9,361,200 shares of preferred stock, par value $0.0001 per share, of which as of the date hereof, 448,800 shares have been designated as Series D Convertible Preferred Stock, 206,400 shares of which are issued and outstanding. The Company has not issued any capital stock since its most recently filed periodic report

 

3

 


under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents (as defined below) outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person (excluding the Investors) has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. Except (a) as a result of the purchase and sale of the Securities and (b) as disclosed in the SEC Reports or the Supplement, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities, except for such adjustments which have been waived by the holder of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. As used in this Agreement, “ Common Stock Equivalents ” means any debt, preferred stock, rights, options, warrants or other instrument that is at any time and under any circumstances convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, directly or indirectly, shares of Common Stock.

(h) The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Prospectus and the Supplement, being collectively referred to herein as the “ SEC Reports ”), and for a period of 12 calendar months and any portion of a month immediately preceding the filing of the Registration Statement, the Company has filed such SEC Reports on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates or with respect to any amended SEC Reports as of the date of such amendment, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Since January 1, 1998, the Company has not been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing or with respect to any amended SEC Reports as of the date of such amendment. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

4

 


 

(i) Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission which are not material to the Company, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth in the SEC Reports or the Supplement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective business, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one trading day prior to the date that this representation is made.

(j) Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

(k) Except as disclosed in the SEC Reports, the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and valid title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens (as defined below), except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties, or Liens securing indebtedness to be repaid from the proceeds of this offering. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance. As used in this Agreement, “ Liens ” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

(l) The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to

 

5

 


maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

(m) Except as set forth in the Prospectus Supplement, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Investors shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

(n) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as disclosed in the SEC Reports, the Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market (as defined below) on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. As used in this Agreement, “ Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

(o) Assuming the accuracy of the Investor’s representations and warranties set forth in this Agreement, 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, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable stockholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(p) The Company acknowledges and agrees that each of the Investors is acting solely in the capacity of an arm’s length Investor with respect to this Agreement, the agreements entered into by the other Investors, and the transactions contemplated hereby and thereby. The Company further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement, the agreements entered into by the other Investors, and the transactions contemplated hereby and thereby.

 

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(q) The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

(r) The Company shall make such filings and notices in the manner and time required by the Commission with respect to the transactions contemplated hereby. Except for the exhibits to be attached to filings required by the Commission, the Company shall not identify the Investor by name in any press release or public filing, or otherwise publicly disclose the Investor’s name, without the Investor’s prior written consent (such consent not to be unreasonably withheld), unless required by law or the rules and regulations of any self-regulatory organization to which the Company or its securities are subject.

(s) The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(t) The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Securities, will not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

(u) The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti takeover provision under the Company’s articles of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Investors as a result of the Investors and the Company fulfilling their obligations or exercising their rights under this Agreement and the other documents contemplated by this Agreement, including without limitation as a result of the Company’s issuance of the Securities and the Investors’ ownership of the Securities.

(v) Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the book value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, and (ii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets at book value, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). Taking into account the projected capital availability to the Company, the Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth as of the date hereof all outstanding secured and unsecured

 

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Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “ Indebtedness ” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

(w) Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(x) The Company shall keep the Registration Statement effective (and the Supplement available for use) pursuant to Rule 415 for the issuance by the Company of the Common Stock underlying the Preferred Stock and Warrants being issued hereunder on a delayed or continuous basis at all times until all the Securities have been redeemed, converted, or exercised in accordance with the terms therewith.

6. The Investor hereby makes the following representations, warranties and covenants to the Company:

(a) The Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Investor is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(b) The Investor acknowledges that it has had the opportunity to review (including through availability to it of documents electronically filed by the Company with the Commission) the basic prospectus included in the Registration Statement on the date hereof and all documents incorporated therein by reference (together with the price and amount of the Units sold as described in Section 2 hereof) and the Registration Statement.

(c) The Investor is purchasing the Securities in the ordinary course of its business for its own account and not with a view to the distribution thereof in violation of the Securities Act and it does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer, distribute or grant participation to any third person or entity with respect to any of the Securities, provided, however, that by making the representation herein, the Investor does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities.

(d) The Investor understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase and sale of the Securities constitutes legal, tax, or investment advice. The Investor has consulted such legal, tax, and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities.

 

8

 


 

(e) Neither the Investor nor any Person acting on behalf of, or pursuant to any understanding with or based upon any information received from, the Investor has, directly or indirectly, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities) since the earlier to occur of (i) the time that the Investor was first contacted by or on behalf of the Company with respect to the transactions contemplated hereby and (ii) the date that is the tenth (10th) trading day prior to the date of this Agreement. “ Short Sales ” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers. The Investor covenants that neither it, nor any Person acting on behalf of, or pursuant to any understanding with or based upon any information received from, the Investor will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

(f) The Investor represents that, except as set forth below, (i) it is not a, and it has no direct or indirect affiliation or association with any, NASD member or an Associated Person (as such term is defined under the NASD Membership and Registration Rules Section 1011) as of the date hereof and (ii) neither it nor any group of investors (as identified in a public filing made with the Commission) of which it is a member, acquired, or obtained the right to acquire, 20% or more of the Common Stock (or securities convertible or exercisable for Common Stock) or the voting power of the Company on a post-transaction basis. Exceptions:

 

 

 

 

(If no exceptions, write “none.” If left blank, response will be deemed to be “none.”)

