DEBENTURE
PACIFIC SANDS. INC.
-------------------
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE
DUE SEPTEMBER 16, 2001
THIS DEBENTURE of Pacific Sands, Inc., a corporation duly organized and
existing under the laws of Nevada ("COMPANY"), designated as its 8% Series A
Senior Subordinated Convertible Redeemable Debentures Due September 16, 2001, in
an aggregate principal face amount not to exceed
___________________________________________, which Debentures are being
purchased at 100% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to
______________________________. the registered holder hereof and his authorized
successors and permitted assigns ("HOLDER"), the aggregate principal face sum
not to exceed __________________________________on September 16, 2001 ("MATURITY
DATE"), and to pay interest on the principal sum outstanding, at the rate of 8%
per annum commencing September 1, 2000 and due in full at the Maturity Date
pursuant to paragraph 4(b) herein. Accrual of outstanding principal sum has been
made or duly provided for. The interest so payable will be paid to the person in
whose name this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures ("DEBENTURE REGISTER"); provided,
however, that the Company's obligation to a transferee of this Debenture arises
only if such transfer, sale or other disposition is made in accordance with the
terms and conditions of the Securities Subscription Agreement dated as of August
1, 2000 between the Company and ________________________________ ("SUBSCRIPTION
AGREEMENT"). The principal of, and interest on, this Debenture are payable at
the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder hereof from time to time. The Company will
pay the outstanding principal due upon this Debenture before or on the Maturity
Date, less any amounts required by law to be deducted or withheld, to the Holder
of this Debenture by check if paid more than 10 days prior to the Maturity Date
or by wire transfer and addressed to such Holder at the last address appearing
on the Debenture Register. The forwarding of such check or wire transfer shall
constitute a payment of outstanding principal hereunder and shall satisfy and
discharge the liability for principal on this Debenture to the extent of the sum
represented by such cheek or wire transfer. Interest shall be payable in Common
Stock (as defined below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Five Thousand
Dollars (US$5,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same, but
not less than U.S. $5,000. No service charge will be made for such registration
or transfer or exchange, except that Holder shall pay any tax or other
governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments any
amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only in compliance
with the Securities Act of 1933, as amended ("ACT") and applicable state
securities laws. Prior to due presentment for transfer of this Debenture, the
Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as the owner
hereof for all other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by notice to
the contrary. Any Holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, are
also required to give the Company written confirmation that the Debenture is
being converted ("NOTICE OF CONVERSION") in the form annexed hereto as EXHIBIT
I.
<PAGE>
4. (a) The Holder of this Debenture is entitled, at its option, at any
time immediately following execution of this Agreement and delivery of the
Debenture hereof, to convert all or any amount over $5,000 of the principal
face amount of this Debenture then outstanding into shares of Common Stock,
$0.01 par value per share, of the Company freely tradeable and without
restrictive legend of any kind ("COMMON STOCK"), at a conversion price
("CONVERSION PRICE") for each share of Common Stock equal to 75% of the closing
bid price of the Common Stock of the Common Stock as reported on the National
Association of Securities Dealers Electronic Bulletin Board ("OTC BULLETIN
BOARD") for the trading day immediately preceding the date of receipt by the
Company of a Notice of Conversion ("CONVERSION SHARES"). If the number of
resultant Conversion Shares would as a matter of law or pursuant to regulatory
authority require the Company to seek shareholder approval of such issuance, the
Company shall, as soon as practicable, take the necessary steps to seek such
approval. Such conversion shall be effectuated, as provided in a certain Escrow
Agreement executed simultaneously with this Debenture, by the Company delivering
the Conversion Shares to the Holder within 5 business days of receipt by the
Company of the Notice of Conversion. Once the Holder has received such
Conversion Shares, the Escrow Agent shall surrender the Debentures to be
converted to the Company, executed by the Holder of this Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion hereof,
and accompanied by proper assignment hereof in blank. Accrued but unpaid
interest shall be subject to conversion. No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share.
