<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For quarterly period ended February 29, 1996.
Commission File Number 0-22182
PATRIOT SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-1070278
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
12875 Brookprinter Place, Suite 300, Poway, California, 92064
(Address of principal executive offices)
(619) 679-4428
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 X NO
--- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<S> <C>
Common Stock, $.00001 par value 29,165,392
- ------------------------------- ----------
(Class) (Outstanding at March 12, 1996)
</TABLE>
1
<PAGE> 2
PATRIOT SCIENTIFIC CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of February 29, 1996 and
May 31, 1995 (unaudited) 3
Statements of Operations for the three and nine months ended
February 29, 1996 and February 28, 1995 and cumulative from
inception to February 29, 1996 (unaudited) 4
Statements of Cash Flows for the nine months ended February
29, 1996 and February 28, 1995 and cumulative from
inception to February 29, 1996 (unaudited) 5
Notes to Interim Financial Statements 6
Item 2. Plan of Operation 7
PART II. OTHER INFORMATION 8
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
</TABLE>
* No information provided due to inapplicability of the item.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
February 29, May 31,
1996 1995
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 830,289 $ 1,105,641
Inventories 148,426 --
Prepaid expenses and other 18,281 62,500
----------- -----------
996,996 1,168,141
Property and Equipment - net 282,078 213,535
Purchased Technology - net 765,417 1,224,667
Other Assets 38,932 44,843
----------- -----------
Total Assets $ 2,083,423 $ 2,651,186
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 142,978 $ 56,369
Stockholders' Equity
Common stock $.00001 par value; authorized
40,000,000 shares; 29,165,392 and 27,762,226
shares issued and outstanding respectively 292 278
Additional paid-in capital 9,099,376 8,019,340
(Deficit) accumulated during the
development stage (7,159,223) (5,424,801)
----------- -----------
1,940,445 2,594,817
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,083,423 $ 2,651,186
=========== ===========
</TABLE>
See notes to interim financial statements.
3
<PAGE> 4
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Three Months Ended Nine Months Ended (June 10, 1987)
Feb 29, Feb 28, Feb 29, Feb 28, to February 29,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues
Interest $ 7,854 $ 23,722 $ 25,593 $ 67,432 $ 190,174
Expenses
Research and development 258,995 230,394 725,596 719,598 2,817,551
Sales and marketing 28,079 20,822 83,539 52,562 286,168
General and administrative 288,334 77,068 491,630 285,539 3,174,095
Amortization of technology 153,083 153,084 459,250 459,250 1,071,583
----------- ----------- ----------- ----------- -----------
728,491 481,368 1,760,015 1,516,949 7,349,397
----------- ----------- ----------- ----------- -----------
Net loss $ (720,637) $ (457,646) $(1,734,422) $(1,449,517) $(7,159,223)
=========== =========== =========== =========== ===========
Loss per share $(0.03) $(0.02) $(0.08) $(0.06)
====== ====== ====== ======
Weighted average number of
common shares outstanding
during the period (Note 5) 23,462,501 22,762,226 23,014,507 22,762,226
=========== =========== =========== ===========
</TABLE>
See notes to interim financial statements.
4
<PAGE> 5
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception
Nine Months Ended (June 10, 1987)
Feb 29, Feb 28, to February 29,
1996 1995 1996
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) $(1,734,422) $(1,449,517) $(7,159,223)
Adjustments to reconcile net (loss)
to cash used in operating activities:
Amortization and depreciation 567,446 517,393 1,316,102
Common stock issued for services 224,750 -- 253,680
Stock compensation cost -- -- 1,875,000
Loss on sale of equipment 841 -- 841
Change in inventories (148,426) -- (148,426)
Changes in prepaids and other 44,219 2,075 (18,198)
Changes in accounts payable
and accrued liabilities 86,609 25,673 142,978
----------- ----------- -----------
Net cash used in operating
activities (958,983) (904,376) (3,737,246)
----------- ----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment (166,769) (55,983) (476,771)
Organization costs paid -- -- (1,939)
Proceeds on disposal of equipment 400 -- 400
Patent costs paid -- -- (44,843)
----------- ----------- -----------
Net cash used in investing activities (166,369) (55,983) (523,153)
----------- ----------- -----------
Cash Flows provided by Financing Activities
Proceeds from issuance of common stock
and exercise of warrants 850,000 -- 5,090,688
------------ ------------ -----------
Net Increase (Decrease) in Cash (275,352) (960,359) 830,289
Cash and cash equivalents at
beginning of period 1,105,641 2,433,034 --
------------ ------------ -----------
Cash and cash equivalents at
end of period $ 830,289 $ 1,472,675 $ 830,289
=========== =========== ===========
</TABLE>
See notes to interim financial statements.
5
<PAGE> 6
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS
Patriot Scientific Corporation (the "Company"), is a development stage company
engaged in the development of semiconductor microprocessor technology ("ShBoom
Technology"), Integrated Services Digital Network ("ISDN") interface technology
(CyberShark digital modem) and radar and antenna technology ("GPR" technology).
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles. The interim financial statements and
notes thereto should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended May 31, 1995.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the three and nine month
periods are not necessarily indicative of the results that may be expected for
the year.
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Inventories consisted of raw materials at
February 29, 1996.
4. PURCHASED TECHNOLOGY
Purchased technology at a cost of $1,837,000 relating to the Company's ShBoom
Technology is being amortized over its estimated useful life of three years.
Amortization expense of $459,250 was recorded related to this technology for the
nine months ended February 29, 1996.
5. STOCKHOLDERS' EQUITY
The following table summarizes equity transactions during the nine months ended
February 29, 1996:
<TABLE>
<CAPTION>
Common
Shares Dollars
<S> <C> <C>
Balance June 1, 1995 27,762,226 $8,019,618
Common stock issued for services @ $.30 per share 75,000 22,500
Sale of units for cash @ $.50 per unit 700,000 350,000
Common stock issued for services @ $.59 per share 25,000 14,750
Common stock issued for services @ $1.25 per share 150,000 187,500
Exercise of warrants @ $.50 per share 200,000 100,000
Sale of units for cash @ $1.58 per unit 253,166 400,000
Warrants issued for manufacturing line of credit -- 5,300
---------- ----------
Balance February 29, 1996 29,165,392 $9,099,668
========== ==========
</TABLE>
A total of 5,000,000 shares of the Company's outstanding common stock was issued
as a contingent cost of the Company's acquisition of its ShBoom Technology and
such shares are subject to an escrow arrangement. The shares are releasable from
escrow at the rate of 500,000 shares for each $500,000 of revenues earned by the
Company and upon the occurrence of certain defined major corporate events. The
shares are issued and outstanding and carry all shareholder rights. Any of the
escrowed shares not released prior to May 31, 1999 are to be returned to the
Company and canceled. These shares are excluded from the calculation of weighted
average number of common shares outstanding for the computation of (loss) per
share until the release conditions are met.
At February 29, 1996 the Company had 600,000 options outstanding pursuant to its
1992 ISO Stock Option Plan exercisable at prices ranging from $0.50 to $0.875
per share expiring beginning 1997 through 2001. The Company also had 725,000
options outstanding pursuant to its 1992 NSO Stock Option Plan exercisable at
prices ranging from $0.30 to $0.875 per share expiring beginning 1997 through
2002.
6
<PAGE> 7
PATRIOT SCIENTIFIC CORPORATION
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
5. STOCKHOLDERS' EQUITY (Continued)
In connection with the sale of the units described above, the Company has a
non-transferable warrant outstanding for the purchase of 500,000 common shares
at $.50 per share expiring no later than July 10, 1996 and has warrants
outstanding exercisable into 253,166 common shares at $1.58 per share until
August 31, 1996. The Company also has warrants outstanding exercisable into
25,000 common shares at $1.58 per share until August 31, 1996 issued in
connection with a $250,000 manufacturing line of credit, such warrants valued at
$5,300 on issuance.
As of October 1, 1995 the Board of Directors adopted the 1995 Employee Stock
Compensation Plan providing for the issuance of up to 250,000 common shares to
Employees, as defined. Executive officers and directors are not eligible under
the Plan. Through February 29, 1996 the Company had issued 175,000 common shares
pursuant to the plan.
ITEM 2. PLAN OF OPERATION
During the fiscal year ended May 31, 1995 and the nine months ended February 29,
1996, the Company's operations consisted primarily of research and development
activities towards the development of the ShBoom microprocessor technology, the
CyberShark ISDN technology and the GPR prototype, administrative activities
related towards financing and administrative operations and marketing
expenditures incurred in initial phases of market exploration.
