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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 16, 1997 (June 2, 1997)
PATRIOT SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-22182 84-1070278
(State or other jurisdiction of (Commission (I.R.S. Empl.Ident. No.)
incorporation or organization) File Number)
10989 VIA FRONTERA, SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices) (Zip Code)
(619) 674-5000
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On June 2, 1997, the Company issued to a limited number of investors for
cash an aggregate of $2,000,000 of unsecured 5% Convertible Term Debentures due
June 2, 1999 and Stock Purchase Warrants ("Securities") with a right to purchase
an aggregate 611,733 shares of common stock, par value $.00001 per share, at an
exercise price of $1.69125. The principal and interest amount of each Debenture
may, at the election of the holder, be converted in whole or in part and from
time to time into fully paid and nonassessable shares of common stock, $.00001
par value, of the Company, at a price which is the lower of (i) $1.1646 per
share or (ii) depending on the number of days the Debentures have been held
after the funding date, from 75% to 91% of the average of the closing bid prices
for the common stock for the ten consecutive trading days ending on the trading
day immediately preceding such conversion date. If the Debentures have not been
converted into common shares of the Company by June 2, 1999, under certain
conditions the Debentures will automatically be converted into shares of the
common stock of the Company. Under certain conditions, at the election of the
Company and for a certain period of time, the Company may issue an additional
$1,000,000 of unsecured 5% Convertible Term Debentures due June 2, 1999 and
Stock Purchase Warrants with a right to purchase an additional 305,867 shares of
common stock.
The Securities were issued pursuant to Regulation D of the Securities
and Exchange Commission. The holders of the Securities have registration rights
which require the Company to have an effective registration statement with
regard to the shares of Common Stock underlying the Securities within 120 days
of funding or the Company can be subject to penalties. In addition, the Company
would be subject to penalties if certain covenants are not maintained, including
the reservation of a sufficient number of shares for the conversion or exercise
of the Securities, the effecting of conversions in a timely manner, the failure
to maintain an effective registration statement, and the Company's stock is not
listed for trading on at least the OTC Bulletin Board.
The Company expects that the net proceeds of the offering, $1,760,000
after offering costs, will be used for the purchase of software development
tools, chip development, silicon runs, radar and antenna development,
development of communications software, marketing and sales collateral and for
general corporate purposes.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibits
4.4 Form of 5% Convertible Term Debenture (CC Investments, LDC) due
June 2, 1999 aggregating $2,000,000 to two investors.
4.5 Form of Stock Purchase Warrant (CC Investments, LDC) dated June 2,
1997 exercisable to purchase an aggregate of 400,000 common shares at
$1.69125 per share until June 2, 2002, granted to two investors in
connection with the offering of securities in Exhibit 4.4.
4.6 Registration Rights Agreement dated June 2, 1997 by and among the
Company and CC Investments, LDC and The Matthew Fund, N.V. related to
the registration of the common stock related to Exhibits 4.4 and 4.5.
4.7 Form of Warrant to Purchase Common Stock (Swartz Family
Partnership, L.P.) dated June 2, 1997 exercisable to purchase an
aggregate of 211,733 common shares at $1.69125 per share until June 2,
2002, granted to a group of investors in connection with the offering
of securities in Exhibit 4.4.
4.8 Registration Rights Agreement dated June 2, 1997 by and among the
Company and Swartz Investments, LLC. related to the registration of the
common stock related to Exhibit 4.7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PATRIOT SCIENTIFIC CORPORATION
Dated: June 16, 1997 By: /s/ LOWELL W. GIFFHORN
-----------------------
Lowell W. Giffhorn
Chief Financial Officer
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INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit Item Page
- ------- ---- ----
<S> <C> <C>
4.4 Form of 5% Convertible Term Debenture
(CC Investments, LDC) due June 2, 1999
aggregating $2,000,000 to two investors.........................Filed herewith
4.5 Form of Stock Purchase Warrant
(CC Investments, LDC) dated June 2, 1997
exercisable to purchase an aggregate of 400,000
common shares at $1.69125 per share until
June 2, 2002, granted to two investors in connection
with the offering of securities in Exhibit 4.4..................Filed herewith
4.6 Registration Rights Agreement dated June 2, 1997
by and among the Company and CC Investments, LDC
and The Matthew Fund, N.V. related to the registration
of the common stock related to Exhibits 4.4 and 4.5.............Filed herewith
4.7 Form of Warrant to Purchase Common Stock
(Swartz Family Partnership, L.P.) dated June 2, 1997
exercisable to purchase an aggregate of 211,733 common shares at
$1.69125 per share until June 2, 2002, granted to a group of
investors in connection with the offering of securities in
Exhibit 4.4.....................................................Filed herewith
4.8 Registration Rights Agreement dated June 2, 1997
by and among the Company and Swartz Investments,
LLC. related to the registration of the common stock
related to Exhibit 4.7..........................................Filed herewith
</TABLE>
4
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PATRIOT SCIENTIFIC CORPORATION
FORM 8-K
Current Report
EXHIBIT NO. 4.4
Form of 5% Convertible Term Debenture
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[EXECUTION COPY]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
CONVERTIBLE TERM DEBENTURE
June 2, 1997 $1,850,000
FOR VALUE RECEIVED, PATRIOT SCIENTIFIC CORPORATION, a Delaware
corporation (hereinafter called the "Borrower" or the "Company"), hereby
promises to pay to the order of CC Investments, LDC or registered assigns or
transferees of all or any portion hereof (each a "Holder" and, collectively,
"Holders") the aggregate sum of One Million Eight Hundred Fifty Thousand Dollars
($1,850,000) on June 2, 1999 (the "Scheduled Maturity Date"), and to pay
interest on the unpaid principal balance hereof at the rate of five percent (5%)
per annum from the date hereof (hereinafter called the "Issue Date") until the
same becomes due and payable (which interest shall accrue on a daily basis based
on a 360 day year), whether at maturity or upon acceleration or otherwise.
Interest shall commence accruing on the Issue Date and shall be payable on the
date the principal amount in respect of which it has accrued is paid, whether at
maturity, upon acceleration or conversion or by prepayment or otherwise. All
payments shall be made at such address as Holders shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this
Debenture. As used herein, "First Closing Date" means June 2, 1997.
ARTICLE I
PREPAYMENT
1.1 Limited Right to Prepay. Upon the occurrence of an Event of Failure
(as defined herein), this Debenture shall be prepaid by the Borrower at the
option of the Holder in accordance with the provisions of Article VI hereof.
Except as provided in Section 1.2 of this Article I and
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Article VI hereof, this
Debenture may not be prepaid without the prior written consent of all Holders.
1.2 Prepayment at Borrower's Option.
(a) So long as no Event of Failure shall have occurred and
provided the Borrower is not in material violation of any of its obligations
under that certain Securities Purchase Agreement, dated as of June 2, 1997,
between Borrower and Holder (the "Securities Purchase Agreement"), the
Registration Rights Agreement, dated as of June 2, 1997, among the Company and
the other signatories thereto (the "Registration Rights Agreement"), the Patriot
Scientific Corporation Stock Purchase Warrant, dated as of June 2, 1997, or this
Debenture, then the Borrower shall have the right to prepay ("Prepayment at
Borrower's Election") all or any portion of the then outstanding Debentures
(other than Debentures which are the subject of a Notice of Conversion delivered
prior to the delivery date of the Optional Prepayment Notice (as herein
defined)) for the Optional Prepayment Amount (as herein defined), which right
shall be exercisable any time during the term of this Debenture by the Borrower
in increments of Five Hundred Thousand Dollars ($500,000) (provided that such
right may be exercised for less than such amount if the outstanding principal
amount of this Debenture is less than such amount and the Company is electing to
effect redemption of the full amount remaining) by delivery of an Optional
Prepayment Notice in accordance with the prepayment procedures set forth below.
Any Prepayment at Borrower's Election pursuant to this Section 1.2 shall be made
ratably among Holders in proportion to the principal amount of Debentures then
outstanding. Holders may convert all or any part of their Debentures selected
for prepayment hereunder into Common Stock at the Conversion Price by delivering
a Notice of Conversion to the Borrower at any time prior to the Effective Time
of Prepayment (as herein defined). The "Optional Prepayment Amount" with respect
to each Debenture means the greater of (a) the Benefit of the Bargain (as herein
defined) as of the delivery date of the Optional Prepayment Notice and (b) the
Applicable Prepayment Percentage (as herein defined) multiplied by the sum of
the principal amount being prepaid plus all accrued and unpaid interest thereon
and accrued and unpaid Conversion Failure Payments (if any) through the
Effective Time of Prepayment.
(i) The "Benefit of the Bargain" means an amount equal to:
A X M
---
CP
where:
"A" means the principal amount of this Debenture being prepaid
plus all accrued and unpaid interest thereon and accrued and unpaid
Conversion Failure Payments (if any) through the Effective Time of
Prepayment;
"CP" means the Conversion Price in effect on the delivery date
of the Optional Prepayment Notice; and,
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"M" means the average Closing Bid Price of the Company's
Common Stock during the ten trading day period ending on the day
immediately preceding the date on which the Optional Prepayment Notice
is delivered to Holder.
(ii) The "Applicable Prepayment Percentage" means (A) 130% if
the Effective Time of Prepayment is prior to the date which is 545 days
following the Issue Date (the "First Redemption Price Termination
Date") and (B) 125% if the Effective Time of Prepayment follows the
First Redemption Price Termination Date but is prior to the Scheduled
Maturity Date.