(b) Interest at the rate of 8% per annum shall be paid by issuing
Common Stock of the Company as follows: Based on the closing bid price of the
Common Stock as reported on the OTC Bulletin Board for the trading day
immediately preceding the date of the monthly interest payment due ("MARKET
PRICE"), the Company shall issue to the Holder shares of Common Stock in an
amount equal to the total monthly interest accrued and due divided by 75% of the
Market Price ("INTEREST SHARES"). The dollar amount of interest payable pursuant
to this paragraph 4(b) shall be calculated based upon the total amount of
payments actually made by the Holder in connection with the purchase of the
Debentures at the time any interest payment is due. If such payment is made by
check, interest shall accrue beginning 10 days from the date the check is
received by the Company. If such payment is made by wire transfer directly into
the Company's account, interest shall accrue beginning on the date the wire
transfer is received by the Company. Common Stock issued pursuant hereto shall
be issued pursuant to the Comapany's 10-SB and Form SB-1 filed with the
Securities and Exchange Commission and in accordance with the terms of the
Subscription Agreement and shall be freely tradeable and without restrictive
legend of any kind.
(c) At any time after 30 days the Company shall have the option to pay
to the Holder 125% of the principal amount of the Debenture, in full, to the
extent conversion has not occurred pursuant to paragraph 4(a) herein, or pay
upon maturity if the Debenture is not converted. The Company shall give the
Holder 5 days written notice and the Holder during such 5 days shall have the
option to convert the Debenture or any part thereof into shares of Common Stock
at the Conversion Price set forth in paragraph 4(a) of this Debenture.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the outstanding
principal of, and interest on, this Debenture at the time, place; and rate, and
in the form, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of non-payment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereto.
<PAGE>
7. The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default" shall
occur and continue for 30 days, unless a different time frame is noted below:
(a) The Company shall default in the payment of principal or interest
on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or financial or
other written statements heretofore or hereafter furnished by or on behalf of
the Company in connection with the execution and delivery of this Debenture or
the Subscription Agreement shall be false or misleading in any material respect
at the time made or the Company shall violate any covenants in the Subscription
Agreement including but not limited to Section 5(b) or 10; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or obligation
of the Company under this Debenture, the Subscription Agreement or the Escrow
Agreement and such failure shall continue uncured for a period of thirty (30)
days after notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for its
or for a substantial past of its property or business; (5) file a petition for
bankruptcy relief, consent to the filing of such petition or have fried against
it an involuntary petition for bankruptcy relief, all under federal or state
laws as applicable; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company; or
(g) Any money judgment, writ or warrant of attachment, or similar
process, in excess of One Hundred Thousand ($100,000) Dollars in the aggregate
shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days or in any event later
than five (5) days prior to tile date of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings,
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted voluntarily by or involuntarily against
the Company; or
(i) The Company shall have its Common Stock delisted from the
over-the-counter market or other market or exchange on which the Common Stock is
or becomes listed or trading in the Common Stock shall be suspended for more
than 10 consecutive days: or
(j) The Company shall not deliver to the Buyer the Common Stock
pursuant to paragraph 4 herein without restrictive legend within 5 business
days.
<PAGE>
Then, or at any time thereafter, unless cured, and in each and every such case
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of the Company.
However, no recourse shall be had for the payment of the principal of; or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise. all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
11. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in accordance
with the laws of California applicable to contracts made and wholly to be
performed within the State of California and shall be binding upon the
successors and assigns of each party hereto. The Holder and the Company hereby
mutually waive trial by jury and consent to exclusive jurisdiction and venue in
the courts of the State of California. This Agreement may be executed in
counterparts, and the facsimile transmission of an executed counterpart to this
Agreement shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: August 1, 2000
PACIFIC SANDS, INC
----------------------------------
Stanley Paulus
President
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT ("ESCROW AGREEMENT") dated as of August 1, 2000 by
and among PACIFIC SANDS, INC., a Nevada corporation ("PSI"), and _______________
_____________________________________ ("PURCHASER"), and ELIZABETH LEHRER, ESQ.,
having a principal place of business at 850 Third Street, Santa Rosa, CA 95404
("ESCROW AGENT").
WHEREAS:
A. The Purchaser and PSI entered into a Securities Subscription
Agreement dated as of August 1, 2000 ("AGREEMENTS"), in which, inter alia, the
Purchaser agreed to purchase PSI's 8% Series A Senior Subordinated Convertible
Redeemable Debentures ("DEBENTURES");
B. Pursuant to the Agreement, the Debentures are to be delivered to the
Escrow Agent to hold and administer in accordance with the terms and conditions
of this Escrow Agreement.