The Company expended a total of $725,596 as research and development costs
during the nine months ended February 29, 1996 primarily consisting of personnel
and consultancy costs. This is comparable to the $719,598 incurred for the nine
months ended February 28, 1995. General and administrative costs were $491,630
during the nine months ended February 29, 1996 compared to $285,539 for the
comparable period of the prior year. The $206,091 increase consisted primarily
of a $205,000 increase in consultancy costs with $187,500 paid in the third
quarter through the issuance of 150,000 common shares pursuant to the Company's
Employee Stock Compensation Plan. The Company expects general and administrative
costs to return to prior levels in future quarters. The Company incurred $83,539
of marketing expenditures during the nine months ended February 29, 1996
compared to $52,562 for the comparable period of the prior year. The increase
resulted primarily from compensation expenses associated with initial marketing
activities on the Company's ShBoom technology and the CyberShark ISDN product.
The Company expensed $459,250 as amortization expense on purchased technology
for the nine months ended February 29, 1996 and 1995.
During the nine months ended February 29, 1996 the Company used cash of $958,983
in operating activities and $166,369 in investing activities for the purchase of
equipment and software. The Company's emphasis on research and development
activities related to developing its technologies is expected to continue during
the next twelve months.
PLAN OF OPERATION FOR NEXT TWELVE MONTHS
Since late 1989, the Company has been engaged in developing its technologies.
The Company has not generated any operating revenues to date and there can be no
assurance of future operating revenues. The Company's plan of operation for the
next twelve months is to introduce ISDN products, introduce to market the
second-generation of the ShBoom-architecture microprocessor, design future
generations of the ShBoom and ISDN technologies and exploit the radar and
antenna technology. There can be no assurance the Company will be successful in
exploiting its technologies.
At February 29, 1996, the Company had working capital of $854,018 compared to
working capital of $1,111,772 at May 31, 1995. Cash on hand at February 29, 1996
was $830,289. Other than its obligation pursuant to the remaining term on a
three year lease obligation aggregating $28,000 and an obligation for $50,000
upon a GPR prototype demonstration meeting specific criteria, the Company has no
material commitments for capital or other expenditures. The Company has no other
material sources of liquidity at this time. Based on the current fiscal year's
rate of cash operating expenditures and current plans, management anticipates a
base level of cash operating expenditures aggregating approximately $1,200,000
during the next twelve months. However, the Company believes it will incur
additional minimal expenditures of approximately $50,000 on the ShBoom
technology and $50,000 on the ISDN technology. Should revenues commence, the
Company may require additional personnel and expenditures not currently
estimable by management.
In addition to the part-time services of two executive officers, the Company
presently has five full-time and one part-time research and development
employees and one full-time and one part-time administrative person. Subject to
availability of resources, management would like to hire one marketing executive
and one software engineer. Other than attempting to fill these slots, management
has no current plans to hire additional personnel during the next twelve months
except in response to specific new development opportunities or funding, or as
required to support contract or
7
<PAGE> 8
commercialization activities, if any. The Company has in the past and may also
in the future engage outside consultants for specific development or marketing
tasks. If any of the current technologies prove successful, then during the next
twelve months the Company may require additional development, marketing and
manufacturing personnel, the number dependent upon a variety of factors not
presently determinable by management.
The Company anticipates that it may require additional equipment, fabrication,
components and supplies during the next twelve months, not included in the
commitments outlined above, to continue development for the Company's
technologies. Product introductions such as those contemplated for ISDN products
and the ShBoom microprocessor may require significant inventory and other
expenditures not presently estimable by management. Further, if expanded
development is commenced or new generations of microprocessors or radar are
accelerated beyond current plans, additional expenditures, not currently
estimatable by management, may be required.
It is possible therefore, that higher levels of expenditures may be required
than currently contemplated by management resulting from changes in development
plans or as required to support new developments or commercialization activities
or otherwise.
Based on the above factors including the current rate of expenditures and
anticipated additional expenditures, the Company does not have sufficient funds
for the next twelve months and will require funds from the sale of products or
technology or from other sources or will be required to scale back or curtail
activities. The minimum additional funding required for the next twelve months
is estimated at approximately $500,000. Potential sources of future funds may
include the sale of additional Company equity securities, some form of debt
financing or the sale or licensing of certain of the Company's technologies.
Should the warrants outstanding expiring in July and August 1996 be exercised in
full the Company would realize $689,500 of gross proceeds. There can be no
assurance that any funds required during the next twelve months or thereafter
can be generated from operations or that such required funds will be available
from the aforementioned or other potential sources. The lack of additional
capital could force the Company to scale back or curtail operations and would
therefore have an adverse effect on the Company's business. Further there can be
no assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significantly dilutive effect on
existing shareholders of the Company.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.2 Form of Stock Purchase Warrant (Labway Corporation) dated
February 29, 1996, exercisable to purchase 253,166 common
shares at $1.58 per share until August 31, 1996, granted to
investors in connection with an offering of securities made in
reliance upon Regulation S
10.4.1 Letter Amendment to Stock Purchase Agreement dated February
21, 1996, between the Company and SEA, Ltd.
10.6 Letter Stock and Warrant Agreement dated January 10, 1996
between the Company and Robert E. Crawford, Jr.
10.7 Non-Exclusive Manufacturing and Line of Credit agreement dated
February 28, 1996 between the Company and Labway Corporation
10.8 Distribution and Representation Agreement dated February 28,
1996 between the Company and Innoware, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K - On December 11, 1995, the Company filed a report on
Form 8-K reporting an Item 5 event related to a $250,000 unit offering and the
appointment of a new director.
8
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PATRIOT SCIENTIFIC CORPORATION
Date: March 15, 1996 By: ROBERT PUTNAM
-------------
Robert Putnam, Secretary
Treasurer and Director
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
9
<PAGE> 1
FORM 10-QSB
PATRIOT SCIENTIFIC CORPORATION
EXHIBIT 4.2
FORM OF STOCK PURCHASE WARRANT (LABWAY CORPORATION)
10
<PAGE> 2
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY
"U.S. PERSON" (AS DEFINED IN "REGULATION S" UNDER THE ACT) OR BY ANY PERSON IN
THE UNITED STATES OF AMERICA, UNLESS THIS WARRANT IS FIRST REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE 126,583 SHARES OF COMMON STOCK
THIS CERTIFIES THAT LABWAY CORPORATION ("Holder") is entitled to purchase, on or
before August 31, 1996 one hundred twenty six thousand five hundred eighty three
(126,583) shares of the common stock ("Common Stock") of PATRIOT SCIENTIFIC
CORPORATION (the "Corporation" or "Company") upon exercise of this Warrant along
with presentation of the full purchase price. The purchase price of the common
stock upon exercise of this Warrant ("Warrant Shares") is equal to the One
Dollar Fifty Eight Cents ($1.58) per share (the "Exercise Price").
This Warrant is granted to Holder for valuable consideration received.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part on any
business day on or before the expiration date listed above by presentation and
surrender hereof to the Company at its principal office of an exercise request
and the Exercise Price in lawful money of the United States of America in the
form of a wire transfer or check, subject to collection, for the number of
Warrant Shares specified in the exercise request. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt
by the Company of this Warrant and an exercise request and representations,
together with proper payment of the Exercise Price, at such office, the Holder
shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
actually delivered to the Holder. The Company shall pay any and all transfer
agent fees, documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant. The Exercise Price and the number of Shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
the Exercise Price in effect at the time of the record date of such dividend,
subdivision, combination, or reclassification shall be proportionately adjusted
so that Holder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised prior to such event, Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplemental Warrant") which will make
lawful and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
11
<PAGE> 3
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive reorganizations, reclassifications, and changes of
Common Stock and to successive consolidations, mergers, sales, or conveyances.
3. Representations
At the date of exercise, the Holder shall represent and warrant to the Company
in writing that:
(a) The Holder understands that the Warrant Shares shall be issued in reliance
upon specific exemptions from, or the non-application of, the registration and
other requirements of the U.S. federal and state securities laws, and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Holder set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Holder to acquire the Warrant Shares pursuant to such
exemptions. Without limiting the foregoing, the Holder understands that the
Warrant Shares have not been and will not be registered under the Securities Act
of 1993, as amended (the "Act"), in reliance upon Regulation S thereunder
(Regulation S") and cannot be offered or sold in the United States or to U. S.
Persons (as defined in Regulation S), or for the account or benefit of any U.S.
person, except upon the registration of the Securities under the Act or pursuant
to an available exemption from the registration requirements of the Act.