(g) The Investor shall not issue any press release or make any other public announcement relating to this Agreement unless (i) the content thereof is mutually agreed to by the Company and the Investor or (ii) the Investor is advised by its counsel (including internal counsel) that such press release or public announcement is required by law.

(h) Investor acknowledges that no offer by the Investor to buy Units will be accepted until the Company has accepted such offer by countersigning a copy of this Agreement, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to the Company sending (orally, in writing or by electronic mail) notice of its acceptance of such offer. An indication of interest will involve no obligation or commitment of any kind until this Agreement is accepted and countersigned by or on behalf of the Company.

(i) If the Investor is outside the United States, it will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells, or delivers Units or has in its possession or distributes any offering material, in all cases at its own expense.

(j) The Investor has the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The

 

9

 


execution and delivery of this Agreement by the Investor and the consummation by it of the transactions contemplated hereunder have been duly authorized by all necessary action on the part of the Investor, and no further consent or action is required by the Investor, its board of directors or similar governing body or its stockholders, members or partners. This Agreement has been duly executed by the Investor and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except as may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar law affecting the enforcement of creditors’ rights generally or by general principles of equity.

7. Conditions.

(a) The Company’s obligation to issue and sell the Units to the Investor shall be subject to: (i) the receipt by the Company of the purchase price for the Units being purchased hereunder; (ii) the accuracy of the representations and warranties made by the Investor in this Agreement; (iii) no 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 the consummation of any of the transactions contemplated by this Agreement; and (iv) the filing of the Certificate of Designation with the Nevada Secretary of State.

(b) The Investor’s obligation to purchase the Units shall be subject to: (i) the accuracy of the representations and warranties made by the Company in this Agreement and the fulfillment of those undertakings of the Company in this Agreement to be fulfilled prior to the Closing; (ii) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; (iii) the filing of the Certificate of Designation with the Nevada Secretary of State; (iv) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Investor, makes it impracticable or inadvisable to purchase the Securities at the Closing; (v) the Investor shall have received the opinion of Akerman Senterfitt, the Company’s counsel, dated as of the Closing Date, in a form reasonably acceptable to the Investor; (vi) no 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 the consummation of any of the transactions contemplated by this Agreement; and (vi) the Company shall have received executed purchase agreements in substantially the form of this Agreement from the holders of an aggregate of $1.0 million principal amount of the promissory notes issued by the Company in August 2010 (the “ August Notes ”) whereby holders of such August Notes agree to tender such August Notes for four (4) Units that are identical to the Units to be sold pursuant to this Agreement.

Except as set forth in clause (vi) of Section 7(b) above, the Investor’s obligations are expressly not conditioned on the purchase by any third party purchaser of any securities that they have agreed to purchase from the Company.

8. In consideration of the Investor’s execution and delivery of this Agreement and acquiring the Securities hereunder, the Company shall defend, protect, indemnify and hold harmless the Investor and each holder of any Securities and all of their stockholders, partners, members, officers, directors,

 

10

 


employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “ Indemnitees ”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

9. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Florida, without giving effect to the principles of conflicts of law. Each party hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of New York or any federal court of the Southern District of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

10. All covenants, agreements, representations and warranties made by the Company and the Investor herein are made as of the date hereof and will survive the execution of this Agreement, the delivery to the Investor of the Securities being purchased and the payment therefor.

11. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital, capital expenditures, and other general corporate purposes.

12. This Agreement may be terminated by the Investor, as to such Investor’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Investors, by written notice to the other parties, if the Closing has not been consummated on or before October 8, 2010.

13. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature were the original thereof.

14. The Investor acknowledges and agrees that such Investor’s receipt of the Company’s counterpart to this Agreement, together with the Supplement (or the filing by the Company of an electronic version thereof with the Commission), shall constitute written confirmation of the Company’s sale of the Securities to the Investor.

 

11

 


 

15. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing and, if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at Odyssey Marine Exploration, Inc., 5215 Laurel Street, Tampa, Florida 33607, Attention: Chief Financial Officer, with a copy to Akerman Senterfitt, 401 East Jackson Street, Suite 1700, Tampa, Florida 33602, Attention: David M. Doney; and if to the Investor, shall be sufficient in all respects if delivered or sent to the Investor at the address set forth on the signature page to this Agreement.

16. This Agreement records the final, complete, and exclusive understanding among the parties regarding the subjects addressed in it and supersedes any prior or contemporaneous agreement, understanding, or representation, oral or written, by any of them.

17. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Investor.

(Signatures on following page.)

 

12

 


 

Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose.