NOW THEREFORE, in consideration of the respective premises, mutual
covenants and agreements of the parties hereto, and other good and valuable
consideration, the receipt and sufficiency of which we hereby acknowledged, the
parties hereto agree as follows:
1. APPOINTMENT OF ESCROW AGENT. Escrow Agent is hereby appointed as
escrow agent and the Escrow Agent hereby accepts such appointment. The Escrow
Agent shall act in accordance with the instructions set forth in this Escrow
Agreement and any further instructions given to it by written instrument signed
by PSI and Purchaser.
2. INITIAL FUNDING. On the date hereof, the Purchaser shall transfer to
PSI the aggregate sum of __________________________________ less any fees which
PSI has agreed to pay by virtue of a separate agreement.
3. Issuance and Delivery of the Debentures and Resolution to the Escrow
Agent.
(a) On the date hereof, PSI shall issue in the name of the Purchasers
and deposit with the Escrow Agent the Debentures in the face amount of
________________________, as provided in the Agreements. If PSI is not paid the
full Purchase Price for the Debentures, as provided in this Escrow Agreement,
then the Debenture, or any portion of the Debentures which is not paid for at
the time when payment is due to be made, shall be canceled by PSI, and the
Escrow Agent, upon written notice of such cancellation from PSI, shall promptly
return the Debentures to PSI. Upon such cancellation and return of the
Debentures, the parties shall have no further obligations or liabilities each to
the other under this Escrow Agreement, the Agreements or the Debentures.
(b) On the date hereof, PSI shall deliver to the Escrow Agent a
resolution in the form annexed hereto as EXHIBIT A ("RESOLUTION"), instructing
PSI's transfer agent, Corporate Stock Transfer, 370 17th Street, #2350, Denver,
Colorado 80202 ("TRANSFER AGENT") to issue to Purchaser shares of PSI's common
stock registered in the name of Purchaser, without restrictive legend as
provided in Section 5(b) of the Agreement, in an amount equal up to
$___________, or at some lesser amount as the Escrow Agent, in his sole
discretion may direct the Transfer Agent, at a price per share which is 75% of
the closing bid price of PSI's common stock as reported on the National
Association of Securities Dealers Electronic Bulletin Board for the trading day
immediately preceding the date of receipt of the Resolution by Transfer Agent,
and providing that PSI shall not change its transfer agent from the Transfer
Agent, without the express written consent and directive of the Escrow Agent.
<PAGE>
The Resolution may be invoked by the Escrow Agent on as many occasions as
necessary to effectuate the provisions of this Escrow Agreement. The Resolution
may be delivered by the Escrow Agent to the Transfer Agent in the event that,
for any reason whatsoever, PSI fails to honor any Notice of Conversion as
provided in the Debentures and this Escrow Agreement, or PSI commits a material
breach of the Agreements, the Debentures, or this Escrow Agreement, or in the
event that PSI changes or attempts to change its transfer agent from the
Transfer Agent without the express written consent of the Purchaser. Upon
written demand from the Purchaser, Escrow Agent shall deliver the resolution to
the Transfer Agent as provided in this Section 3(b). Delivery of the Resolution
to the Transfer Agent and the issuance of shares by the Transfer Agent in
accordance with the Resolution shall not preclude the Purchaser from exercising
any and all other remedies available to the Purchaser against PSI for a breach
of the Agreements, the Debentures, or this Escrow Agreement. Escrow Agent shall
be entitled to honor any such written demand from the Purchaser and shall ignore
any demand or instructions to the contrary from PSI.
4. CUSTODY AND DISPOSITION OF THE DEBENTURES. The Escrow Agent shall
hold and dispose of the Debentures only in accordance with the terms of this
Escrow Agreement.
5. CONVERSION OF DEBENTURES.
(a) As provided in paragraph 4 of the Debentures, Purchaser may give
Notice of Conversion of the Debentures to PSI by facsimile to the number set
forth in Section 10 below. Conversion of Debentures may take place at any time
until the Maturity Date of the Debentures, as defined in the Debentures. As
provided in paragraph 4 of the Debentures, within 10 business days of receipt of
a Notice of Conversion, PSI shall deliver to the Purchaser giving such notice,
or to an account designated by such Purchaser in the Notice of Conversion,
certificates representing the shares of common stock to which the Purchaser
shall be entitled by reason of the conversion ("CERTIFICATES"). Notwithstanding
anything to the contrary contained in paragraph 4 of the Debentures, PSI may
demand, in writing, that the Purchaser pay outstanding principal amounts of the
Debentures ("DEMAND") even though Purchasers have not convened all or any amount
of the Debentures into shares of common stock, as provided in subsections (A)
and (B) below. The Demand is a provision for payment of the Debenture only.