(b) The Holder is not a U.S. Person (as defined in Regulation S).
(c) None of the Holder, its affiliates or any person acting on behalf of the
Holder or any such affiliate has engaged, or will engage, in any "directed
selling efforts" (as defined in Regulation S) with respect to the Warrant
Shares.
(d) The exercise of the Warrant has not been pre arranged with a purchaser
located in the United States or who is a U. S. Person, and are not part of a
plan or scheme to evade the regulation requirements of the Act.
(e) The Holder has not entered, and does not presently intend to enter, into any
option, short position or similar transaction with the purpose of reducing the
Holder's market risk with respect to the exercise of the Warrant and the
ownership and holding of the Warrant Shares.
(f) The Holder understands that he shall be required to bear all personal
expenses incurred in connection with the exercise of this Warrant.
The Holder shall certify in writing at the date of exercise that each of the
foregoing representation and warranties set forth in this Section 3 are true as
of the date thereof. If in any respect such representations and warranties shall
not be true and accurate at the date the Holder exercises this Warrant, the
Holder shall give written notice of such fact to the Company specifying which
representations and warranties are not true and accurate and the reasons
therefor, whereupon the Company may place the applicable Rule 144 restrictive
legend on the common shares issued upon exercise of the Warrant. Likewise should
there be amendments or other changes in Regulation S prior to the date of
exercise, it is possible that the exercise and issue of the Warrant Shares may
no longer qualify for the exemption and accordingly the Company may be required
to issue the Warrant Shares with the applicable legend.
However, the Company shall issue a certificate which does not contain such
legend if (i) the shares represented by such certificate are sold pursuant to a
registration statement (including a current prospectus) which has become
effective under the Act, or (ii) the Company's counsel, or other counsel
acceptable to the Company, shall have rendered an opinion satisfactory to the
Company to the effect that such shares may be issued without legend because the
original sale was pursuant to Regulation S or otherwise the shares may be freely
sold and thereafter publicly traded without registration under the Act. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Act.
4. Legend
In addition to any specific restrictive legends that may be required by
applicable securities laws, the Holder agrees that a restrictive legend in
substantially the following form may be placed on the certificates representing
the Warrant Shares unless the provisions of Section 3 dictate otherwise:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), IN RELIANCE UPON REGULATION S THEREUNDER, AND CANNOT BE OFFERED
OR SOLD IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
ANY U.S. PERSON, EXCEPT PURSUANT TO REGULATION S OR ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
12
<PAGE> 4
The Holder understands and agrees that the Company may place, and may instruct
any transfer agent or depository for the Shares to place, a stop transfer
notation in the securities records in respect of the Shares.
5. Assignment or Loss of Warrant.
(a) The Holder of this Warrant, without obtaining the prior written consent of
the Company, shall not transfer or assign its interest in this Warrant, or any
of the Warrant Shares prior to exercise, in whole or in part to any transferee.
(b) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise or exchange of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise or exchange of this Warrant.
All such shares shall be duly authorized and, when issued upon the exercise or
exchange of the Warrant in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (other than as
provided in the Company's articles of incorporation and any restrictions on sale
set forth herein or pursuant to applicable federal and state securities laws)
and free and clear of all preemptive rights.
7. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the matter
shall be settled by arbitration in San Diego, California in accordance with the
Rules of the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in Oklahoma having jurisdiction thereof, and actions or
proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers effective on this 29th day of February 1996.
PATRIOT SCIENTIFIC CORPORATION
BY ELWOOD G. NORRIS
----------------
Its President
BY ROBERT PUTNAM
-------------
Its Secretary
13
<PAGE> 5
PATRIOT SCIENTIFIC CORPORATION
EXERCISE FORM
I or we hereby irrevocably elect to exercise the right of purchase represented
by this Warrant Certificate to purchase ______________ Common Shares of the
Company, and hereby make payment of $_______________ (number of shares purchased
multiplied by $1.58) payable to the order of PATRIOT SCIENTIFIC CORPORATION in
payment of the Exercise Price for such Common Shares, and request that
certificates for the Common Shares shall be issued in the name of:
__________________________________________
__________________________________________
__________________________________________
(please print name and address)
and, if such number of Common Shares shall not be all of the shares purchasable
hereunder, that a new Warrant Agreement of like tenor for the balance of the
remaining Common Shares purchasable hereunder be delivered to the undersigned at
the address stated below.
CERTIFICATION: I/We hereby certify that I am/we are not a "U.S. Person" as
defined in Regulation S of the U.S. Securities and Exchange Commission and that
I am/we are not exercising this Warrant to purchase shares for or on behalf of
any U.S. Person. I/We understand that the term "U.S. Person" includes, among
other persons, an individual resident of the United States, any corporation,
partnership or other entity organized under United States law, any agency or
branch of a corporation, partnership or other entity organized under the laws of
a country other than the United States which is located in the United States,
any trust or estate of which any trustee, adminstrator or executor is a U.S.
Person, and any account held for the benefit of a U.S. Person.
IMPORTANT: Every registered owner of this Certificate must sign it to exercise
Warrants. The signature or signatures must correspond with the name or names
written on the face of this Warrant Agreement in every particular, without
alteration, enlargement or any change whatever, unless it has been assigned by
in accordance with the Warrant Agreement.
__________________________________
Signature of Warrant Holder
14
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
EXHIBIT 10.4.1
LETTER AMENDMENT TO STOCK PURCHASE AGREEMENT
15
<PAGE> 2
Letter Amendment to Stock Purchase Agreement
Dated January 31, 1996
SEA Ltd.
P.O. Box N-918
Nassau, Bahamas
This letter agreement documents our prior oral discussions regarding the
extension date on the non-transferable warrant included in the Stock Purchase
Agreement dated November 29, 1995. Whereas this warrant was to expire on
February 1, 1996, the Board of Directors voted to extend the warrant as outlined
herein at its meeting on January 30, 1996.
Item 5. of the Stock Purchase Agreement is hereby amended in its entirety to
read as follows "In connection with the above, you are hereby granted a
non-transferable Warrant to purchase an additional 500,000 shares at the same
price of $.50 per share until the earlier of 30 days after the notice of any
registration of the shares in Item 3, if and when effective, or July 10, 1996,
but in any event this warrant shall expire on July 10, 1996."
This amendment is executed by the parties as of the date above.
Patriot Scientific Corporation
ELWOOD G. NORRIS
- ----------------
Elwood G. Norris
President and CEO
SEA Ltd.
E. DAWSON ROBERTS
- -----------------
President
E. Dawson Roberts
February 1st, 1996
16
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
EXHIBIT 10.6
LETTER STOCK AND WARRANT AGREEMENT
17
<PAGE> 2
January 10, 1996
Robert E. Crawford
61 Crestwood Drive
St. Louis, Missouri 63105
Dear Mr. Crawford:
This letter confirms our recent conversation whereby you expressed a desire to
purchase 200,000_shares (the "Shares") of Patriot Scientific Corporation
("Patriot") Common Stock, par value $.00001 (the "Common Stock"), for the sum
of $100,000 USD (the "Funds") or $0.50 per share. Patriot is willing to sell
the Shares to you for the consideration and upon the terms hereof, subject to
receipt of Funds by Patriot by certified check or wire transfer on or before
January 10, 1996. Please contact me if you need wiring instructions.
Upon receipt of the Funds, Patriot shall immediately take all necessary
corporate action to cause the Shares to be issued to you in the name and at the
address you specify below.
In connection with the above, you are hereby granted a non-transferable Warrant
to purchase an additional 200,000 shares at the same price of $.50 per share
for a period of 60 days, or 30 days after the date of notice of any
registration, whichever is later, but in any event not later than six months
from this date.
You acknowledge that the Shares are being offered and sold without
qualification or registration under California Corporate Securities Law of 1968
or any other State securities act or the Securities Act of 1933, as amended, in
reliance upon an exemption from the qualification and registration requirements
for private placements. In furtherance thereof, you represent and warrant to
and agree with the Company as follows:
(a) You satisfy the requirements of Section 501(a)(5) of Regulation D (i.e., a
natural person whose individual net worth, or joint net worth with that of
your spouse, at the time of purchase exceeds $1,000,000) and are therefore
an "accredited investor" as such term is defined in Regulation D of the
Securities Act of 1933.
(b) You have received and reviewed the Patriot Annual Report on Form 10-KSB for
the fiscal year ended May 31, 1995, the Quarterly Reports on Form 10-QSB
for the fiscal quarters ended August 31, 1995 and November 30, 1995 and all
other documents and information requested by you.