(b) The Borrower may not deliver an Optional Prepayment Notice
to a Holder unless on or prior to the date of delivery of such Optional
Prepayment Notice, the Borrower shall have deposited with an escrow agent
reasonably satisfactory to such Holder, as a trust fund, cash sufficient in
amount to pay all amounts to which Holders are entitled upon such prepayment
pursuant to Subsection (a) of this Section 1.2, with irrevocable instructions
and authority to such escrow agent to complete the prepayment thereof in
accordance with this Section 1.2. Any Optional Prepayment Notice delivered in
accordance with the immediately preceding sentence shall be accompanied by a
statement executed by a duly authorized officer of its escrow agent, certifying
the amount of funds which have been deposited with such transfer agent or escrow
agent and that the transfer agent or escrow agent has been instructed and agrees
to act as prepayment agent hereunder.
(c) The Borrower shall effect the Prepayment at Borrower's
Election under this Section 1.2 by giving prior written notice (the "Optional
Prepayment Notice"), which notice may only be delivered on a business day during
the period commencing 395 days following the Issue Date, of the date on which
such prepayment is to become effective (the "Effective Time of Prepayment") to
Holders of Debentures selected for prepayment at the address and facsimile
number of such Holder appearing in the Borrower's register for the Debentures.
The Optional Prepayment Notice shall indicate the Debentures selected for
prepayment and the Optional Prepayment Amount. The Optional Prepayment Notice
shall be deemed to have been delivered to a Holder: (i) if such fax is received
by such holder on or prior to 3:00 p.m. Chicago time, on the time and date of
transmission of Borrower's fax; and (ii) if such fax is received by Holder after
3:00 p.m. Chicago time, on the next business day following the date of
transmission of Borrower's fax; provided that, for any notice required under
this subsection 1.2(c) to be valid, a copy of such notice must be sent to the
Holders on the same day by overnight courier.
(d) The Optional Prepayment Amount shall be paid to each
Holder whose Debentures are being prepaid at the Effective Time of Prepayment;
provided, however, that the Borrower shall not be obligated to deliver any
portion of the Optional Prepayment Amount until either the Debentures being
prepaid are delivered to the office of the Borrower or the transfer agent as
provided in this subsection, or such Holder notifies the Borrower or the
transfer agent that such Debentures have been lost, stolen or destroyed and
delivers documentation in accordance with Section 8.8 hereof. Notwithstanding
anything herein to the contrary, in the event that the Debentures being prepaid
are not delivered to the Borrower or the transfer agent prior to
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the second business day following the Effective Time of Prepayment, the
prepayment of the Debentures pursuant to this Section 1.2 shall still be deemed
effective as of the Effective Time of Prepayment and the Optional Prepayment
Amount shall be paid to each Holder whose Debentures are being prepaid by 5:00
p.m., Chicago time, on the next business day following the date on which the
Debentures are actually delivered to the Borrower or the transfer agent.
(e) If the Borrower fails to pay, when due and owing, any
Optional Prepayment Amount, then each Holder entitled to receive such Optional
Prepayment Amount shall have the right, at any time and from time to time, to
require the Borrower, upon written notice, to immediately convert (in accordance
with the terms of Section 3.1) any or all of the Debentures which are the
subject of Prepayment at Borrower's Election into shares of Common Stock at the
lowest Conversion Price in effect during the twenty trading days following the
Effective Time of Prepayment. In addition, if the Borrower fails to pay an
Optional Prepayment Amount when due and owing, the Borrower shall thereafter
forfeit its rights under this Article I to effect Prepayment at Borrower's
Election.
ARTICLE II
CERTAIN DEFINITIONS
2.1 The following terms shall have the following meanings:
(a) "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to Holders of a majority of
the aggregate principal amount represented by the then outstanding Debentures
("Majority Holders") if Bloomberg Financial Markets is not then reporting
closing bid prices of such security (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board of such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Majority Holders, with
the costs of such appraisal to be borne by the Company.
(b) "Conversion Amount" means (i) the portion of the principal
amount of this Debenture elected by Holder to be converted (the "Selected
Amount"), which amount may be all or any portion of the principal amount of this
Debenture plus (ii) accrued and unpaid Conversion Failure Payments relating
thereto (if any) plus (iii) an amount equal to the product of (A) N divided by
365 times (B) .05 times (C) the Selected Amount.
(c) "Conversion Date" means, for any Optional Conversion, the
date specified in the Notice of Conversion, or if no date is specified therein,
the date the Notice of Conversion is
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faxed or otherwise delivered to the Company; provided, however, that the
Conversion Date shall not be prior to the date of delivery of the Notice of
Conversion and any Notice of Conversion delivered to the Company after 5:00 p.m.
San Diego time shall be deemed delivered as of the next following business day.
(d) "Conversion Percentage" shall have the following meaning and
shall be subject to adjustment as provided herein:
<TABLE>
<CAPTION>
If the Conversion Date is a Then the
Number of Days after the First Conversion
Closing Date within the Following Range: Percentage is:
---------------------------------------- --------------
<S> <C>
121-180 91%
181-270 85%
271-360 79%
361-450 76%
more than 450 75%
</TABLE>
(e) "Conversion Price" means the lesser of the Fixed Conversion
Price and the Variable Conversion Price.
(f) "Fixed Conversion Price" means $1.16460, subject to
adjustment as provided herein.
(g) "N" means the number of days from the Issue Date to and
including the Conversion Date, subject to Section 3.2 hereof, as specified in
the notice of conversion in the form attached hereto (the "Notice of
Conversion").
(h) "Variable Conversion Price" means, as of any Conversion
Date, the amount obtained by multiplying the Conversion Percentage then in
effect by the average of the Closing Bid Prices for the Common Stock for the ten
(10) consecutive trading days ending on the trading day immediately preceding
such Conversion Date (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events during such ten (10)
trading day period), subject to adjustment as provided herein.
ARTICLE III
CONVERSION
3.1 Conversion at the Option of the Holder. Subject to the limitations
on conversions contained in Section 3.7 hereof, the Holder may, at any time and
from time to time, convert (an "Optional Conversion") a Conversion Amount into a
number of fully paid and nonassessable shares of Common Stock determined by
dividing such Conversion Amount by the Conversion Price.
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3.2 Mechanics of Conversion. In order to effect an Optional Conversion,
a Holder (a "Converting Holder") shall: (x) fax (or otherwise deliver) a copy of
the fully executed Notice of Conversion to the Company for the Common Stock and
(y) surrender or cause to be surrendered, this Debenture, duly endorsed, along
with a copy of the Notice of Conversion, as soon as practicable thereafter. Upon
receipt by the Company of a facsimile copy of a Notice of Conversion from a
Converting Holder, the Company shall immediately send, via facsimile, a
confirmation to the Converting Holder stating that the Notice of Conversion has
been received, the date upon which the Company expects to deliver the Common
Stock upon conversion and the name and telephone number of a contact person at
the Company regarding the conversion.
3.3 Delivery of Common Stock Upon Conversion. Subject to Section 3.6
hereof, upon the delivery of a Notice of Conversion, the Company shall, not
later than the later of (a) the day that is three business days following the
Conversion Date and (b) the day that is the first business day following the
date of surrender of this Debenture (or delivery of documentation in accordance
with Section 8.8) (the "Delivery Period"), issue and deliver to the Converting
Holder (x) that number of shares of Common Stock issuable upon conversion of the
portion of this Debenture being converted and (y) a new Debenture in the form
hereof representing the balance of the principal amount hereof not being
converted, if any. Delivery under this Section may be made personally or by
reputable overnight courier.
3.4 Taxes. The Company shall pay any and all taxes (other than transfer
taxes) which may be imposed upon it with respect to the issuance and delivery of
the shares of Common Stock upon the conversion of this Debenture.
3.5 No Fractional Shares. No fractional shares of Common Stock are to be
issued upon the conversion of this Debenture, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Conversion Price of a share of
Common Stock (as determined for conversion of this Debenture into whole shares
of Common Stock).
3.6 Conversion Disputes. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with Sections 3.1 and 3.3 hereof. If
such dispute only involves the calculation of the Conversion Price, the Company
shall submit the disputed calculations to an independent accounting firm of
national standing (selected by the Converting Holder; provided that the
Converting Holder currently does not have a client relationship with such
accounting firm) via facsimile within two (2) business days of receipt of the
Notice of Conversion. The accountant shall audit the calculations and notify the
Company and the Converting Holder of the results no later than two (2) business
days from the date it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive, absent manifest error. The Company shall
then issue the appropriate number of shares of Common Stock in accordance with
Section 3.3 above.
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3.7 Limitations on Conversions. The conversion of this Debenture shall
be subject to the following limitations (each of which limitations shall be
applied independently):
(a) Holding and Increment Restrictions. No Holder may effect an
Optional Conversion prior to the date which is 120 days following the
First Closing Date. Optional Conversions must be effected in increments
of Ten Thousand Dollars ($10,000); provided that Optional Conversions
may be effected for less than such amount if the sum of all outstanding
principal of this Debenture plus all accrued interest thereon and
Conversion Failure Payments (if any) through the Conversion Date is less
than such amount and the Converting Holder is electing to effect the
Optional Conversion of the full amount remaining.