Conversions of the Debentures into shares of common stock shall be done in
accordance with paragraph 4 of the Debentures, and may be in an amount which is
no less than $5,000 but not necessarily as much as the Demand: However, a
Demand may only be made in aggregate increments of $100,000, commencing 20
business days from the Closing Date of the purchase of the Debentures, as set
forth in the Agreement, each Demand being no less than 20 business days from the
last Demand,and provided that the closing bid price of PSI's common stock for
the previous 5 consecutive trading days has nor fallen below $.05 per share. On
any single trading day, Purchaser may sell in the aggregate common stock equal
to the greater of (i) 10% of the total trading volume of PSI's common stock at
any time during a day when PSI's common stock trades or (ii) 6,000 shares of
common stock (either (i) or (ii) being "MAXIMUM SALES"). However, in the event
that Purchaser does not accomplish Maximum Sales on any trading day, the
difference between the Maximum Sales and the dollar amount of sales actually
done shall cumulate ("CUMULATIVE SALES") and Purchaser may accomplish the
Cumulative Sales on any other trading day even if the Maximum Sales have been
done on such day.
(b) if PSI fails to timely deliver Certificates, as provided in Section
5(a) above, then PSI shall pay Purchaser $150 per day for each day late in
delivering Certificates up to and including the 10th late day, and $500 per day
for each day late in delivering the Certificates after the 10th late day
("LIQUIDATED DAMAGES"). Any Liquidated Damages incurred by PSI shall be payable
immediately and in cash upon demand in writing by Purchaser, or its agent, to
PSI. However, such Liquidated Damages may be deducted from any amounts owed to
PSI by Purchaser pursuant to this Section 5. Notwithstanding anything contained
in the Agreement to the contrary, including but not limited to the provisions of
Section 6 regarding the registration of restricted Conversion Shares, Purchaser
shall be required to pay the Liquidated Damages set forth in this Section 5(b).
6. BANKRUPTCY. In the event any proceeding under the Bankruptcy Laws of
the United States or any proceedings under any state laws for the protection of
debtors or creditors, are filed, voluntarily or involuntarily, by or on behalf
of PSI, then the Purchasers shall not be required to make any payment under the
Debenture or to honor any Demand and PSI shall be required nonetheless to honor
all notices of conversion.
<PAGE>
7. INDEMNIFICATION Purchaser and PSI agree, jointly and severally to
indemnify, defend and hold harmless the Escrow Agent from and against any and
all costs (including, without limitation, legal fees and expenses), liabilities,
claims and losses arising out of or in connection with this Escrow Agreement or
any action or failure to act by the Escrow Agent under this Escrow Agreement,
except as provided in paragraph 8 below.
8. CONCERNING THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by the undersigned that:
(a) This Escrow Agreement expressly sets forth all the duties of the
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations on the part of the Escrow Agent shall be read into this
Escrow Agreement. The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action or failure to
act in its capacity as Escrow Agent hereunder unless such action or failure to
act shall constitute willful misconduct on the part of the Escrow Agent, in
which case there shall be no indemnification obligations.
(c) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness or any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume, unless he has actual
knowledge to the contrary, that any person purporting to give notice or receipt
or advice or make any statement or execute any document in Connection with the
provisions hereof has been duly authorized to do so.
(d) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted in accordance with such advice, except as
provided in paragraph 8(b) above.
(e) The Escrow Agent does not have any interest in the Debentures or
Conversion Shares or any other property deposited hereunder but is serving as
escrow holder only and having only possession thereof, and is not charged with
any duty or responsibility to determine the validity or enforceability of any
such documents.
(f) The Escrow Agent (and any successor Escrow Agent) may at any time
resign as such by delivering the Debentures to any successor Escrow Agent,
jointly designated by the other parties hereto in writing, or to any court of
competent jurisdiction, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Escrow
Agreement thereafter. The resignation of the Escrow Agent will take effect on
the earlier of (a) the appointment of a successor (including a court of
competent jurisdiction) or (b) the day which is 30 days after the date of
delivery of its written notice of resignation to the other parties hereto. If at
that time the Escrow Agent has not received a designation of a successor Escrow
Agent, the Escrow Agent's sole responsibility after that time shall be to
safekeep the Debentures and not make delivery or disposition thereof until
receipt of a designation of successor Escrow Agent or a joint written
disposition instruction by the other parties hereto or a final order of a court
of competent jurisdiction.