(c) You acknowledge that you have been provided or have had free and full
access to inspect all of the premises, properties, assets, books,
contracts, commitments, securities filings and other documents relating to
the business of Patriot. You acknowledge that you are satisfied that you
have obtained sufficient information to evaluate the merits and risks of an
investment in Patriot and you understand the business in which Patriot is
engaged.
(d) You have had the opportunity to meet with representatives of Patriot and to
have them answer any questions and provide additional information regarding
the finances, operations, business and prospects of Patriot deemed relevant
by you and all such questions have been answered and requested information
provided to your satisfaction.
(e) You have such knowledge and experience in financial and business matters so
as to enable you to evaluate the merits and risks of an investment in the
Shares and to make an informed investment decision with respect thereto.
(f) You are aware that an investment in the Shares is highly speculative and
involves a high degree of risk.
(g) You have the financial ability to bear the loss of your entire investment
in the Shares.
(h) You are acquiring the Shares solely for your own account for investment and
not with a view to resale or distribution.
(i) You understand that the Shares being purchased are characterized as
"restricted securities" under the federal securities laws because they are
being acquired from Patriot 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 Act only in certain
limited circumstances. In this connection, you represent that you are
familiar with SEC Rule 144, as presently in effect, and understand the
resale limitations imposed thereby and by the 1933 Act.
(j) You understand that the certificates evidencing the Shares will bear a and
may not be sold, offered for sale, pledged or hypothecated in the absence
of a registration statement in effect with respect to the securities.
Patriot agrees however to register the shares (including those underlying
the Warrant) in any current or future registration statement filed by
Patriot (other than registration statements filed in connection with
employee benefit plans or mergers). We also agree to use our reasonable
best efforts to effect a registration of the shares, subject to the
limitations and restrictions generally associated with demand registration
rights. However, there can be no assurance of future registration and you
may be required to hold the Shares under rule 144.
You and Patriot warrant that no broker, finder or other person is entitled to
receive from Patriot or you any commission, finder's fee or other similar
compensation in connection with this transaction and each party agrees to
defend, indemnify and hold harmless the other party against any loss liability,
damage, cost, claim or expense incurred by
18
<PAGE> 3
reason of any brokerage commission or finder's fee alleged to be payable
because of any act, omission or statement of the indemnifying party.
Each party shall pay its own costs and expenses incurred or to be incurred in
closing and carrying out this transaction. The terms of this investment and
agreement shall be construed, performed and enforced in accordance with the
laws of the State of California.
The terms of this letter requires the signature by you below and delivery of
the Funds to Patriot on or before January 10, 1996. If Patriot does not
receive the Funds and a copy of this letter signed by you by January 10, 1996,
the foregoing offer by Patriot to sell the Shares shall terminate.
Sincerely,
ELWOOD G. NORRIS
----------------
Elwood G. Norris
CEO & President
Acknowledged and Agreed:
ROBERT E. CRAWFORD, JR.
Signature
ROBERT E. CRAWFORD, JR.
- -----------------------
Printed Name
61 Crestwood Rive, St. Louis, Missouri 63105
- --------------------------------------------
Address
19
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
EXHIBIT 10.7
NON-EXCLUSIVE MANUFACTURING AND LINE OF CREDIT AGREEMENT
20
<PAGE> 2
NON-EXCLUSIVE MANUFACTURING AGREEMENT AND LINE OF CREDIT
This Manufacturing Agreement is entered into as of the 28th day of February,
1996 by and between:
(a) Labway Corporation ("Labway"), a legal entity organized and
existing under the laws of the Taiwan, whose principal office is at
10F-2, 508, SEC5, Chung Hsiao E. Rd., Taipei, Taiwan, R.O.C.
(b) Patriot Scientific Corporation ("Patriot") a company incorporated
in the State of Delaware, United States of America having its
principal office at 12875 Brookprinter Place, #300, Poway, California
92064.
1. General Provision. Labway and Patriot ("Parties") agree to enter into this
agreement through friendly negotiations under the condition of equality and
mutual benefit.
2. Purpose and Products of Contract. The purpose of the Parties in entering
into this Agreement is to utilize Labway's design, engineering and
manufacturing expertise to strengthen Patriot's ISDN terminal technology and to
produce ISDN terminal type products for marketing and distribution. This
agreement relates to Patriot's proprietary CyberShark line of products and
initially to the CyberShark I product.
3. Capability. Labway has indicated that it has the capacity to produce up to
20,000 CyberShark I products per month.
4. Scope of Production.
A. Initial Phase. The initial phase shall include the Parties
finalizing the design and specifications of CyberShark I and preparing for
initial production. Labway has agreed to provide technical and engineering
assistance to Patriot during this phase. Compensation, if any, to be paid to
Labway shall be separately negotiated and agreed to in writing prior to the
incurrence of any obligation by Patriot.
B. Subsequent Phase. This phase shall include volume production of
CyberShark I product to order or in anticipation of orders and further
cooperation among the parties on the development of future CyberShark or ISDN
related devices.
5. Responsibilities of Each Party. Labway and Patriot shall be responsible for
fulfilling their respective duties as follows:
A. The responsibilities of Labway shall be:
(1) to produce CyberShark products strictly according to the
drawings, specifications, technological processes and operating procedures set
by Patriot.
(2) to pay for the salary and costs incurred by any of
Labway's engineers or other personnel who work on the project or consult with
Patriot or travel to Patriot, unless other arrangements are made in writing.
(3) assist Patriot in processing any applicable customs
declarations for the products shipped to Patriot or its customers worldwide.
(4) to carry out facility and production facilities design and
setup.
(5) to comply with relevant environmental standards and
regulations.
(6) to assist Patriot personnel in applying for entry visas,
work licenses and to make travel and lodging arrangements acceptable to such
foreign personnel in connection with any visits to inspect production
facilities or for other purposes, the cost of such travel to be paid by Patriot
unless otherwise agreed.
(7) to fulfill its obligations under this Agreement.
B. The responsibilites of Patriot shall be:
21
<PAGE> 3
(1) prior to the first purchase order from Patriot to Labway,
Patriot shall provide Labway with the know-how relating to the ISDN terminal
technology and proprietary parts list and assembly technology required in order
to enable Labway to manufacture the CyberShark line should Patriot.
(2) to provide Labway any proprietary components that Patriot
elects to provide, at no charge (to be considered in any manufacturing quotes)
or at such costs as agreed by the Parties.
(3) to pay for the salary and costs incurred to send engineers
and technicians as it deems necessary to Labway's facilities to demonstrate the
know-how and to assist in setting up production and quality control.
(4) to fulfill its obligations under this Agreement.
6. Quality Control.
Patriot shall provide Labway, in writing, the CyberShark specifications,
performance requirements and further functional quality specifications.
Further, Patriot will fully explain cosmetic quality specifications and will
provide certification in writing when the first shipment, if any, of CyberShark
product meets this specification. Future shipments shall conform to this same
cosmetic specification or as amended from time to time by Patriot.
Patriot shall return to Labway any products shipped to Patriot or Patriot
customers that do not meet the specifications and requirements. Labway shall
credit Patriot within 30 days for the purchase price of all such returned
product, unless otherwise agreed in writing. Patriot shall inform Labway of any
quality problems within 100 days of receipt of shipment, unless otherwise
agreed in writing.
Labway agrees to allow Patriot personnel or its representatives to have access
to Labway's manufacturing facilities during normal operating hours in order to
carry out periodic inspections of the quality of the products manufactured by
Labway.
Labway agrees to undertake to correct expeditiously any and all deficiencies in
the quality of the CyberShark products it manufactures brought to its attention
by Patriot or its agents. Failure by Labway to undertake to correct
deficiencies in quality, in addition to other remedies, shall be a breach of
this Agreement and a cause for Patriot to terminate this Agreement and any
outstanding purchase orders.
7. Labeling and Packaging.
Should Patriot request Labway to package and or label product or provide
instruction and other insert materials, then Patriot shall provide film
negatives for printing unless other arrangements are agreed in writing.
8. Billings.
Labway shall invoice Patriot at time of shipment. Pricing shall be agreed from
time to time on terms and specifications as agreed between the Parties. Labway
shall invoice direct outside costs incurred for shipment of products to Patriot
or its customers. Shipment shall be made according to Patriot's instructions.
All payments shall be made in United States dollars to a U.S. location
designated by Labway in writing.
Labway has agreed that although this manufacturing agreement is non-exclusive
that it will endeavor to be price, quality and time competitive with other
comparable manufacturers.