(b) No Five Percent Holders. Notwithstanding anything to the
contrary contained herein, the Debentures shall not be convertible by a
Holder to the extent (but only to the extent) that, if convertible by
such Holder, such Holder would beneficially own in excess of 4.9% of the
shares of Common Stock. To the extent the above limitation applies, the
determination of whether Debentures shall be convertible (vis-a-vis
other securities owned by such Holder) and of which Debentures shall be
convertible shall be in the sole discretion of the Holder and submission
of the Debentures for conversion shall be deemed to be the Holder's
determination of whether such Debentures are convertible and of which
Debentures are convertible, subject to such aggregate percentage
limitation. No prior inability to convert Debentures pursuant to this
paragraph shall have any effect on the applicability of the provisions
of this subsection with respect to any subsequent determination of
convertibility. For the purposes of this subsection, beneficial
ownership and all calculations, including without limitation, with
respect to calculations of percentage ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this
subsection may be waived and/or implemented in a manner otherwise than
strictly in conformity with the foregoing provisions of this subsection
3.7(b) with the approval of the Board of Directors of the Corporation
and the holders of a majority in interest in the then outstanding
Debentures and Warrants (voting together as a single class): (i) with
respect to any matter to cure any ambiguity herein, to correct this
subsection (or any portion thereof) which may be defective or
inconsistent with the intended 4.9% beneficial ownership limitation
herein contained or to make changes or supplements necessary or
desirable to properly give effect to such 4.9% limitation; and (ii) with
respect to any other matter, with the further consent of the holders of
majority of the then outstanding shares of Common Stock. The limitations
contained in this subsection shall apply to a successor Holder of
Debenture if, and to the extent, elected by such successor Holder
concurrently with its acquisition of such Debentures, such election to
be promptly confirmed in writing to the Company (provided no transfer or
series of transfers to a successor Holder or holders shall be used by a
Holder to evade the limitations contained in this subsection).
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3.8. Required Conversion at Maturity. Provided all shares of Common
Stock issuable upon conversion of all outstanding Debentures are then (i)
authorized and reserved for issuance, (ii) registered under the Securities Act
for resale by all Holders thereof and (iii) eligible to be traded on the OTC
Bulletin Board, the Nasdaq Small Cap Market ("NASDAQ"), the Nasdaq National
Market System ("NMS"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX"), each Debenture outstanding on the Scheduled Maturity
Date automatically shall be converted into shares of Common Stock on such date
in accordance with the conversion formulas set forth in Section 3.1 (the
"Required Conversion at Maturity"). If the Required Conversion at Maturity
occurs, the Borrower and the Holders shall follow the applicable conversion
procedures set forth in Article III; provided, however, that a Notice of
Conversion shall be deemed to be delivered to the Borrower or its transfer agent
on the Scheduled Maturity Date. If Borrower fails to effect the Required
Conversion at Maturity in accordance with the terms hereof, then each Holder
shall have the right, at any time and from time to time, to require the
Borrower, upon written notice, to immediately effect a repayment of all or any
part of their Debentures (in accordance with the terms of Article VI).
ARTICLE IV
RESERVATION OF SHARES OF COMMON STOCK
4.1 Reserved Amount. At Closing, the Company shall have authorized and
reserved and keep available for issuance 4,000,000 shares of Common Stock (the
"Reserved Amount") solely for the purpose of effecting the conversion of the
Debentures and exercise of the warrants to acquire Common Stock (the
"Warrants"), in the form attached to the Securities Purchase Agreement as
Exhibit B, issued or to be issued pursuant to the terms of the Securities
Purchase Agreement. The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock a sufficient number of
shares of Common Stock to provide for the full conversion of all outstanding
Debentures and issuance of the shares of Common Stock in connection therewith
and the full exercise of the Warrants and issuance of the shares of Common Stock
in connection therewith.
4.2 Share Authorization. The board of directors of the Company shall
approve and shall use its best efforts to obtain authorization by the
shareholders of the Company of an increase of the number of authorized shares of
capital stock of the Company (the "Share Authorization") to sixty million
(60,000,000) shares by the earlier of September 30, 1997 and the date of the
Company's next annual meeting of shareholders. Immediately following the Share
Authorization (as herein defined), the Reserved Amount shall be one and one-half
(1.5) times the number of shares of Common Stock issuable upon conversion of
this Debenture and exercise of the Warrants.
4.3 Increases to Reserved Amount. Without limiting any other provision
of this Article IV, following the Share Authorization, if the Reserved Amount
for any three (3) consecutive trading days (the last of such three (3) trading
days being the "Authorization Trigger Date") shall be less than 125% of the
number of shares of Common Stock issuable upon conversion of this Debenture and
exercise of the Warrants on such trading days, the Company
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shall immediately notify all Holders of such occurrence and shall take action as
soon as possible, but in any event within sixty (60) days after an Authorization
Trigger Date (including, if necessary, seeking shareholder approval to authorize
the issuance of additional shares of Common Stock) to increase the Reserved
Amount to 150% of the number of shares of Common Stock then issuable upon
conversion of this Debenture and exercise of the Warrants.
4.4 Reduction of Reserved Amount Under Certain Circumstances. Prior to
complete conversion of this Debenture, the Company shall not reduce the number
of shares required to be reserved for issuance under this Article IV without the
written consent of all Holders except for a reduction proportionate to a reverse
stock split effected for a business purpose other than affecting the obligations
of Borrower under this Article IV, which reverse stock split affects all shares
of Common Stock equally. Following complete conversion of this Debenture, the
Company may, with fifteen (15) days prior written notice to Holder, reduce the
Reserved Amount to 125% of the number of shares of Common Stock issuable upon
the full exercise of the Warrants; provided, however, that the Reserved Amount
shall continue to be subject to increase pursuant to Section 4.3 hereof.
4.5 Allocation of Reserved Amount. Each increase to the Reserved Amount
shall be allocated pro rata among the Holders based on the number of Debentures
and Warrants held by each Holder at the time of the establishment of or increase
in the Reserved Amount. In the event a Holder shall sell or otherwise transfer
any of such Holder's Debentures or Warrants, each transferee shall be allocated
a pro rata portion of such transferor's Reserved Amount. Any portion of the
Reserved Amount which remains allocated to any person or entity which does not
hold any Debentures shall be allocated to the remaining Holders, pro rata based
on the number of Debentures and Warrants then held by such Holders.
ARTICLE V
FAILURE TO SATISFY CONVERSIONS
5.1 Conversion Failure Payments. If, at any time, (x) a Holder submits a
Notice of Conversion (or is deemed to submit such notice pursuant to Section 3.8
hereof) and the Company fails for any reason to deliver, on or prior to the
expiration of the Delivery Period for such conversion, such number of shares of
Common Stock to which such Converting Holder is entitled upon such conversion,
or (y) the Company provides notice to Holder at any time of its intention not to
issue shares of Common Stock upon exercise by Holder of its conversion rights in
accordance with the terms of the Debentures (each of (x) and (y) being a
"Conversion Failure"), then the Company shall pay to such Holder damages in an
amount equal to the lower of: (i) the product of (A) the Damages Amount times
(B) D times (C) .01 and (ii) the highest interest rate permitted by applicable
law, where:
"D" means the number of days beginning the date of the Conversion
Failure through and including the Cure Date with respect to such Conversion
Failure;
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<PAGE> 11
"Damages Amount" means the amount of the Debenture subject to conversion
plus all accrued and unpaid interest thereon as of the first day of the
Conversion Failure.
"Cure Date" means (i) with respect to a Conversion Failure described in
clause (x) of its definition, the date the Company effects the conversion of the
portion of this Debenture submitted for conversion and (ii) with respect to a
Conversion Failure described in clause (y) of its definition, the date the
Company undertakes in writing to issue Common Stock in satisfaction of all
conversions of Debentures in accordance with their terms.
The payments to which a Holder shall be entitled pursuant to this
Section are referred to herein as "Conversion Failure Payments." A Holder may
elect to receive accrued Conversion Failure Payments in cash or to convert all
or any portion of such accrued Conversion Failure Payments, at any time, into
Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Failure through the Cure Date for such
Conversion Failure. In the event a Holder elects to receive any Conversion
Failure Payments in cash, it shall so notify the Company in writing. In the
event a Holder elects to convert all or any portion of the Conversion Failure
Payments, such Holder shall indicate on a Notice of Conversion such portion of
the Conversion Failure Payments which such Holder elects to so convert and such
conversion shall otherwise be effected in accordance with the provisions of
Article III.
5.2 Buy-In Cure. Unless a Conversion Failure described in clause (y) of
Section 5.1 hereof has occurred with respect to such a Holder, if (i) the
Company fails for any reason to deliver during the Delivery Period shares of
Common Stock to a Holder upon a conversion of this Debenture and (ii) after the
applicable Delivery Period with respect to such conversion, a Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to make
delivery upon a sale by a Holder of the shares of Common Stock (the "Sold
Shares") which such Holder anticipated receiving upon such conversion (a
"Buy-In"), the Company shall pay such Holder (in addition to any other remedies
available to Holder) the amount by which (x) such Holder's total purchase price
(including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the net proceeds received by such Holder from the sale of
the Sold Shares. For example, if a Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock sold for $10,000, the Company will be required to pay
such Holder $1,000. A Holder shall provide the Company written notification
indicating any amounts payable to Holder pursuant to this Section 5.2. The
Company shall make any payments required pursuant to this Section 5.2 in
accordance with and subject to Section 8.10.
5.3 Adjustment to Conversion Price. If a Holder has not received
certificates for all shares of Common Stock within two business days following
the expiration of the Delivery Period with respect to a conversion of any
portion of any of such Holder's Debentures for any reason, then the Fixed
Conversion Price shall thereafter be the lesser of (i) the Fixed Conversion
Price on the Conversion Date specified in the Notice of Conversion which
resulted in the Conversion Failure and (ii) the lowest Conversion Price in
effect during the period beginning on, and including, such Conversion Date
through and including the Cure Date. If there shall occur a
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<PAGE> 12
Conversion Failure of the type described in clause (y) of Section 5.1, then the
Fixed Conversion Price with respect to any conversion thereafter shall be the
lowest Conversion Price in effect at any time during the period beginning on,
and including, the date of the occurrence of such Conversion Failure through and
including the Cure Date. The Fixed Conversion Price shall thereafter be subject
to further adjustment for any events described in Article VII.