(g) In the event of any disagreement among the parties hereto resulting
in adverse claims or demands being made in connection with the Debentures, or in
the event that the Escrow Agent otherwise determines that the Debentures should
be retained, then the Escrow Agent shall retain the Debentures until the Escrow
Agent shall have received (i) a final nonappealable order of a court of
competent jurisdiction directing delivery of the Debentures, or (ii) a written
agreement executed by the other parties hereto directing delivery of the
Debentures, in which case the Escrow Agent shall promptly deliver the Debentures
in accordance with such order or agreement. Any court order referred to in (i)
above shall be accompanied by a legal opinion by counsel for the presenting
party reasonably satisfactory to the Escrow Agent to the effect that said court
order is final and nonappealable. The Escrow Agent shall act on such court order
and legal opinion without further question.
<PAGE>
(h) This Escrow Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors (including
successors by way of merger) and assigns, heirs, administrators and
representatives and shall not be enforceable by or inure to the benefit of any
third party except as provided in paragraph (g) with respect to a resignation by
the Escrow Agent.
(i) This Escrow Agreement may be modified by a writing signed by all
the parties hereto, and no waiver hereunder shall be effective unless in a
writing signed by the party to be charged.
(j) PSI acknowledges and agrees that in any dispute involving the
Agreement, Debentures or this Escrow Agreement, that Escrow Agent may represent
Purchaser's interests and shall not have a conflict of interest due to the fact
that Escrow Agent is also acting as an escrow agent pursuant to this Escrow
Agreement and PSI hereby waives any right which it may have had to assert a
conflict of interest in the absence of this Section 8(j).
9. GOVERNING LAW. This Escrow Agreement shall be governed in all
respects by the internal laws of the State of California. The parties agree to
submit to the jurisdiction and venue of any state or federal court in San
Francisco having subject matter jurisdiction over the matter. Service may be
made by certified mail, return receipt requested, to the parties at the
addresses set forth in paragraph 10 below, but the parties shall not be
precluded from making service in any other manner permitted by law.
10. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be delivered by hand or sent by U.S.
Express Mail, Fedex or some other reliable overnight courier service for next
day delivery. Each such notice or other communication shall for all purposes of
this Escrow Agreement be treated as effective or having been given when
delivered if delivered personally, or, if sent by overnight express mail
service, 1 day after the same has been deposited with the U.S. Postal Service,
Fedex or the overnight courier. All such notices must also be sent by facsimile
on the same day to the parties as fo1lows:
if to PSI:
Pacific Sands, Inc.
601 W. Shaw Avenue, Suite D
Clovis, California 93612
Attn: Stanley Paulus
Fax: 559-228-8127
if to Purchaser:
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--------------------------------------
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Fax: _________________________________
If to Escrow Agent:
Elizabeth Lehrer, Esq.
850 Third Street
Santa Rosa, CA 95404
Fax: 707-575-0583
<PAGE>
11. COUNTERPARTS. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12. ESCROW AGENT FEES. PSI shall pay the fees and expenses of the
Escrow Agent in performing its obligations and in connection with the
preparation of the transaction documents as per agreement of PSI with the Escrow
Agent which shall be 2% of the amount paid into escrow ("FEE"). Such fee shall
be paid at the time of the receipt of funds by Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed and delivered, as of the day and year first above
written.
PSI: PACIFIC SANDS, INC.
By: _______________________________
Stanley Paulus
President
Purchaser:
By:________________________________
Its: _________________________________
As to Escrow Only:
ESCROW AGENT:
--------------------------------
ELIZABETH LEHRER, ESQ.
<PAGE>
SECURITIES SUBSCRIPTION AGREEMENT
---------------------------------
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of August 1, 2000
("AGREEMENT"), is executed in reliance upon the registration by Pacific Sands,
Inc. of the securities offered under the 10-SB filing and the Form SB-1
submitted to the Securities and Exchange Commission (`SEC"), under the
Securities Act of 1933 (the "Act"), as amended. Capitalized terms used herein
and not defined shall have the meanings given to them in the Act.