9. Payment Terms and Line of Credit.
Unless otherwise provided herein payment by Patriot to Labway shall be due at
time of shipment. However, commencing for an initial term of six months
beginning May 1, 1996, Labway shall provide payment terms of 60 days from date
of shipment on up to $250,000 of billings. Any invoices for shipments in excess
of $250,000, unless otherwise agreed, shall be due on shipment. This delayed
billing, or line of credit, shall be without interest and expire for any
shipments after October 31, 1996.
22
<PAGE> 4
Labway has indicated that given appropriate credit review, including a review
of Patriot's customers credit standing, that it may in its sole discretion
extend amounts in excess of $250,000 and may also renew these delayed payment
terms for additional six month periods. Patriot has granted Labway a one time
warrant to purchase 25,000 common shares (Exhibit A) as consideration for this
credit facility. Extensions will be based on credit review without further
payment by Patriot unless otherwise agreed in writing.
10. Initial Costs.
Each of the Parties shall bear initial startup costs of this Agreement and of
initial manufacturing unless otherwise agreed. Tools, designs, layouts,
programs, processes or other information, if any, shall be the property of
Patriot, irrespective of payment, unless otherwise agreed.
11. Term.
Unless earlier terminated, the term of this agreement shall be for two years
and may be extended by the mutual agreement of the Parties.
12. Orders and Termination.
Due to the non-exclusive nature of this Agreement, Patriot shall not be
required to place any orders or continue to place orders with Labway. However,
Patriot shall endeavor to keep Labway informed as to its future requirements
and anticipated orders in order for Labway to manage its production facility.
Labway agrees to provide capacity for up to 20,000 CyberShark style board
products provided that an initial order is placed no later than July 31, 1996
and monthly quantities approach 5,000 per month by December 1996. Otherwise the
Parties shall address capacity requirements at that time based on order flow,
if any.
In order to provide Patriot with some assurance of production continuity,
Labway agrees to be competitive as provided in Item 8 above, and will accept
orders from Patriot within the quantity guidelines provided herein.
Either Party may terminate this Agreement if the other Party shall fail to
perform reasonably any material covenant, agreement, term, or provision of this
Agreement and such failure shall continue for a period of thirty days or more
after written notice thereof is given to the other Party.
Termination shall not relieve Labway of the confidentiality obligation provided
in Item 13 hereof. Upon termination, Labway shall return to Patriot all
Confidential Information. Patriot shall have the option of purchasing at the
lower of cost or fair market value all component parts and accessories for
CyberShark products then in possession of Labway.
13. Confidentiality.
Labway agrees that it and its employees and agents shall not disclose any
proprietary or confidential information relating to CyberShark product
technology, proprietary assembly technology, design methods, parts lists, or to
Patriot's financial, marketing, manufacturing, organizational, technical, and
other information (the "Confidential Information") without the prior written
consent of Patriot during the term of this Agreement or for three years after
termination or expiration.
Labway shall take all reasonable precautions, including the conclusion of
confidentiality agreements with its employees, to prevent its employees from
using Confidential Information for their personal benefit and to prevent any
unauthorized disclosure of such Confidential Information to any third party.
Labway agrees that the manufacture of CyberShark products for Patriot and its
designated customers shall be on an exclusive basis (Labway to Patriot) and
that Labway will not manufacture or sell the CyberShark or any other ISDN
terminal adaptor type, style or similar product for any purpose other than to
fulfill its obligations under this Agreement for the term of this Agreement
plus twelve months thereafter. If Labway violates this paragraph, Labway shall
pay Patriot for all financial losses and legal expenses Patriot may incur as a
result of such violation, including any damage, loss, cost, lost profits, or
liability, including legal fees and the cost of enforcing this paragraph.
14. ShBoom Representation.
23
<PAGE> 5
Labway desires to represent Patriot in Taiwan with respect to its ShBoom
technology and desires to assist Patriot in obtaining cost- effective
fabrication of ShBoom-architecture microprocessors. The Parties agree to
further explore this possibility at a future date, however Patriot shall not be
bound or restricted in any way by this paragraph with respect to marketing,
licensing, fabricating or otherwise exploiting the ShBoom technology in Taiwan
or any other location, unless and until a definitive agreement for
representation, if any, is executed among the Parties.
15. Notices.
Notices shall be delivered in writing by messenger, airmail, or facsimile to
the addresses set forth below:
a. If to Labway, at:
Redy Yen
Labway Corporation
10F-2, 508, SEC5
Chung Hsiao E. Rd.
Taipei, Taiwan, R.O.C.
Phone 886-2-7269485
Fax 886-2-3460612
with a copy to:
Shaw Lin, Ph.D.
Innoware, Inc.
3970 Sorrento Valley Blvd., Ste. E
San Diego, CA 92121
b. If to Patriot, at:
Patriot Scientific Corporation
12875 Brookprinter Place, Suite #300
Poway, California 92064
United States of America
Phone 1-619-679-4428
Fax 1-619-679-4429
The deemed date of delivery shall be date of delivery if by messenger, 10 days
after postmark if airmailed, and if by facsimile the first business day after
the date of transmission. If sent by facsimile a copy must be transmitted by
airmail or messenger. Each Party may change its notice address by written
notice, effective five days after delivery.
16. Applicable Law.
All questions concerning the formation, validity, interpretation, performance,
termination or breach of this Agreement shall be governed by and decided in
accordance with the related laws of State of California, USA and appropriate
customary and conventional international law.
17. Representations and Warranties.
Labway hereby represents and warrants the following:
A. That it possesses full legal power and authority and required
government approval to enter into this contract, to manufacture goods
for sale worldwide, to manufacture and sell the CyberShark products as
contemplated by the Agreement and to perform its obligations
hereunder.
B. That the signor has full authority to execute this agreement.
Patriot hereby represents and warrants the following:
A. That it possesses full legal power and authority to enter into this
Agreement and to perform its obligations hereunder.
B. That the signor has full authority to execute this agreement.
24
<PAGE> 6
C. That it owns the intellectual property rights with respect to the
CyberShark.
18. Settlement of Disputes.
In the event of any disagreement arising from the execution of, or in
connection with this Agreement, the Parties shall attempt in the first instance
to resolve any such disagreement through friendly consultations and in an
amicable manner.
Any claim, controversy or disputes arising from the execution of, or in
connection with, this Agreement shall be settled through friendly negotiations
and consultations among the Parties. In case no settelement can be reached
within 20 days fo the submission of such matter by one of the Parties, then
such dispute shall be submitted to ad hoc arbitration wherein each party
selects one arbitrator and these two arbitrators select a third arbitrator. Any
such arbitration shall be held in San Diego, California and conducted in the
English language and in accordance with the provisions of the Arbitration Rules
of the United Nations Commission on International Trade Law ("UNCITRAL") in
effect at the time of the arbitration. The arbitral award shall be final and
binding upon the Parties and shall be enforceable in accordance with its terms.
The costs of the arbitration and the enforcement of any resulting award or
decision, including a reasonable allowance for attorney's fees, shall be borne
by the losing Party or as otherwise specified in the ruling of the arbitration
tribunal. The Parties agree that the award is to be considered as a settlement
of the dispute between them and shall accept it as the true expression of their
own determination in connection therewith. During the arbitration, both Parties
shall continue to perform their obligations under this Agreement.
19. Partial Unenforceability.
In any portion of this Agreement is or becomes unenforceable for any reason,
the remaining portions shall remain in full force and effect, and the Parties
shall amend the Agreement as may be necessary to achieve its original intent.
20. Succession; Assignment.
This Agreement shall inure to the benefit of and be binding on the Parties and
their respective successors and assigns; provided, however, that neither Party
may assign its rights and obligations under this Agreement without the prior
written consent of the other Party.
21. Waiver.
Failure or delay on the part of a Party to exercise any right or privilege
under this Agreement shall not operate as a waiver of such right or privilege,
nor shall any partial exercise of any right or privilege preclude any future
exercise of such right or privilege.
22. Language.
This Agreement shall be written in English and interpreted in English only.
23. Integration.
This Agreement constitutes the complete and only agreement among the Parties on
the subject matter of this Agreement and replaces all previous oral or written
agreements, understandings, and communications of the Parties in respect of the
subject matter of this Agreement.