ARTICLE VI
EVENTS OF FAILURE
6.1 Holder's Option to Demand Prepayment. Upon the occurrence of an
Event of Failure (as herein defined), each Holder shall have the right to elect
at any time and from time to time prior to the cure by Borrower of such Event of
Failure to have all or any portion of such Holder's then outstanding Debentures
prepaid by the Company for an amount equal to the Holder Demand Prepayment
Amount (as herein defined).
(a) The right of a Holder to elect prepayment shall be exercisable upon
the occurrence of an Event of Failure by such Holder in its sole
discretion by delivery of a Demand Prepayment Notice (as herein defined)
in accordance with the procedures set forth in this Article VI.
Notwithstanding the exercise of such right, the Holder shall be entitled
to exercise all other rights and remedies available under the provisions
of this Debenture and at law or in equity.
(b) A Holder shall effect each demand for prepayment under this Article
VI by giving at least two (2) business days prior to written notice (the
"Demand Prepayment Notice") of the date which such prepayment is to
become effective (the "Effective Date of Demand of Prepayment"), the
Debentures selected for prepayment and the Holder Demand Prepayment
Amount to the Borrower at the address and facsimile number provided in
Section 8.2, which Demand Prepayment Notice shall be deemed to have been
delivered on the business day after the date of transmission of Holder's
fax (with a copy sent by overnight courier to the Borrower) of such
notice.
(c) The Holder Demand Prepayment Amount shall be paid to a Holder whose
Debentures are being prepaid within one (1) business day following the
Effective Date of Demand of Prepayment; provided, however, that the
Borrower shall not be obligated to deliver any portion of the Holder
Demand Prepayment Amount until one (1) business day following either the
date on which the Debentures being prepaid are delivered to the office
of the Borrower or the transfer agent, or the date on which the Holder
notifies the Borrower or the transfer agent that such Debentures have
been lost, stolen or destroyed and delivers the documentation required
in accordance with Section 8.8 hereof.
6.2 Holder Demand Prepayment Amount. The "Holder Demand Prepayment
Amount" means the greater of: (a) 1.5 times the aggregate amount of the
principal amount of this Debenture for which demand is being made (the "Stated
Value"), plus all accrued and unpaid
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<PAGE> 13
interest thereon and accrued and unpaid Conversion Failure Payments (if any)
through the date of prepayment and (b) the product of (1) the highest price at
which the Common Stock is traded on the date of the Event of Failure (or the
most recent highest closing bid price if the Common Stock is not traded on such
date) divided by the Conversion Price as of the date of the Event of Failure,
and (2) the sum of the Stated Value plus all accrued and unpaid interest thereon
and all accrued and unpaid Conversion Failure Payments (if any) through the date
of prepayment.
6.3 Events of Failure. An "Event of Failure" means any one of the
following:
(a) a Conversion Failure described in Section 5.1 hereof occurs and is
not cured by the Company within two (2) business days after its occurrence;
(b) the Company fails, and such failure continues uncured for three (3)
business days after the Company has been notified thereof in writing by a
Holder, to satisfy the requirements of Article IV hereof;
(c) the Company fails to maintain an effective registration statement as
required by Section 2.1 and Section 3.1 of the Registration Rights Agreement
except where such failure lasts no longer than three consecutive trading days
and is caused solely by failure of the Securities and Exchange Commission to
timely review the customary submission of or respond to the customary requests
of the Company;
(d) for three consecutive trading days or for an aggregate of ten (10)
trading days in any nine (9) month period, the Common Stock (including any of
the shares of Common Stock issuable upon conversion of this Debenture and
exercise of the Warrants) is (i) suspended from trading on any of NASDAQ, NMS,
NYSE, AMEX or the OTC Bulletin Board, or (ii) is not qualified for trading on at
least one of, NASDAQ, NMS, NYSE, AMEX or the OTC Bulletin Board;
(e) the Company fails, and such failure continues uncured for three (3)
business days after the Company has been notified thereof in writing by a
Holder, to remove any restrictive legend on any certificate for any shares of
Common Stock issued to a Holder upon conversion of any Debenture or exercise of
any Warrant as and when required by the Debentures, the Warrants, the Securities
Purchase Agreement or the Registration Rights Agreement;
(f) the Company breaches, and such breach continues uncured for three
(3) business days after the Company has been notified thereof in writing by a
Holder, any significant covenant or other material term or condition of this
Debenture, the Securities Purchase Agreement, the Warrants or the Registration
Rights Agreement;
(g) any representation or warranty of the Company made herein or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith (including, without limitation, the Securities Purchase
Agreement and the Registration Rights Agreement), shall be false or misleading
in any material respect when made;
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<PAGE> 14
(h) the Company or any subsidiary of the Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed; or
(i) bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company or any subsidiary of
the Company (and such proceedings shall continue unstayed for thirty (30) days).
6.4 Failure to Pay Damages Amount. If the Company fails to pay the
Holder Demand Prepayment Amount within five (5) business days of its receipt of
a Demand Prepayment Notice, then such Holder shall have the right, at any time
and from time to time prior to the payment of the Holder Demand Prepayment
Amount, to require the Company, upon written notice, to immediately convert (in
accordance with the terms of Section 3.1) all or any portion of the Holder
Demand Prepayment Amount, into shares of Common Stock at the then current
Conversion Price, provided that if the Company has not delivered the full number
of shares of Common Stock issuable upon such conversion within two (2) business
days after Holder delivers written notice of such conversion, the Conversion
Price with respect to such Holder Demand Prepayment Amount shall thereafter be
deemed to be the lower of the Variable Conversion Price on the date of the Event
of Failure and the Variable Conversion Price on the date on which the Company
delivers to the Holder the full number of freely tradable shares of Common Stock
issuable upon such conversion. In the event the Company is not able to pay all
amounts due and payable with respect to all Debentures subject to Holder Demand
Prepayment Notices, the Company shall pay the Holders such amounts pro rata,
based on the total amounts payable to such Holder relative to the total amounts
payable to all Holders.
ARTICLE VII
ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
7.1 Stock Splits, Stock Dividends, Etc. If at any time on or after the
date of issuance of this Debenture, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, combination,
reclassification or other similar event, the Fixed Conversion Price shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination or reclassification of
shares, or other similar event, the Fixed Conversion Price shall be
proportionately increased. In such event, the Company shall notify the Company's
transfer agent of such change on or before the effective date thereof.
7.2 Major Transactions. If the Company shall consolidate with or merge
into any corporation or reclassify its outstanding shares of Common Stock (other
than by way of subdivision or reduction of such shares) (each a "Major
Transaction"), then each Holder shall
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<PAGE> 15
thereafter be entitled to receive consideration, in exchange for such Debenture,
equal to the greater of, as determined in the sole discretion of such Holder:
(i) the number of shares of stock or securities or property of the Company, or
of the entity resulting from such consolidation or merger (the "Major
Transaction Consideration"), to which a Holder of the number of shares of Common
Stock delivered upon conversion of such Debenture would have been entitled upon
such Major Transaction had the Holder of such Debenture exercised its right of
conversion (without regard to any limitations on conversion herein contained) on
the trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock been
issued and outstanding and had such Holder been the holder of record of such
Common Stock at the time of such Major Transaction, and the Company shall make
lawful provision therefor as a part of such consolidation, merger or
reclassification; and (ii) 125% of the principal amount of such Debenture in
cash. No sooner than ten (10) days nor later than five (5) days prior to the
consummation of the Major Transaction, but not prior to the public announcement
of such Major Transaction, the Company shall deliver written notice ("Notice of
Major Transaction") to each Holder, which Notice of Major Transaction shall be
deemed to have been delivered one (1) business day after the Company's sending
such notice by telecopy (provided that the Company sends a confirming copy of
such notice on the same day by overnight courier) of such Notice of Major
Transaction. Such Notice of Major Transaction shall indicate the amount and type
of the Major Transaction Consideration which such Holder would receive under
clause (i) of this Section 7.2. If the Major Transaction Consideration does not
consist entirely of United States currency, such Holder may elect to receive
United States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) days of the Holder's
receipt of the Notice of Major Transaction.
7.3 Adjustment Due to Distribution. If the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "Distribution") any time after the Issue Date, then the Holder
shall be entitled, upon any conversion of this Debenture after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had Holder with respect to the shares of Common Stock issuable upon such
conversion and the shares of Common Stock issuable upon exercise of the Warrants
(in each case without regard to any limitations on conversion or exercise herein
or elsewhere contained) been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
7.4 Purchase Rights. If the Company issues any Convertible Securities or
rights to purchase stock, warrants, securities or other property (the "Purchase
Rights") pro rata to the record holders of any class of Common Stock, then the
Holders will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which each Holder could have acquired if
such Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Debenture (without regard to any limitations on
conversion or
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<PAGE> 16
exercise herein or elsewhere contained) immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grants, issue or sale of such Purchase Rights.
7.5 No Adjustment for Certain Warrants. Anything in this Article VII to
the contrary notwithstanding, no adjustment shall be made to the Conversion
Price upon any issuance to Swartz Investments, LLC of warrants to purchase
Common Stock in consideration of its services in connection with the Securities
Purchase Agreement and the transactions contemplated thereby so long as such
warrants are not exercisable, in the aggregate, for more than 220,000 shares of
Common Stock.