 

     
   

Name of Investor:

 

 

   

Signature of Investor:

 

 

   

By:

 

 

   

Print Name:

 

 

   

Title:

 

 

   

Address:

 

 

   

Tax ID No.:

 

 

Exact name in which book-entry should be made (if different):                                         

 

     

AGREED AND ACCEPTED:

 

O DYSSEY M ARINE E XPLORATION , I NC .
   
By:  

 

   
Print Name:  

 

   
Title:  

 

 

13

 


 

Exhibit 10.2 Amend No. 1

AMENDMENT NO. 1

TO

PURCHASE AGREEMENT

This Amendment No. 1 (this “ Amendment ”) to the Purchase Agreement, dated as of October 6, 2010 (the “ Purchase Agreement ”), by and between Odyssey Marine Exploration, Inc., a Nevada corporation (the “ Company ”), and the investor whose name is set forth on the signature page hereof (the “ Investor ”), is entered into and effective as of October 12, 2010. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement.

RECITALS

Pursuant to Section 17 of the Purchase Agreement, the Purchase Agreement may be amended or modified pursuant to an instrument in writing signed by the Company and the Investor.

The Company and the Investor desire to amend the Purchase Agreement to revise certain terms therein.

NOW, THEREFORE, in consideration of the covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby agree as follows:

1. Certificate of Designation The voting powers, designations, preferences, and relative, participating, optional and other special rights, and qualifications, limitations, and restrictions of the Preferred Stock are set forth in the Certificate of Designation previously attached as Annex A to the Purchase Agreement, as amended by the Amendment to Certificate of Designation attached hereto as Exhibit A filed or to be filed with the Nevada Secretary of State (as amended, the “ Certificate of Designation ”), which shall replace in its entirety the Certificate of Designation previously attached as Annex A to the Purchase Agreement. Each reference in the Purchase Agreement to the “Certificate of Designation” shall mean and be a reference to the Certificate of Designation as so amended.

2. Miscellaneous .

(a) Except as specifically amended by this Amendment, the Purchase Agreement shall remain in full force and effect.

(b) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of the Purchase Agreement.

(c) Each party hereto agrees to perform all further acts and execute, acknowledge, and deliver any documents that may be reasonably necessary, appropriate, or desirable to carry out the provisions of this Amendment.

 


 

(d) This Amendment, together with the Purchase Agreement, constitutes the entire agreement and understanding among the parties hereto and thereto with respect to the subject matter hereof and thereof and supersedes any and all prior discussions, agreements or other communications, whether written or oral, between or among them with respect to such subject matter hereof and thereof.

(e) This Amendment may be executed in two or more counterparts, each of which when so executed, then delivered or transmitted by facsimile of electronic PDF, shall constitute an original and all of which taken together shall be deemed one agreement.

(f) Each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Purchase Agreement shall mean and be a reference to the Purchase Agreement as amended by this Amendment. The Purchase Agreement, as amended by this Amendment, shall be binding on and enforceable against all parties thereto.

[SIGNATURE PAGE FOLLOWS.]

 

- 2 -

 


 

IN WITNESS WHEREOF , the undersigned have executed this Amendment No. 1 to the Purchase Agreement as of the date first set forth above.

 

     
INVESTOR
 

 

(Print Name of Investor)
   
By:  

 

Name:  

 

Title:  

 

 
ODYSSEY MARINE EXPLORATION, INC.
   
By:  

 

Name:  

Michael J. Holmes

Title:  

Chief Financial Officer

 

Amendment No. 1 to Purchase Agreement

 


 

EXHIBIT A

AMENDMENT TO CERTIFICATE OF DESIGNATION

 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory P. Stemm, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Odyssey Marine Exploration, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2010

 

 

/s/ Gregory P. Stemm

Gregory P. Stemm
Chief Executive Officer

 

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Holmes, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Odyssey Marine Exploration, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 
Date: November 4, 2010
 

/s/ Michael J. Holmes

Michael J. Holmes
Chief Financial Officer

 

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

ODYSSEY MARINE EXPLORATION, INC.

PURSUANT TO 18 U.S.C. SECTION 1350

I hereby certify that, to the best of my knowledge, the quarterly report on Form 10-Q of Odyssey Marine Exploration, Inc. for the period ending September 30, 2010:

(1) complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of Odyssey Marine Exploration, Inc.

 

 

/s/ Gregory P. Stemm

Gregory P. Stemm
Chief Executive Officer
November 4, 2010

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Odyssey Marine Exploration, Inc. and will be retained by Odyssey Marine Exploration, Inc. and furnished to the Securities and Exchange Commission upon request.

 

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

ODYSSEY MARINE EXPLORATION, INC.

PURSUANT TO 18 U.S.C. SECTION 1350

I hereby certify that, to the best of my knowledge, the quarterly report on Form 10-Q of Odyssey Marine Exploration, Inc. for the period ending September 30, 2010:

(1) complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of Odyssey Marine Exploration, Inc.

 

 

/s/ Michael J. Holmes

Michael J. Holmes
Chief Financial Officer
November 4, 2010

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Odyssey Marine Exploration, Inc. and will be retained by Odyssey Marine Exploration, Inc. and furnished to the Securities and Exchange Commission upon request.