LABWAY CORPORATION PATRIOT SCIENTIFIC CORPORATION
BY REDY YEN BY ELWOOD G. NORRIS
-------- ----------------
TITLE CEO TITLE CEO AND PRESIDENT
--- -----------------
25
<PAGE> 7
EXHIBIT A
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY
"U.S. PERSON" (AS DEFINED IN "REGULATION S" UNDER THE ACT) OR BY ANY PERSON IN
THE UNITED STATES OF AMERICA, UNLESS THIS WARRANT IS FIRST REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE 25,000 SHARES OF COMMON STOCK
THIS CERTIFIES THAT LABWAY CORPORATION ("Holder") is entitled to purchase, on
or before August 31, 1996 twenty five thousand (25,000) shares of the common
stock ("Common Stock") of PATRIOT SCIENTIFIC CORPORATION (the "Corporation" or
"Company") upon exercise of this Warrant along with presentation of the full
purchase price. The purchase price of the common stock upon exercise of this
Warrant ("Warrant Shares") is equal to the One Dollar Fifty Eight Cents ($1.58)
per share (the "Exercise Price"). This Warrant is granted to Holder for
valuable consideration received.
1. Exercise of Warrant. This Warrant may be exercised in whole or in part on
any business day on or before the expiration date listed above by presentation
and surrender hereof to the Company at its principal office of an exercise
request and the Exercise Price in lawful money of the United States of America
in the form of a wire transfer or check, subject to collection, for the number
of Warrant Shares specified in the exercise request. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares purchasable hereunder. Upon
receipt by the Company of this Warrant and an exercise request and
representations, together with proper payment of the Exercise Price, at such
office, the Holder shall be deemed to be the holder of record of the Warrant
Shares, notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such Warrant Shares shall not then
be actually delivered to the Holder. The Company shall pay any and all transfer
agent fees, documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant. The Exercise Price and the number of Shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
the Exercise Price in effect at the time of the record date of such dividend,
subdivision, combination, or reclassification shall be proportionately adjusted
so that Holder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised prior to such event, Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise
of this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation
or merger of the Company with or into another entity (other than a
consolidation or merger with a subsidiary or a continuing corporation), or in
case of any sale or conveyance to another entity of all or substantially all of
the property of the Corporation, then, as a condition of such reorganization,
reclassification, change, consolidation, merger, sale, or conveyance, the
Corporation or such successor or purchasing entity, as the case may be, shall
forthwith provide to Holder a supplemental warrant (the "Supplemental Warrant")
which will make lawful and adequate provision whereby Holder shall have the
right thereafter to receive, upon exercise of such Supplemental
26
<PAGE> 8
Warrant, the kind and amount of shares and other securities and property which
would have been received upon such reorganization, reclassification, change,
consolidation, merger, sale, or conveyance by a holder of a number of shares of
Common Stock equal to the number of Shares issuable upon exercise of this
Warrant immediately prior to such reorganization, reclassification, change,
consolidation, merger, sale, or conveyance. Such Supplemental Warrant shall
include provisions for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this paragraph. The above
provisions of this paragraph shall similarly apply to successive
reorganizations, reclassifications, and changes of Common Stock and to
successive consolidations, mergers, sales, or conveyances.
3. Representations
At the date of exercise, the Holder shall represent and warrant to the Company
in writing that:
(a) The Holder understands that the Warrant Shares shall be issued in reliance
upon specific exemptions from, or the non- application of, the registration and
other requirements of the U.S. federal and state securities laws, and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Holder set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Holder to acquire the Warrant Shares pursuant to such
exemptions. Without limiting the foregoing, the Holder understands that the
Warrant Shares have not been and will not be registered under the Securities
Act of 1993, as amended (the "Act"), in reliance upon Regulation S thereunder
(Regulation S") and cannot be offered or sold in the United States or to U. S.
Persons (as defined in Regulation S), or for the account or benefit of any U.S.
person, except upon the registration of the Securities under the Act or
pursuant to an available exemption from the registration requirements of the
Act.
(b) The Holder is not a U.S. Person (as defined in Regulation S).
(c) None of the Holder, its affiliates or any person acting on behalf of the
Holder or any such affiliate has engaged, or will engage, in any "directed
selling efforts" (as defined in Regulation S) with respect to the Warrant
Shares.
(d) The exercise of the Warrant has not been pre arranged with a purchaser
located in the United States or who is a U. S. Person, and are not part of a
plan or scheme to evade the regulation requirements of the Act.
(e) The Holder has not entered, and does not presently intend to enter, into
any option, short position or similar transaction with the purpose of reducing
the Holder's market risk with respect to the exercise of the Warrant and the
ownership and holding of the Warrant Shares.
(f) The Holder understands that he shall be required to bear all personal
expenses incurred in connection with the exercise of this Warrant.
The Holder shall certify in writing at the date of exercise that each of the
foregoing representation and warranties set forth in this Section 3 are true as
of the date thereof. If in any respect such representations and warranties
shall not be true and accurate at the date the Holder exercises this Warrant,
the Holder shall give written notice of such fact to the Company specifying
which representations and warranties are not true and accurate and the reasons
therefor, whereupon the Company may place the applicable Rule 144 restrictive
legend on the common shares issued upon exercise of the Warrant. Likewise
should there be amendments or other changes in Regulation S prior to the date
of exercise, it is possible that the exercise and issue of the Warrant Shares
may no longer qualify for the exemption and accordingly the Company may be
required to issue the Warrant Shares with the applicable legend.
However, the Company shall issue a certificate which does not contain such
legend if (i) the shares represented by such certificate are sold pursuant to a
registration statement (including a current prospectus) which has become
effective under the Act, or (ii) the Company's counsel, or other counsel
acceptable to the Company, shall have rendered an opinion satisfactory to the
Company to the effect that such shares may be issued without legend because the
original sale was pursuant to Regulation S or otherwise the shares may be
freely sold and thereafter publicly traded without registration under the Act.
The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Act.
4. Legend
In addition to any specific restrictive legends that may be required by
applicable securities laws, the Holder agrees that a restrictive legend in
substantially the following form may be placed on the certificates representing
the Warrant Shares unless the provisions of Section 3 dictate otherwise:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), IN RELIANCE UPON REGULATION S THEREUNDER, AND CANNOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, ANY U.S.
27
<PAGE> 9
PERSON, EXCEPT PURSUANT TO REGULATION S OR ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
The Holder understands and agrees that the Company may place, and may instruct
any transfer agent or depository for the Shares to place, a stop transfer
notation in the securities records in respect of the Shares.
5. Assignment or Loss of Warrant.
(a) The Holder of this Warrant, without obtaining the prior written consent of
the Company, shall not transfer or assign its interest in this Warrant, or any
of the Warrant Shares prior to exercise, in whole or in part to any transferee.
(b) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise or exchange of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise or exchange of this Warrant.
All such shares shall be duly authorized and, when issued upon the exercise or
exchange of the Warrant in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (other than
as provided in the Company's articles of incorporation and any restrictions on
sale set forth herein or pursuant to applicable federal and state securities
laws) and free and clear of all preemptive rights.
7. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the
matter shall be settled by arbitration in San Diego, California in accordance
with the Rules of the American Arbitration Association and the award rendered
by such arbitrator(s) shall not be subject to appeal and may be entered in any
federal or state court located in Oklahoma having jurisdiction thereof, and
actions or proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers effective on this 29th day of February 1996.
PATRIOT SCIENTIFIC CORPORATION
BY ELWOOD G. NORRIS
----------------
Its President
BY ROBERT PUTNAM
-------------
Its Secretary
28
<PAGE> 10
PATRIOT SCIENTIFIC CORPORATION
EXERCISE FORM
I or we hereby irrevocably elect to exercise the right of purchase represented
by this Warrant Certificate to purchase ______________ Common Shares of the
Company, and hereby make payment of $_______________ (number of shares
purchased multiplied by $1.58) payable to the order of PATRIOT SCIENTIFIC
CORPORATION in payment of the Exercise Price for such Common Shares, and
request that certificates for the Common Shares shall be issued in the name of:
-------------------------------------------
-------------------------------------------
-------------------------------------------
(please print name and address)
and, if such number of Common Shares shall not be all of the shares purchasable
hereunder, that a new Warrant Agreement of like tenor for the balance of the
remaining Common Shares purchasable hereunder be delivered to the undersigned
at the address stated below.
CERTIFICATION: I/We hereby certify that I am/we are not a "U.S. Person" as
defined in Regulation S of the U.S. Securities and Exchange Commission and that
I am/we are not exercising this Warrant to purchase shares for or on behalf of
any U.S. Person. I/We understand that the term "U.S. Person" includes, among
other persons, an individual resident of the United States, any corporation,
partnership or other entity organized under United States law, any agency or
branch of a corporation, partnership or other entity organized under the laws
of a country other than the United States which is located in the United
States, any trust or estate of which any trustee, adminstrator or executor is a
U.S. Person, and any account held for the benefit of a U.S. Person.