7.6 Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Conversion Price, then, and in each such case,
the Company shall give notice thereof to all Holders, which notice shall state
the Conversion Price resulting from such adjustment and the increase or decrease
in the number of shares of Common Stock purchasable at such price upon
conversion, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
ARTICLE VIII
MISCELLANEOUS
8.1 Failure or Indulgency Not Waiver. No failure or delay on the part of
a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
8.2 Notice. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy and shall be deemed to have been given at the time and date of receipt
(which shall include telephone line facsimile transmission). The addresses for
such communications shall be:
If to the Company:
Patriot Scientific Corporation
10989 Via Frontera
San Diego, California 92127
Telecopy: (619) 674-5005
Attention: Lowell W. Giffhorn
with a copy to:
Luce, Forward, Hamilton & Scripps LLP
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<PAGE> 17
600 West Broadway, Suite 2600
San Diego, California 92101
Telecopy: (619) 232-8311
Attention: Otto E. Sorensen
and with a copy to:
Robert Putnam
13112 Evening Creek Drive South
San Diego, California 92128
Telecopy: (619) 679-0545
If to Holder:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, IL 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Telecopy: (312) 715-4800
Attention: Kenneth M. Crane
If to any other Holder, to such address set forth under Holder's name on
the signature page hereto executed by Holder.
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8.3 Amendment Provision. Except as provided in Section 3.7(b) hereof,
this Debenture and any provision hereof may only be amended by an instrument in
writing signed by the Company and the Majority Holders. The term "Debenture" and
all references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
8.4 Assignability. This Debenture shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of each Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Debenture.
8.5 Cost of Collection. If default or failure is made in any manner with
respect to this Debenture, the Company shall pay the Holder hereof costs of
collection, including reasonable attorneys' fees.
8.6 Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Company irrevocably consents
to the jurisdiction of the United States federal courts located in the County of
New Castle in any suit or proceeding based on or arising under this Agreement
and irrevocably agrees that all claims in respect of such suit or proceeding may
be determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company, mailed by first class
mail shall be deemed in every respect effective service of process upon the
Company in any such suit or proceeding. Nothing herein shall affect each
Holder's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.7 Denominations. At the request of a Holder, upon surrender of this
Debenture, the Company shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
as such Holder shall request.
8.8 Lost or Stolen Debentures. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of this Debenture and
(ii) (y) in the case of loss, theft or destruction, or an indemnity reasonably
satisfactory to the Company, or (z) in the case of mutilation, upon surrender
and cancellation of this Debenture, the Company shall execute and deliver new
Debentures, in the form hereof, in such denominations as a Holder may request.
However, the Company shall not be obligated to reissue such lost or stolen
Debentures if such Holder contemporaneously requests the Company to convert this
Debenture.
8.9 Statements of Available Shares. Upon request, the Company shall
deliver to a Holder a written report notifying such Holder of any occurrence
which prohibits the Company from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total
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principal amount of all outstanding Debentures as of the date of the request,
(ii) the total number or shares of Common Stock issued upon all conversions of
Debentures through the date of the request, (iii) the total number of shares of
Common Stock issued upon exercise of all Warrants through the date of the
request, (iv) the total number of shares of Common Stock which are reserved for
issuance upon conversion of Debentures and exercise of Warrants as of the date
of the request and (v) the total number of shares of Common Stock which may
thereafter be issued by the Company upon conversion of Debentures and exercise
of Warrants before the Company would exceed the Reserved Amount. The Company
shall provide, within fifteen (15) days after delivery to the Company of a
written request by Holder, all of the information enumerated in clauses (i) -
(v) of this Section 8.9.
8.10 Status as Debenture Holder. Upon submission of a Notice of
Conversion by Holder, the principal amount of this Debenture and the interest
thereon covered thereby shall be deemed converted into shares of Common Stock
and the holder's rights with respect thereto shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to Holder because of a failure by the Company to comply with the terms of this
Debenture. Notwithstanding the foregoing, if Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion for
any reason, then (unless Holder otherwise elects to retain its status as a
Holder of Common Stock) the portion of the principal amount and interest thereon
subject to such conversion shall be deemed outstanding under this Debenture and
the Company shall, as soon as practicable, return this Debenture to the Holder.
In all cases, Holder shall retain all of its rights and remedies for the
Company's failure to convert this Debenture.
8.11 Remedies Cumulative. The remedies provided in this Debenture shall
be cumulative and in addition to all other remedies available under this
Debenture, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit Holder's right
to pursue actual damages for any failure by the Company to comply with the terms
of this Debenture. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, with the necessity of showing economic loss and without
any bond or other security being required.
* * *
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<PAGE> 20
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer as of the date first written above.
PATRIOT SCIENTIFIC CORPORATION
By: /s/ ELWOOD G. NORRIS
------------------------
Name: Elwood G. Norris
Title: Chairman and a Director
By: /s/ MICHAEL A. CARENZO
--------------------------
Name: Michael A. Carenzo
Title: President, Chief Executive Officer and a
Director
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<PAGE> 21
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert (the "Conversion")
$__________ principal amount of the Debenture plus all accrued and unpaid
interest on such principal amount (i.e., $_________) plus all accrued and unpaid
Conversion Failure Payments relating thereto (if any) (each as defined in the
Convertible Term Debenture dated June 2, 1997 (the "Debenture")), into shares of
common stock ("Common Stock") of Patriot Scientific Corporation (the "Company")
according to the conditions of the Debenture, as of the date written below. If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the Holder for any conversion except as provided herein.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
this Debenture shall be made pursuant to registration of the Common Stock under
the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption
from registration under the Act.
In the event of partial exercise, please reissue an appropriate Debenture(s) for
the principal balance which shall not have been converted.
Date of Conversion: __________________
Applicable Conversion Price:____________
Amount of Conversion Failure Payments
to be Converted, if any: ________________
Number of Shares of
Common Stock to be Issued: ____________
Signature: ___________________________
Name: ______________________________
Address: ___________________________
ACKNOWLEDGED AND AGREED:
PATRIOT SCIENTIFIC CORPORATION
BY:____________________________
NAME:__________________________
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TITLE: ___________________________ DATE: ______________
26
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
FORM 8-K
Current Report
EXHIBIT NO. 4.5
Form of Stock Purchase Warrant
27
<PAGE> 2
[EXECUTION COPY]
VOID AFTER 5:00 P.M. SAN DIEGO
TIME ON JUNE 2, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS
THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Right to Purchase 370,000 Shares of
Common Stock, par value $.00001 per share
Date: June 2, 1997
PATRIOT SCIENTIFIC CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CC Investments, LDC or its
registered assigns or transferees is entitled to purchase from Patriot
Scientific Corporation, a Delaware corporation (the "Company"), at any time or
from time to time during the period specified in Section 2 hereof, Three Hundred
Seventy Thousand (370,000) fully paid and nonassessable shares of the Company's
common stock, par value $.00001 per share (the "Common Stock"), at an exercise
price of 1.69125 per share (the "Exercise Price") (equal to 125% of the average
of the Closing Bid Prices (as herein defined) of the Common Stock for the ten
(10) consecutive trading days ending on the trading day immediately preceding
the First Closing (as defined in that certain Securities Purchase Agreement (the
"Securities Purchase Agreement") dated as of June 2, 1997 among the Company, CC
Investments, LDC and The Matthew Fund, N.V.). The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Warrants" means
this Warrant and the other warrants, if any, of the Company issued pursuant to
the terms of the Securities Purchase Agreement. The term "Closing Bid Price"
means, for any security as of any date, the closing bid price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg Financial Markets or a
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<PAGE> 3
comparable reporting service of national reputation selected by the Company and
reasonably acceptable to the holder hereof (the "Holder") if Bloomberg Financial
Markets is not then reporting closing bid prices of such security (collectively,
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 7(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 7(c)
hereof), together with a completed exercise agreement in the form of Exercise
Agreement attached hereto as Exhibit 1 (the "Exercise Agreement"), to the
Company at the Company's principal executive offices (or such other office or
agency of the Company as it may designate by notice to the Holder), and a
written calculation of the number of shares of Common Stock to be issued upon
such exercise in accordance with the terms hereof (a "Cashless Exercise"). In
lieu of paying the Exercise Price in cash, the Holder shall surrender this
Warrant for the number of shares of Common Stock determined by multiplying the
number of Warrant Shares to which it would otherwise be entitled by a fraction,
the numerator of which shall be the difference between the then current Market
Price per share of the Common Stock and the Exercise Price, and the denominator
of which shall be the then current Market Price per share of Common Stock. The
Warrant Shares so purchased shall be deemed to be issued to the Holder or
Holder's designees, as the record owner of such shares, as of the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement shall
have been delivered, and payment (or notice of an election to effect a Cashless
Exercise) shall have been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), Certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be requested by the Holder and shall be
registered in the name of Holder or such other name as shall be designated by
Holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the Holder a
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<PAGE> 4
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute only
involves the calculation of the Exercise Price, the Company shall submit the
disputed calculations to an independent accounting firm of national standing
(selected by the Holder; provided that the Holder currently does not have a
client relationship with such accounting firm) via facsimile within two (2)
business days of receipt of the Exercise Agreement. The accountant shall audit
the calculations and notify the Company and the Converting Holder of the results
no later than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive, absent
manifest error. The Company shall then issue the appropriate number of shares of
Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock).