This Agreement has been executed by the undersigned buyer ("BUYER") in
connection with the private placement of 8% Series A Senior Subordinated
Convertible Debentures of Pacific Sands, Inc. a corporation organized under the
laws of Nevada, with its principal executive offices located at 601 W. Shaw,
Suite D, Clovis California 93612 ("SELLER"). Buyer hereby represents and
warrants to, and agrees with Seller as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The undersigned buyer hereby subscribes for and
agrees to purchase the Seller's 8% Series A Senior Subordinated Convertible
Redeemable Debenture substantially in the form of the Debenture attached as
exhibit A hereto and having an aggregate original principal face amount of
___________________________________________________________ (singly, a
"DEBENTURE," and collectively, the "DEBENTURES"), at an aggregate purchase price
of 100% of the face amount of such Debentures as set forth in subsection (b)
herein.
(b) PAYMENT. The Purchase Price for the Debenture shall be ____________
______________________________________ ("PURCHASE PRICE"), which shall be
payable at closing, pursuant to paragraph c herein, in accordance with the terms
and conditions of an Escrow Agreement which shall be executed simultaneously
with this Agreement ("ESCROW AGREEMENT").
(c) CLOSING. Subject to the satisfaction of the conditions set forth in
Sections 7 and 8 hereof, the Closing of the transactions contemplated by this
Agreement shall take place when (i) Seller delivers the Debentures to the Escrow
Agent, as defined in an Escrow Agreement among Buyer, Seller and the Escrow
Agent of even date, (ii) Seller delivers the signed Escrow Agreement and
accompanying documents, and (iii) Buyer pays
___________________________________________ towards the Purchase Price for the
Debentures ("CLOSING DATE").
2. Buyer Representations and Covenants; Access to Information
In connection with the purchase and sale of the Debentures, Buyer
represents and warrants to, and covenants and agrees with Seller as follows:
(a) Buyer is not, and on the closing date will not be, an affiliate of
Seller;
(b) Buyer is a _____________________________________, in good standing;
(c) All offers and sales of any of the Debentures by Buyer shall be
made in compliance with any applicable securities laws of any applicable
jurisdiction and under registration of securities under the 1933.
(e) Buyer has the full right, power and authority to enter into this
Agreement and to consummate the transaction contemplated herein. This Agreement
has been duly authorized, validly executed and delivered on behalf of Buyer and
is a valid and binding agreement in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
<PAGE>
(f) The execution and delivery of this Agreement and the consummation
of the purchase of the Debentures and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Buyer of
any of the terms or provisions of, or constitute a default under, the articles
of incorporation or by-laws (or similar constitutive documents) of Buyer or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Buyer is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of the United States
or any State thereof or any applicable decree, judgment or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over buyer or any of its
properties or assets;
(g) All invitations, offers and sales of or in respect of, any of the
Debentures, by Buyer and any distribution by Buyer of any documents relating to
any invitation, offer or sale by it of any of the Debentures will be in
compliance with applicable laws and regulations, will be made in such a manner
that no prospectus need be filed and no other filing need be made by Seller with
any regulatory authority or stock exchange in any country or any political
sub-division of any country, and Buyer will make no misrepresentations nor
omissions of material fact in the invitation, offer or resale of the Debentures;
(h) The Buyer (or others for whom it is contracting hereunder) has been
advised to consult its own legal and tax advisors with respect to applicable
resale restrictions and applicable tax considerations and it (or others for whom
it is contracting hereunder) is solely responsible (and the Seller is not in any
way responsible) for compliance with applicable resale restrictions and
applicable tax legislation;
(i) Buyer has had an opportunity to receive and review all material
information and financial data and to discuss with the officers of Seller, all
matters relating to the Debentures, financial condition, operations and
prospects of Seller and any questions raised by Buyer have been answered to
Buyer's satisfaction.
(j) Buyer acknowledges that the purchase of the Debentures involve a
high degree of risk. Buyer has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
purchasing the Debentures;
(k) Buyer is not a "10-percent Shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller; and
(l) Buyer acknowledges and agrees that the transactions contemplated by
this Agreement have taken place solely and exclusively within the State of
California.
3. SELLER REPRESENTATIONS AND COVENANTS.
(a) Seller is a corporation duly organized and validly existing under
the laws of the State of Nevada, and is in good standing under such laws. The
Seller has all requisite corporate power and authority to own, lease and operate
its properties and assets, and to carry on its business as presently conducted.
The Seller is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where failure to so quality would
not have a material adverse effect on the Seller.