IMPORTANT: Every registered owner of this Certificate must sign it to exercise
Warrants. The signature or signatures must correspond with the name or names
written on the face of this Warrant Agreement in every particular, without
alteration, enlargement or any change whatever, unless it has been assigned by
in accordance with the Warrant Agreement.
- ------------------------------------------------------------
Signature of Warrant Holder
29
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
EXHIBIT 10.8
DISTRIBUTION AND REPRESENTATION AGREEMENT
30
<PAGE> 2
DISTRIBUTION AND REPRESENTATION AGREEMENT
THIS NON-EXCLUSIVE DISTRIBUTION AGREEMENT ("Agreement") is made as of the 28th
day of February, 1996, by and between Patriot Scientific Corporation
("Patriot"), a Delaware corporation and Innoware, Inc. ("Distributor"), a
California corporation, with regard to the following facts:
RECITALS
A. Patriot is engaged in the business of developing, manufacturing and
distributing Internet connect devices, such as the CyberShark line of Internet
terminal adapters (digital modems) and related products.
B. Distributor is in the business of distributing multimedia products (sound
cards, video cards and communication cards for PCs) to first tier PC system
OEMs, PC peripheral distributors and computer retailers;
C. Patriot seeks to distribute its products to customers worldwide; and
D Patriot and Distributor desire for Distributor to become a non-exclusive
distributor of certain of its products to customers in the Territory.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
expressed in this Agreement, Distributor and Patriot agree as follows:
1. General Definitions. As used herein, the following terms have the indicated
meanings:
1.1 Confidential Information. "Confidential Information" shall mean any
information which is of a confidential and/or proprietary nature, including but
not limited to, financial, marketing or technical information such as price
guidelines, future product releases, trade secrets, know-how, inventions,
techniques, processes, programs, schematics, data, customer lists and sales and
marketing plans.
1.2 Distributor shall mean the party specified in the first paragraph of this
Agreement.
1.3 Products shall mean initially the CyberShark I, as described in Patriot's
materials and such future products as may be agreed by the parties from time to
time. Products may be changed, abandoned or added by Patriot at any time in
Patriot's sole discretion provided that proper advance notice is provided where
Patriot has any outstanding supply commitments. Patriot shall be under no
obligation to continue the production of any Product otherwise than provided
herein.
1.4 Purchase Price shall have the meaning as set forth in Section 2.8.3
("Payment Terms") of this Agreement.
1.5 Territory shall mean the geographical areas agreed to in writing between
the parties from time to time. Initially the Territory shall include North
America and Taiwan.
1.6 Patriot shall mean the party specified in the first paragraph of this
Agreement.
1.7 Patriot Trademarks shall have the meaning as set forth in Section 6
("Trademarks") of this Agreement.
1.8 Suggested Retail Price List is defined as the Suggested Retail Price List
for the Products as published from time to time by Patriot. The Suggested
Retail Price List is non-binding in terms of Product resale prices and
represents only a suggested price.
2. Appointment and Orders.
2.1 Appointment. Subject to Section 2.5 ("Initial Order and Minimum Quantity
Requirements"), Patriot hereby appoints Distributor to act on an non-exclusive
basis as Patriot's distributor for the Products in the Territory, and
Distributor hereby accepts such appointment. Distributor agrees that it shall
not, directly or indirectly, (i) purchase the Products from any party other
than Patriot; or (ii) offer to sell or sell the Products outside of the
Territory without the express prior written consent of Patriot.
2.2 Price. Patriot shall sell to Distributor, and Distributor shall purchase
from Patriot, the Products on terms and prices as Patriot shall provide to
Distributor in writing from time to time and shall be the latest price and
terms in effect at the time Patriot accepts Distributor's purchase order(s).
Patriot may at its sole discretion, change the prices and terms during the term
of this Agreement in writing which will be deemed effective at the time of
issuance to Distributor.
2.3 Taxes. Distributor's purchase price does not include any federal, state or
local taxes or import/export duties that may be applicable to the Products.
When Patriot has a legal obligation to collect such taxes, the appropriate
amount shall be
31
<PAGE> 3
added to Distributor's invoice and paid by Distributor unless Distributor
provides Patriot with a valid tax exemption certificate authorized by the
appropriate taxing authority.
2.4 Order and Acceptance. All orders for Products submitted by Distributor
shall be initiated by written purchase orders sent to Patriot during the term
of this Agreement. All Product orders must meet the minimum quantity
requirements specified by Patriot from time to time in writing. Distributor
shall submit purchase orders to Patriot with sufficient lead time to allow
production in the normal course. No order shall be binding upon Patriot until
accepted by Patriot in writing, and Patriot shall have no liability to
Distributor with respect to purchase orders that are not accepted. Patriot
shall use its reasonable best efforts to notify Distributor of acceptance or
rejection of an order within 30 days of receipt. Patriot shall use its
reasonable best efforts to deliver Products at the times specified either in
its quotation or in its written acceptance of Distributor's purchase orders,
however Patriot shall have no liability to Distributor for late deliveries.
2.5 Initial and Minimum Order Requirements. Within thirty (30) days after the
date of this Agreement, Distributor shall submit a written purchase order for
at least 900 units of Product. Distributor shall also comply with minimum
quantity and annual purchase requirements as may be mutually agreed by the
parties from time to time.
2.6 Terms of Purchase Orders Distributors purchase orders submitted to Patriot
form time to time shall be governed by the terms of this Agreement and nothing
therein shall modify such terms or add additional terms or conditions, except
to state Product quantity.
2.7 Order Delays. Distributor may delay delivery of any accepted order,
provided that the rescheduled delivery date occurs during the term of this
Agreement and provided further that Distributor shall pay a rescheduling fee
equal to ten percent (10%) of the Product order purchase price if Distributor's
change order is received by Patriot 20 days or later after order acceptance.
2.8 Other Conditions of Sale.
2.8.1 Purchase of Products Subject to Software License. The sale to Distributor
of any Product that contains software shall not include a sale of the software
or transfer of its title but shall instead include a fully paid up license for
Distributor to transfer the use of such software to its customers. Patriot
shall retain full title to any Product software and Distributor and its
customers may only use such software in conjunction with the Product. Neither
Distributor nor its customers shall have any access to or rights in any Product
software source code. Neither Distributor nor its customers shall have the
right to copy, modify, reverse engineer or remanufacture any Product or part
thereof.
2.8.2 Shipment Terms. All Products shall be shipped F.O.B. from Patriot's
facility in San Diego county, California from the departure location designated
by Patriot. Distributor may designate the carrier; provided, however that if no
carrier is specified in Distributor's purchase order, the carrier shall be
designated by Patriot. Patriot shall bear the risk of loss to Products at all
times until Patriot has delivered the Products to the carrier.
2.8.3 Payment Terms. Unless other terms are agreed in writing prior to order
acceptance, full payment of the purchase price for all Products shipped to
Distributor under a single order (including any freight, insurance, taxes or
other applicable costs to be born by Distributor) (the "Purchase Price") shall
be made by Distributor to Patriot at the time of shipment in U.S. dollars and
shall be in an amount equal to the total Purchase Price.
2.8.4 Reservation of Title. Transfer of title for each Product shipped to
Distributor shall be subject to full payment of the Purchase Price thereof.
Until such full payment, the Products shall remain the property of Patriot.
2.9 Resale Prices and Customer Obligations. Distributor shall be free to
determine in its sole discretion, its resale Product prices to customers in the
Territory. Distributor shall be responsible for collecting all applicable
sales, use, excise and other taxes due and owing from its customers as may be
required to comply with all laws and regulations applicable to the sale of the
Products in the Territory. All financial obligations of the Distributor's
business are Distributor's responsibility and Distributor shall be solely
responsible for and indemnify and hold Patriot free and harmless from, any and
all claims, damages or lawsuits (including Patriot attorney's fees) arising out
of the acts of Distributor, its employees or its agents.
3. Government Approvals. Distributor shall, at its own expense, pay all import
and export licenses and permits, customs charges and duty fees, and take all
other actions required to accomplish the export and import of the Products
purchased by Distributor into the Territory.