(e) Buy-In. If (i) the Company fails for any reason to deliver during
the Delivery Period shares of Common Stock to a Holder upon an exercise of this
Warrant and (ii) after the applicable Delivery Period with respect to such an
exercise, a Holder purchases (in an open market transaction or otherwise) shares
of Common Stock to make delivery upon a sale by a Holder of the shares of Common
Stock (the "Sold Shares") which such Holder anticipated receiving upon such
exercise (a "Buy-In"), the Company shall pay such Holder (in addition to any
other remedies available to Holder) the amount by which (x) such Holder's total
purchase price (including brokerage commission, if any) for the shares of Common
Stock so purchased exceeds (y) the net proceeds received by the such Holder from
the sale of the Sold Shares. For example, if a Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock sold for $10,000, the Company will be required to pay
such Holder $1,000. A Holder shall provide the Company written notification
indicating any amounts payable to Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before Midnight, San Diego time, on
the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
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<PAGE> 5
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. Subject to the remainder of this Section 3(c), the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares) are listed and available for trading on the OTC Bulletin Board. The
Company shall promptly following the First Closing use its best efforts to
satisfy the listing requirements of, and secure the listing of the Common Stock
(including, without limitation, with respect to the Warrant Shares) upon, the
Nasdaq SmallCap Market ("NASDAQ"). Thereafter, the Company shall (i) use its
best efforts to continue the listing and trading of its Common Stock on the
NASDAQ, or on the Nasdaq National Market System ("NMS"), the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX"); (ii) take all action
necessary to continue the listing and trading of its Common Stock on the OTC
Bulletin Board if the Common Stock is not listed and traded on NASDAQ, NMS, NYSE
or AMEX; and (iii) comply in all respects with the Company's reporting, filing
and other obligations under the by-laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such actions as may reasonably be requested by the Holder
of this Warrant in order to protect the exercise privilege of the Holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 4. In the event that any
adjustment of the Exercise Price as required herein results in a fraction of a
cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Section 4(c) and 4(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no
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<PAGE> 6
consideration or for a consideration per share less than the Market Price (as
herein defined) on the date of issuance (a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in
accordance with the following formula:
E' = E x O + P/M
-------
CSDO
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock
outstanding immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as
set forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common
Stock Deemed Outstanding (as herein defined)
immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon the exercise of such Below Market Options is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market Options, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common
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<PAGE> 7
Stock upon the exercise of such Below Market Options or upon the exercise,
conversion or exchange of Convertible Securities issuable upon exercise of such
Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such exercise,
conversion or exchange is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 75% of the Market
Price on such date (the "Assumed Variable Market Price"). In addition, the
Exercise Price shall be adjusted any time or times the Market Price thereafter
is less than or equal to the Assumed Variable Market Price last used for making
any adjustment under this Section 4 with respect to any Variable Rate
Convertible Security. At such time, the Exercise Price shall be adjusted to the
Exercise Price which would have resulted if the Assumed Variable Market Price at
the time of issuance of the Variable Rate Convertible Security had been 75% of
the Market Price existing at the time of the adjustment required by this
sentence.
(iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange or any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under
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<PAGE> 8
or by reason of provisions designed to protect against dilution), the Exercise
Price in effect at the time of such change will be readjusted to the Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair market
value of such consideration except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price thereof as of the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued in connection with any
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair market value of any consideration other than cash or
securities will be determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Company and reasonably
acceptable to the Holder, with the costs of such appraisal to be borne by the
Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose; (iii) upon the issuance of the
convertible term debentures of the Company (the "Debentures"), the preferred
stock, par
34
<PAGE> 9
value $.00001 per share, of the Company (the "Preferred Stock") or Warrants in
accordance with terms of the Securities Purchase Agreement; (iv) upon the
exercise of the Warrants or conversion of the Debentures or Preferred Stock or
(v) the warrants to purchase Common Stock issued or to be issued to Swartz
Investments, LLC in consideration of its services in connection with the
Securities Purchase Agreement and the transactions contemplated thereby so long
as such warrants are not exercisable, in the aggregate, for more than 220,000
shares of Common Stock.
(c) Subdivision or Combination of Common Stock. If the Company,
at any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate with or
merge into any corporation or reclassify its outstanding shares of Common Stock
(other than by way of subdivision or reduction of such shares) (each a "Major
Transaction"), then each holder of a Warrant shall thereafter be entitled to
receive consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder: (i) a warrant to purchase, at
the same aggregate exercise price, the number of shares of stock or securities
or property of the Company, or of the entity resulting from such consolidation
or merger (the "Major Transaction Consideration"), to which a holder of the
number of shares of Common Stock delivered upon exercise of such Warrant would
have been entitled upon such Major Transaction had the holder of such Warrant
exercised the Warrant on the trading date immediately preceding the public
announcement of the transaction resulting in such Major Transaction and had such
Common Stock been issued and outstanding and had such holder been the holder of
record of such Common Stock at the time of such Major Transaction, and the
Company shall make lawful provision therefor as a part of such consolidation,
merger or reclassification; and (ii) cash paid by the Company in immediately
available funds, in an amount equal to the Black-Scholes Amount (as defined
herein) times the number of shares of Common Stock for which this Warrant was
exercisable on the date immediately preceding the date of such Major
Transaction. No sooner than ten (10) days nor later than five (5) days prior to
the consummation of the Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
("Notice of Major Transaction") to each holder of Warrants, which
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<PAGE> 10
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day following the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of Major
Transaction shall indicate the amount and type of the Major Transaction
Consideration which such holder would receive under clause (i) of this paragraph
(e). If the Major Transaction Consideration does not consist entirely of United
States currency, such holder may elect to receive United States currency in an
amount equal to the value of the Major Transaction Consideration in lieu of the
Major Transaction Consideration by delivering notice of such election to the
Company within five (5) days of the holder's receipt of the Notice of Major
Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
Common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. The Company shall provide Holder with
at least thirty (30) trading days written notice prior to any date on which the
Company intends to declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise (including any dividend or
distribution to the Company's shareholders of cash or shares (or rights to
acquire shares) of capital stock of a subsidiary).
(g) Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which,
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<PAGE> 11
together with any adjustments so carried forward, shall amount to not less than
1% of such Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of the Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If, at any time after the initial issuance
of this Warrant, any event occurs of the type contemplated by the adjustment
provisions of this Section 4 but not expressly provided for by such provisions,
the Company will give notice of such event as provided in Section 4(g) hereof,
and the Company's board of directors will make an appropriate adjustment
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<PAGE> 12
in the Exercise Price and the number of shares of Common Stock acquirable upon
exercise of this Warrant so that the rights of the Holder shall be neither
enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, means the average of
the Closing Bid Prices for the shares of Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding such
date.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
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<PAGE> 13
7. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted
to the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto as Exhibit 2, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the to the provisions of Section 5.1 and 5.2 of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 8 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of June 2, 1997, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement").
b. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 7(e) below, for new Warrants, in the form
hereof, of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the Holder of at the
time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, new Warrants, in the form hereof, in such
denominations as Holder may request. The Company shall not be obligated to
reissue such Warrant if Holder contemporaneously requests the Company to convert
this Warrant.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section 7.
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
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<PAGE> 14
f. Additional Restriction on Exercise or Transfer.
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.9% of the
shares of Common Stock. To the extent the above limitation applies, the
determination of whether the Warrants shall be exercisable (vis-a-vis other
securities owned by Holder) and of which Warrants shall be convertible shall be
in the sole discretion of the Holder and submission of the Warrants for exercise
shall be deemed to be the Holder's determination of whether such Warrants are
exercisable and of which Warrants are exercisable, subject to such aggregate
percentage limitation. No prior inability to exercise Warrants pursuant to this
paragraph shall have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of exercisability. For
the purposes of this paragraph, beneficial ownership and all calculations,
including without limitation, with respect to calculations of percentage
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D and G thereunder. The
provisions of this paragraph may be waived and/or implemented in a manner
otherwise than strictly in conformity with the foregoing provisions of this
paragraph f with the approval of the Board of Directors of the Corporation and
the holders of majority in interest in the then outstanding Debentures and
Warrants (voting together as a single class): (i) with respect to any matter to
cure any ambiguity herein, to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended 4.9% beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such 4.9% limitation; and (ii)
with respect to any other matter, with the further consent of the holders of a
majority of the then outstanding shares of Common Stock. The limitations
contained in this paragraph shall apply to a successor holder of Warrants if,
and to the extent, elected by such successor holder concurrently with its
acquisition of such Warrants, such election to be promptly confirmed in writing
to the Company (provided no transfer or series of transfer to a successor holder
or holders shall be used by a Holder to evade the limitations contained in this
paragraph).
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
Patriot Scientific Corporation
10989 Via Frontera
San Diego, California 92129
Telecopy: (619) 674-5005
Attention: Lowell W. Giffhorn
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<PAGE> 15
with copy to:
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway
Suite 2600
San Diego, California 92101
Telecopy: (619) 232-8311
Attention: Otto E. Sorensen
and with a copy to:
Robert Putnam
13112 Evening Creek Drive South
San Diego, California 92128
Telecopy: (619) 679-0545
If to Holder:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, IL 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Telecopy: (312) 715-4800
Attention: Kenneth M. Crane
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<PAGE> 16
If to any other Holder, to such address set forth under Holder's name on the
signature page hereto executed by Holder.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that service of
process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceedings. Nothing herein shall affect the Holder's right to serve process in
any other manner permitted by law. The Company agrees that a final nonappealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
11. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder.
b. Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. Exercise. Notwithstanding anything to the contrary contained
in this Warrant, if the resale of the Warrant Shares by the Holder is not then
registered pursuant to an effective registration statement under the Securities
Act, this Warrant may be exercised at any time after the first date that the
Holder could sell the Warrant Shares pursuant to Rule 144 under the Securities
Act and until the end of the Exercise Period.
d. Assignability. This Warrant shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns.