(b) There are 20,000,000 shares of Seller's common stock, no par value
per share ("COMMON STOCK"), authorized and approximately 17,000,000 as of July
27, 2000 outstanding. The Common Stock is quoted on National Association of
Securities Dealers OTC Electronic Bulletin Board under the symbol "PFSD". All
issued and outstanding shares of Common Stock have been authorized and validly
issued and are fully paid and non-assessable.
<PAGE>
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to a loss of a material benefit, under, any provision of
the Articles of incorporation, and any amendments thereto, By-Laws, Stockholders
Agreements and any amendments thereto of the Seller or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law ordinance, rule or
regulation applicable to the Seller, its properties or assets. There is no
action, suit or proceeding pending, or to the knowledge of the Seller,
threatened against the Seller, before any court or arbitrator or any government
body, agency or official, which would have a material adverse affect on Seller's
operations or financial condition.
(d) The Seller is not an investment company or a developmental stage
company that either has no specific business plan or purpose. The Shares when
issued, will be issued in compliance with all applicable U.S. federal and state
securities laws. The Seller understands and acknowledges that, in certain,
circumstances, the issuance of the Shares could dilute the ownership interests
of other stockholders of the Seller. The execution and delivery by the Seller of
this Agreement and the issuance of the Debentures will not contravene or
constitute a default under any provision of applicable law or regulation. The
Seller is in compliance with and conforms to all statutes, laws, ordinances,
rules, regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties.
(e) There is no fact known to the Seller that has not been publicly
disclosed by the Seller or disclosed in writing to the Buyer which could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or in the earnings, business affairs, properties or
assets of the Seller, or could reasonably be expected to materially and
adversely affect the ability of the Seller to perform its obligations pursuant
to this Agreement. The information furnished by the Seller to Buyer for purposes
of or in connection with this Agreement or any transaction contemplated hereby,
does not contain any untrue statement of material fact or omit to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
(f) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Seller
is required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the Debentures or Common Stock, or
the consummation of any other transaction contemplated hereby, except the filing
with the SEC of Form SB-1.
(g) There is no action, proceeding or investigation pending, or to the
Seller's knowledge, threatened, against the Seller which might result either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Seller. The Seller
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit proceeding or investigation by the Seller currently pending
or which the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock and the Seller is not under
investigation by the SEC or the National Association of Securities Dealers, and
there are no proceedings pending or threatened before either regulatory body.
(h) There are no other material outstanding debt or equity securities
presently convertible into Common Stock other than the Debentures.
(i) The Seller has not sold any securities within the 12 month period
prior to this Agreement in reliance on any exemption under Section 3(b) of the
1933 Act, Regulation D or its rules or in violation of Section 5(a) of the 1933
Act except for offerings of securities which do not aggregate more than
$500,000.
<PAGE>
(j) The issuance, sale and delivery of the Debentures have been duly
authorized by all required corporate action on the part of the Seller, and when
issued, sold and delivered in accordance with the terms hereof and thereof for
the consideration expressed herein and therein, will be duly and validly issued,
fully paid and non-assessable. The Common Stock issuable upon conversion of the
Debenture has been duly and validly reserved for issuance and upon issuance in
accordance with the terms of the Debentures, shall be duly and validly issued,
fully paid, and non-assessable. There are no pre-emptive rights of any
shareholder of Seller.
(k) This Agreement has been duly authorized, validly executed and
delivered on behalf of Seller and is a valid and binding agreement in accordance
with its terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors rights generally. The Seller
has all requisite right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. All corporate
action on the part of the Seller, its directors and shareholders necessary for
the authorization, execution, delivery and performance of this Agreement and the
Debentures has been taken. Upon their issuance to the Buyer and delivery to the
Escrow Agent,
as defined in and pursuant to the Escrow Agreement, the Debentures will be
validly issued and nonassessable, and will be free of any liens or encumbrances.
(l) Setter acknowledges and agrees that the transactions contemplated
by this the Agreement have taken place solely and exclusively within the State
of California.
4. TRANSFER AGENT INSTRUCTIONS.
(a) DEBENTURES. Upon the conversion of the Debentures, the Buyer or
holder shall give a notice of conversion to the Seller and the Seller shall
instruct its transfer agent to issue one or more Certificates representing that
number of shares of Common Stock into which the Debenture or Debentures are
convertible in accordance with the provisions regarding conversion set forth in
Exhibit A. The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect to each
Debenture. There shall be no need for the Purchaser to surrender the original
Debentures to the Seller until the Debentures have been paid by the Seller or
converted into Common Stock, as the case may be.