4. Patriot Warranties and Product Support.
4.1 Standard Limited Warranty. Distributor and its customers in North America
of new unopened Product shall receive Patriot's standard warranty as written
from time to time, unless otherwise agreed at the time of order. Patriot's
warrant is contingent upon proper use of a Product in the application for which
it was intended and does not cover Products that were modified without
Patriot's approval or subject to undue physical or electrical stress.
32
<PAGE> 4
4.2 Other Customer Warranties. Outside of North America, Distributor shall be
solely responsible for handling directly all warranty claims made by its
customers in any Territory. Patriot shall only be obligated to accept returned
product for warranty reasons, if returns is a provision of the North American
warranty, if such Product returns exceed 7.5% of shipments and the time of
return is adequately documented to be comparable to that provided in North
America, if any.
4.3 No Other Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION, PATRIOT
GRANTS NO OTHER WARRANTY TO DISTRIBUTOR, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO NONINFRINGEMENT OF THIRD PARTIES' PROPRIETARY RIGHTS AND THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
4.4 Product and Customer Support. Prior to agreeing on prices and terms, the
parties shall agree on plans and procedures for product and customer support to
end-users as is customary for Products. In no event shall Patriot be
responsible for product support functions for any customers outside North
America. Should Distributor provide product and customer support, then it shall
be performed in a manner customary in the industry and at Distributor's sole
expense. Should Partriot be responsible for supporting Distributor's customers,
then this shall be a factor in pricing and Patriot shall endeavor to perform
customer supportn functions in a manner customary in the industry.
5. Marketing and Promotional Materials.
5.1 Packaging and Promotional Materials. Patriot shall provide Distributor with
Product packaging and instruction manual(s) in the English language.
Distributor may at its expense translate into other languages for the
Territory.
5.2 Marketing. Distributor shall use its best efforts to promote and market the
Products in the Territory and further agrees that its marketing and advertising
efforts will be of high quality and in good taste and will preserve the
professional image and reputation of Patriot and the Products. Distributor
agrees to include in advertising applicable copyright and trademark notices of
Patriot as they appear on or in the Products.
6. Representation and Agency. There may be customers of Distributor whereby the
Distributor believes it may be in the interests of both Patriot and Distributor
that Distributor serve as an independent non-exclusive representative or sales
agent of Patriot in dealing directly with a customer. Likewise there may be
instances wherein Patriot desires to use Distributor's expertise in dealing on
an agency basis with certain prospective customers of Patriot. In this
capacity, Distributor shall solicit take orders in Patriot's name, with all
sales subject to the approval and acceptance of Patriot. Patriot shall bill and
be responsible for the terms of orders. On such transactions, Patriot agrees to
pay Distributor a commission percentage, as agreed between the parties from
time to time, on the net sales within 20 days of receipt of funds from
customers. Distributor shall not represent other products which Patriot deems
competitive to the Products.
7. Trademarks. Patriot hereby grants to Distributor a non-exclusive,
non-transferable limited right, to use the Patriot trademarks, in existence
from time to time in connection with promoting and distributing Products in the
Territory.
8. Proprietary Rights and Confidentiality.
8.1 Proprietary Rights. Distributor agrees that Patriot owns all right, title,
and interest in the product lines that include the Products, Patriot Trademarks
and Patriot patents, patent applications, inventions, copyrights, know-how, and
trade secrets relating to the design, manufacture, operation or service of the
Products. Any permitted use by Distributor of any of these property rights is
authorized only for the purpose set forth herein, and upon termination of this
Agreement for any reason such authorization shall cease.
8.2 Sale Conveys No Right to Manufacture or Copy. The Products are offered for
sale and are sold by Patriot subject in every case to the condition that such
sale does not convey any license, expressly or by implication, to manufacture,
duplicate or otherwise copy or reproduce any of the Products. Distributor shall
take appropriate steps with its customers, as Patriot may reasonably request,
to inform them of and assure compliance with the restrictions contained in this
Section 7.2.
8.3 Confidentiality. During the term of this Agreement, and for a period of two
(2) years after this Agreement expires or terminates, a party receiving
Confidential Information of the other party will: (i) maintain in confidence
such Confidential Information to the same extent such party maintains its own
proprietary information (but at a minimum each party will use reasonable
efforts); (ii) not disclose such Confidential Information to any third party
without prior written consent of the disclosing party; and (iii) not use .such
Confidential Information for any purpose except those permitted by this
Agreement. A party shall have no such obligation with respect to any portion of
such Confidential Information which the receiving party can demonstrate was:
8.3.1 publicly disclosed by the disclosing party, or is otherwise
publicly disclosed without the fault of the receiving party, either
before or after it becomes known to the receiving party; or
8.3.2 known to the receiving party prior to when it was received from
the disclosing party; or
33
<PAGE> 5
8.3.3 subsequently disclosed to the receiving party in good faith by a
third party who has a right to make such a disclosure; or
8.3.4 published by a third party as a matter of right; or
8.3.5 independently developed by the receiving party without the aid,
application or use of Confidential Information from the disclosing
party; or
8.3.6 required by law to be disclosed, but then only to the limited
extent of such legally required disclosure.
9. Term and Termination. The term of this Agreement shall be a period of two
years commencing on the date set forth in the first paragraph of this
Agreement. This Agreement shall automatically renew for successive one (1) year
terms unless either party provides the other party of notice of termination at
least sixty days prior to expiration of the then current term.
10. Limitation of Liability. PATRIOT SHALL NOT BE LIABLE TO DISTRIBUTOR OR ANY
THIRD PARTY FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR REVENUE, OR INTERRUPTION OF BUSINESS IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT, ON ANY THEORY OF LIABILITY, EVEN IF ANY
REPRESENTATIVE OF PATRIOT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. General Provisions.
11.1 Independent Contractor. The parties expressly intend and agree that they
are acting as independent contractors and not as employees, joint venturers,
partners or agents of the other party. Neither party is authorized or empowered
to act as agent for, nor to transact business, or incur obligations in the
other party's name and no party shall in any way be bound by any acts,
representations or conduct of the other party.
11.2 Arbitration. Any controversy or claim arising in connection with this
Agreement or any modification or extension hereof, including any breach, claim
for damages rescission, shall be settled by arbitration in San Diego,
California, U.S.A. according to the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators shall be
final and may be entered in any court having jurisdiction thereof.
Notwithstanding this provision and the agreement between the parties to submit
their disputes to binding arbitration, nothing in this Agreement shall prevent
either party from seeking injunctive relief (or any other provisional remedy)
from any court having jurisdiction over the parties and the subject matter of
their dispute.
11.3 Governing Law. This Agreement shall be governed as to all matters,
including validity, construction and performance, by the laws of the State of
California as such laws are applied to agreements entered into and to be
performed entirely within California between California residents.
11.4 Assignment. Neither party may transfer or assign this Agreement without
the prior written consent of the other party.
11.5 Notice. Notice between the parties shall be in writing and may be
delivered by any means at the addresses set forth below, or such address as
either party shall furnish to the other in writing. Notice shall be effective
on actual receipt.
Distributor contact name and address:
Shaw Lin, Ph.D.
Innoware, Inc.
3970 Sorrento Valley Blvd., Ste. E
San Diego, CA 92121
Phone 1-619-453-8374
Fax 1-619-453-8377
Patriot contact name and address:
Patriot Scientific Corporation
12875 Brookprinter Place, Suite #300
Poway, California 92064
United States of America
Phone 1-619-679-4428
Fax 1-619-679-4429
34
<PAGE> 6
11.6 Entire Agreement. This Agreement constitutes the entire agreement between
the parties in connection with the subject matter hereof and supersedes all
prior agreements, whether oral or written, which have been entered into prior
to the execution of this Agreement.
The parties have caused this Agreement to be executed by their duly authorized
representatives as of the date first written above.
PATRIOT INNOWARE
PATRIOT SCIENTIFIC CORPORATION INNOWARE, INC.
ELWOOD G. NORRIS SHAW LIN
- ---------------------------------- -----------------
Elwood G. Norris, President and CEO Shaw Lin, President
35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
UNAUDITED INTERIM STATEMENTS FOR THE NINE MONTHS ENDED FEBRUARY 29, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY REPORT ON
FORM - 10QSB FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 1996
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 830,289
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 148,426
<CURRENT-ASSETS> 996,996
<PP&E> 282,078
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,083,423
<CURRENT-LIABILITIES> 142,978
<BONDS> 0
0
0
<COMMON> 292
<OTHER-SE> 9,099,376
<TOTAL-LIABILITY-AND-EQUITY> 2,078,123
<SALES> 0
<TOTAL-REVENUES> 25,593
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,760,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,734,422)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,734,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,734,422)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