* * *
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
PATRIOT SCIENTIFIC
CORPORATION
By:/s/ELWOOD G. NORRIS
----------------------
Elwood G. Norris
Chairman and a Director
By:/s/ MICHAEL A. CARENZO
-------------------------
Michael A. Carenzo
President, Chief Executive
Officer and a Director
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<PAGE> 18
EXHIBIT 1
TO STOCK PURCHASE WARRANT
EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercise the right to purchase
____________ of the shares of common stock of Patriot Scientific Corporation, a
Delaware corporation (the "Company"), evidenced by the attached Warrant, and
herewith effects a Cashless Exercise pursuant to the terms of the Warrant, all
in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s)) at
the address (or addresses) set forth below:
Date: ____________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
__________________________________
__________________________________
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<PAGE> 19
EXHIBIT 2
TO STOCK PURCHASE WARRANT
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
__________________________________
Name: __________________________________
Signature: ________________________________
Title of Signing Officer or Agent (if any):
Address: __________________________
__________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
45
<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
FORM 8-K
Current Report
EXHIBIT NO. 4.6
Registration Rights Agreement
46
<PAGE> 2
EXECUTION VERSION]
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 2,
1997 by and among Patriot Scientific Corporation, a Delaware corporation (the
"Company"), with headquarters located at 10989 Via Frontera, San Diego,
California 92127, and the undersigned, the "Initial Purchasers" ).
RECITALS
A. In connection with the Securities Purchase Agreement dated of even
date herewith by and between the Company and the Initial Purchasers (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Purchasers (a) convertible debentures of the Company (the "Debentures"), (i)
convertible into shares of the Company's common stock, par value $.00001 per
share (the "Common Stock"), and (ii) if authorized by the board of directors and
the shareholders of the Company, exchangeable in the sole discretion of the
Company, into shares of preferred stock, par value $.00001 per share, of the
Company (the "Preferred Shares" and together with the Debentures, the
"Convertible Securities"), which shall have rights, preferences and privileges
substantially the same as the Debentures and as set forth in a Certificate of
Designation (the "Certificate of Designation") and (b) warrants to acquire
shares of Common Stock (the "Warrants"), in the form attached as Exhibit B to
the Securities Purchase Agreement.
B. To induce the Initial Purchasers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and the Initial
Purchasers hereby agree as follows:
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<PAGE> 3
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Purchasers" means the Initial Purchasers and any transferees
or assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
(b) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(c) "Registrable Securities" means the Conversion Shares and the
Warrant Shares (including any Conversion Shares or Warrant Shares issuable with
respect to conversion failure payments under the Debentures and Preferred Shares
or with respect to any prepayment or redemption of any Debentures and Preferred
Shares) issued or issuable with respect to the Preferred Shares, the Debentures
and the Warrants and any shares of capital stock issued or issuable, from time
to time (with any adjustments), on or in exchange for or otherwise with respect
to any of the foregoing.
(d) "Registration Statement" means a registration statement of the
Company under the Securities Act.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
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<PAGE> 4
ARTICLE II
REGISTRATION
2.1 Mandatory Registration. The Company shall prepare, and, on or prior
to the forty-fifth (45th) day after the First Closing Date (the "Filing Date"),
file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not
then available, on such form of Registration Statement as is then available to
effect a registration of all of the Registrable Securities, subject to the
consent of the Initial Purchasers (as determined pursuant to Section 11.10
hereof)) covering the resale of all of the Registrable Securities, which
Registration Statement, to the extent allowable under the Securities Act and the
Rules promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Convertible
Securities and exercise of the Warrants (i) to prevent dilution resulting from
stock splits, stock dividends or similar transactions or (ii) by reason of
changes in the Conversion Price of the Debentures and Preferred Shares in
accordance with the terms thereof or the Exercise Price of the Warrants in
accordance with the terms thereof. The Registrable Securities included in the
Registration Statement shall be among the Purchasers as set forth in Section
11.11 hereof. The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the approval of the Initial Purchasers, which
approval shall not be unreasonably withheld or denied) the Initial Purchasers
and their counsel prior to its filing or other submission.
2.2 Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchasers who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Purchasers, shall
have the right to select a total of one legal counsel to represent the
Purchasers and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
2.3 Payments by the Company. The Company shall cause the registration
statement to become effective as soon as practicable, but in no event later than
the one hundred twentieth (120th) day following the First Closing Date (the
"Registration Deadline"). If (i) the registration statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to Section
2.1 hereof is not declared effective by the SEC on or before the Registration
Deadline, or (ii) after the registration statement has been declared effective
by the SEC, sales of all the Registrable Securities (including any Registrable
Securities required to be registered pursuant to Section 3.2 hereof) cannot be
made pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Purchasers), then the Company will make payments to
the Purchasers in such amounts and at such times as shall be determined pursuant
to this Section 2.3 as partial relief for the damages to the Purchasers by
reason of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). The Company shall pay to each Purchaser
an amount equal to (i) (A) .025
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<PAGE> 5
times (B) the aggregate purchase price of the Convertible Securities held by
such Purchaser (including, without limitation, Convertible Securities that have
been converted into Conversion Shares (including Warrant Shares) then held by
such Purchaser) times (ii) the sum of: (A) the number of months (prorated per
day for partial months) following the Registration Deadline but prior to the
termination of the Registration Period prior to the date the Registration
Statement filed pursuant to Section 2.1 is declared effective by the SEC;
provided, however that there shall be excluded from such period any delays which
are solely due to the actions or inaction of the SEC or the accountants who have
audited the financial statements of the Company included in the Registration
Statement, which such cause and period of delay is evidenced in writing (so long
as such delays are not due to any action or inaction of the Company or any of
its officers, directors or agents, and notwithstanding the Company's use of its
best efforts to have the Registration Statement declared effective within such
120-day period), so long as the Registration Statement is declared effective
within 150 days following the First Closing plus (B) the number of months
(prorated per day for partial months) following the Registration Deadline but
prior to the termination of the Registration Period that sales cannot be made
pursuant to the Registration Statement after the Registration Statement has been
declared effective. Such amounts shall be paid in cash or, at each Purchaser's
option, may be convertible into Common Stock at the "Conversion Price" (as
defined in the Debenture). Any shares of Common Stock issued upon conversion of
such amounts shall be Registrable Securities. If the Purchaser desires to
convert or exercise the amounts due hereunder into Registrable Securities it
shall so notify the Company in writing within two (2) business days prior to the
date on which such amounts are first payable in cash and such amounts shall be
so convertible (pursuant to the terms of the Debenture or the comparable article
in Certificate of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period.
2.4 Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Company shall file with the
SEC a Registration Statement relating to a firm commitment underwritten offering
for its own account or the account of others under the Securities Act of any of
its equity securities (other than on Form S-4 or Form S-8 or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans and other than the
Registration Statement on Form SB-2 covering resales of up to 2,672,068 shares
of Common Stock, consisting only of shares of Common Stock issued pursuant to
the acquisition by the Company of certain shares of the capital stock of
Metacomp, Inc. and of shares owned by Robert E. Crawford, Jr., SEA Limited and
Shaw Laboratories Limited Money Purchase Plan, then the Company shall send to
each Purchaser who is entitled to registration rights under this Section 2.4
written notice of such determination and, if within fifteen (15) days after the
date of such notice, such Purchaser shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Purchaser requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof
50
<PAGE> 6
shall impose a limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Purchaser has requested inclusion
hereunder as the underwriter shall permit. Any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2.4 shall be construed
to limit any registration required under Section 2.1 or 3.2 hereof. If an
offering in connection with which a Purchaser is entitled to registration under
this Section 2.4 is an underwritten offering, then each Purchaser whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
2.5 Eligibility for Form S-3. The Company represents and warrants that
it meets the requirements for the use of Form S-3 for registration of the sale
by the Initial Purchasers and any other Purchaser of the Registrable Securities
and the Company shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold (and no further Registrable Securities may
be issued in the future) and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Initial Purchasers) may
be immediately sold to the public without registration, whether pursuant to Rule
144 or otherwise (the "Registration Period"). The Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein and all documents incorporated by reference therein) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading.
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<PAGE> 7
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the termination of the Registration Period or, if earlier, such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"Registration Trigger Date"), insufficient to cover one hundred fifty percent
(150%) of the Registrable Securities issued or issuable upon conversion of the
Convertible Securities and exercise of the Warrants held by any Purchaser, the
Company shall amend, if permissible, the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover two hundred percent (200%) of the Registrable Securities
issued or issuable to such Purchaser, in each case, as soon as practicable, but
in any event within fifteen (15) days after the Registration Trigger Date (based
on the market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. In the event the Company fails to obtain the
effectiveness of any such Registration Statement within ninety (90) days after a
Registration Trigger Date, each Purchaser shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a written notice to the Company (a "Redemption Notice"), to require the Company
to purchase for cash, at an amount per share equal to the Redemption Amount or
the Failure Amount (as defined in the Certificate of Designation and the
Debenture, respectively), a portion of the Purchaser's Convertible Securities
such that the total number of shares of Common Stock issuable to such Purchaser
upon conversion of its Convertible Securities and exercise of its Warrants does
not exceed 150% of the Registrable Securities issued or issuable upon conversion
of such Purchaser's Convertible Securities and exercise of its Warrants. If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such Purchaser shall be entitled
to the remedies provided in the Debenture or the Certificate of Designation.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments
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<PAGE> 8
and supplements thereto and such other documents as such Purchaser may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned (or to be owned) by such Purchaser.