(b) COMMON STOCK TO BE ISSUED WITHOUT RESTRICTIVE LEGEND. Upon the
conversion of any Debenture, Seller shall instruct Seller's transfer agent to
issue Stock Certificates up to the total of the "Conversion Amount" (as defined
in the Debenture) and any "Interest Shares" (as defined in the Debenture)
without restrictive legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. The Common Stock
shall be immediately freely transferable on the books and records of Seller.
Seller shall also instruct its attorney to issue and render any legal opinion
which is required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a restrictive
legend as required by this Agreement.
5. DELIVERY INSTRUCTIONS.
The Debentures being purchased hereunder, and the Purchase Price, shall be
delivered to the Escrow Agent pursuant to the Escrow Agreement.
6. CONDITIONS TO SELLER'S OBLIGATION TO SELL.
Seller's obligation to sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as executed
by Buyer.
<PAGE>
(b) All of the representations and warranties of the Buyer contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date. The Buyer shall have
performed or complied with all agreements and satisfied all conditions on its
part to be performed, complied with or satisfied at or prior to the Closing
Date.
(c) No order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Act shall have
been issued, and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Seller, be contemplated. No stop
order suspending the sale of the Debentures or Common Stock shall have been
issued, and no proceedings for that purpose shall have been commenced or shall
be pending or, to the knowledge of the Seller, be contemplated.
7. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE.
Buyers obligation to purchase the Debentures is conditioned upon:
(a) The confirmation of receipt and acceptance by Seller of this
Agreement as evidenced by execution of this Agreement of the duly authorized
officer of Seller.
(b) Delivery of the Debentures and the Escrow Agreement to the Escrow
Agent.
8. NO SHAREHOLDER APPROVAL AND NO DILUTION.
(a) Seller hereby agrees that from the Closing Date until the issuance
of Common Stock upon the conversion of the Debentures, Seller will not take any
action which would require Seller to seek shareholder approval of such issuance
unless such shareholder approval is required by law or regulatory body
(including but not limited to the NASDAQ Stock Market, Inc.) as a result of the
issuance of the Debentures or Common Stock hereunder.
(b) Provided the Debentures, or any Seller Debentures from a series
which predate the Debentures remain outstanding and unpaid, at if there is any
portion of any such Debentures which have not been converted into the Seller's
Common Stock, then the Seller shall not split nor reverse split the Common
Stock, nor consolidate the outstanding number of shares of Common Stock into a
small number of shares, nor otherwise take any action, directly or indirectly,
which would have a material adverse effect on the value of the Debentures or the
trading price of the Common Stock.
9. MISCELLANEOUS.
(a) This Agreement together with the Debentures and Escrow Agreement,
constitutes the entire agreement between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the restrictive successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor and is not the agent of Seller.
Buyer is not authorized to bind Seller or to make any representation
orwarranties on behalf of Seller.
(c) All representations and warranties contained in this Agreement by
Seller and Buyer shall survive the closing of the transactions contemplated by
this Agreement.
<PAGE>
(d) This Agreement shall be construed in accordance with the laws of
California applicable to contacts made and whol1y to be performed within the
State of California and shall be binding upon the successors and assigns of each
party hereto. Buyer and Seller hereby mutually waive trial by jury and consent
to exclusive jurisdiction and venue in the courts of the State of California.
City of San Francisco. This Agreement may be executed in counterparts, and the
facsimile transmission of an executed counterpart to this Agreement shall be
effective as an original.
(e) Seller agrees to indemnify and hold Buyer harmless from any and all
claims, damages and liabilities arising from Seller's breach of its
representations and/or covenants set forth herein.
(f) Buyer agrees to indemnify and hold Seller harmless from any and all
claims, damages and liabilities arising from Buyer's breach of its
representations and warranties set forth in this Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first set forth above.
Official Signatory of Seller:
By: ____________________________
Stanley Paulus
For: Paciffic Sands, Inc.
Its: President
Accepted this 1st day of August, 2000
Official Signatory of Buyer:
Signature: ____________________________
For: ________________________________
(Comapny Name if Applicable)
By:__________________________________
(Print Name of Signator)
Its: _________________________________
(Title if Applicable)