3.4 The Company shall use reasonable efforts to (a) register and qualify
the Registrable Securities covered by the Registration Statement under
securities laws of such jurisdictions in the United States as each Purchaser who
holds (or has the right to hold) Registrable Securities being offered reasonably
requests, (b) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (c) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (d) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (i) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3.4, (ii) subject itself to general taxation in any such jurisdiction,
(iii) file a general consent to service of process in any such jurisdiction,
(iv) provide any undertakings that cause the Company material expense or burden,
or (v) make any change in its charter or by-laws, which in each case the board
of directors of the Company determines to be contrary to the best interests of
the Company and its stockholders.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
3.6 As promptly as practicable after becoming aware of such event, the
Company shall notify each Purchaser of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Purchaser as such Purchaser
may reasonably request.
3.7 The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable moment and to notify each Purchaser who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
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<PAGE> 9
3.8 The Company shall permit a single firm of counsel designated by the
Initial Purchasers to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
3.9 The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
3.10 At the request of any Purchaser, the Company shall furnish, on the
date of effectiveness of the Registration Statement and thereafter from time to
time on such dates as a Purchaser may reasonably request (a) an opinion, dated
as of such applicable date, from counsel representing the Company addressed to
the Purchasers and in form, scope and substances as is customarily given in an
underwritten public offering and (b) in the case of an underwriting, a letter,
dated as of such applicable date, from the Company's independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and the Purchasers.
3.11 The Company shall make available for inspection by (i) any
Purchaser, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Purchasers, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to a Purchaser) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3.11. Each Purchaser agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit a Purchaser's ability to sell
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<PAGE> 10
Registrable Securities in a manner which is otherwise consistent with applicable
laws and regulations.
3.12 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company unless (a) disclosure
of such information is necessary to comply with federal or state securities
laws, (b) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (c) the release of such
information is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction, (d) such information has been made
generally available to the public other than by disclosure in violation of this
or any other agreement, or (e) such Purchaser consents to the form and content
of any such disclosure. The Company agrees that it shall, upon learning that
disclosure of such information concerning a Purchaser is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Purchaser prior to making such disclosure, and allow the
Purchaser, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
3.13 The Company shall use its best efforts to cause the designation and
quotation of all the Registrable Securities covered by the Registration
Statement on the Nasdaq Small Cap Market ("NASDAQ") and, without limiting the
generality of the foregoing, to arrange for and maintain at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities and cause the
Registrable Securities to be quoted or listed on each additional national
securities exchange or quotation system upon which the Common Stock is then
listed or quoted.
3.14 The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Purchasers may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchasers may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
3.16 At the request of any Purchaser, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration
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<PAGE> 11
Statement and the prospectus used in connection with the Registration Statement
as may be necessary in order to change the plan of distribution set forth in
such Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Commission).
3.18 The Company shall take all such other actions as any Purchaser or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities.
3.19 From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement or any amendment
or supplement thereto under Section 2.1 or 3.2 hereof without the consent of the
holders of a majority of the Registrable Securities.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Purchaser that such Purchaser shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Purchaser of the information the
Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each
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<PAGE> 12
such Purchaser shall comply with the applicable prospectus delivery requirements
of the Securities Act in connection with any such sale.
4.4 Each Purchaser agrees to notify the Company promptly, but in any
event within 72 hours after the date on which all Registrable Securities owned
by such Purchaser have been sold by such Purchaser, if such date is prior to the
expiration of the Registration Period, so that the Company may comply with its
obligation to terminate the Registration Statement in accordance with Item 512
of Regulation S-K or Regulation S-B, as the case may be.
4.5 In the event Purchasers holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Purchaser agrees to enter into and perform such Purchaser's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Purchaser has notified
the Company in writing of such Purchaser's election to exclude all of such
Purchaser's Registrable Securities from the Registration Statement.
4.6 Each Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.6 or
3.7, such Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Purchaser's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.6 or 3.7 and, if so directed by the
Company, such Purchaser shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Purchaser's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
4.7 Without limiting a Purchaser's rights under Section 2.1 or 3.2
hereof, no Purchaser may participate in any underwritten distribution hereunder
unless such Purchaser (a) agrees to sell such Purchaser's Registrable Securities
on the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
agrees to pay its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company pursuant to Article
V.
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<PAGE> 13
ARTICLE V
EXPENSES OF REGISTRATION
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Articles II and III, including, without limitation,
all registration, listing and qualification fees, printers and accounting fees,
the fees and disbursements of counsel for the Company, and the reasonable fees
(which fees shall not exceed $10,000; provided that excluded from such
limitation shall be all fees relating to reliance by the Company on Rule 416 in
any registration statement required under Section 2.1 or 2.4 hereof) and
disbursements of one counsel selected by the Purchasers pursuant to Section 2.2
hereof shall be borne by the Company.
ARTICLE VI
INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
and (b) the directors, officers, partners, members, employees, agents and
persons who control any Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), if any, (each, an "Indemnified Person"), against any joint
or several losses, claims, damages, liabilities or expenses (collectively,
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6.3 with respect to the number of legal counsel, the Company shall reimburse the
Purchasers and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.1: (x) shall
not apply to a Claim
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arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use in the Registration Statement or any such
amendment thereof or supplement thereto; (y) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(z) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was
timely made available by the Company pursuant to Section 3.3 hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser
is participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and persons, if any, who control the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
subject to Section 6.3 such Purchaser will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable) reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6.2
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Purchaser, which consent
shall not be unreasonably withheld; provided, further, however, that a Purchaser
shall be liable under this Agreement (including this Section 6.2 and Article
VII) for only that amount as does not exceed the net proceeds actually received
by such Purchaser as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Purchasers pursuant to Article IX. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6.2
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, and the Indemnified Party failed to utilize
such corrected prospectus.
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<PAGE> 15
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party
under this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Article VI, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Purchasers holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Purchasers if they hold Registrable Securities included in such
Registration Statement), if the Purchasers are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
ARTICLE VII
CONTRIBUTION
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Article VI to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Article VI, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person of Registrable Securities who was
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not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement) by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to the Purchasers the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's obligations under
Section 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds
Convertible Securities, Warrants, or Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Purchasers to sell such
securities pursuant to Rule 144 without registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Purchasers hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Purchaser to any transferee of all or any
portion of the shares of the Debentures, the Preferred Shares, the Warrants or
the Registrable Securities if: (a) the Purchaser agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee, and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) following such transfer or assignment,
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, (d) at
or before the time the Company receives the written notice contemplated by
clause (ii) of this sentence, the transferee or assignee agrees in writing for
the benefit of the Company to be bound by all of the provisions contained
herein, and (e) such
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transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, the
Initial Purchasers (to the extent each Initial Purchaser still owns Debentures,
Preferred Shares, Warrants or Registrable Securities) and Purchasers who hold a
majority interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Article X shall be binding upon each Purchaser
and the Company.
ARTICLE XI
MISCELLANEOUS
11.1 A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Patriot Scientific Corporation
10989 Via Frontera
San Diego, California 92127
Telecopy: (619) 674-5005
Attention: Lowell W. Giffhorn
with a copy to:
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Telecopy: (619) 232-8311
Attention: Otto E. Sorensen
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and with a copy to:
Robert Putnam
13112 Evening Creek Drive South
San Diego, California 92128
Telecopy: (619) 679-0545
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, Illinois 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
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and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 715-4800
Attention: Kenneth M. Crane
If to The Matthew Fund, N.V.:
ABN-AMRO Trust Co. (Cayman Ltd.)
Picadilly Centre
4th Floor
Grand Cayman, B.W.I.
Attention: Joseph Keane
and with a copy to:
Swartz Investments, LLC
200 Roswell Summit
Suite 285
1080 Holcomb Bridge Road
Roswell, Georgia 30076
Attention: Frank Mauro
and if to any other Purchaser, at such address as such Purchaser, shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11.2.
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
11.4 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The parties hereto irrevocably consent to
the jurisdiction of the United States federal courts and courts of the State of
Delaware located in the County of Kent in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. The parties hereto irrevocably waive the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The parties hereto further
agree that service of process upon the parties hereto mailed by first class mail
shall be deemed in every respect effective service of process upon each such
party in any such suit or proceeding. Nothing herein shall affect either party's
right to serve process in any other manner permitted by law. The parties hereto
agree that a final non-
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<PAGE> 20
appealable judgment in any such suit or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
11.5 This Agreement, the Debentures, the Certificate of Designation, the
Warrants, and the Securities Purchase Agreement (including all schedules and
exhibits thereto and all certificates and opinions required thereby) constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, the Debentures, the Warrants and the Securities Purchase Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
11.7 The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
11.10 All consents and other determinations to be made by the Purchasers
or the Initial Purchasers pursuant to this Agreement shall be made by the
Purchasers or the Initial Purchasers holding a majority of the Registrable
Securities (determined as if all Convertible Securities and Warrants then
outstanding had been converted into or exercised for Registrable Securities)
held by all Purchasers or Initial Purchasers, as the case may be.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Purchasers based on the
number of Registrable Securities held by each Purchaser at the time of such
establishment or increase, as the case may be. In the event a Purchaser shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold
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any Registrable Securities shall be allocated to the remaining Purchasers, pro
rata based on the number of shares of Registrable Securities then held by such
Purchasers. Without implication that the contrary would otherwise be true, for
purposes of this paragraph, all Convertible Securities and Warrants then
outstanding shall be assumed converted into or exercised for Registrable
Securities.
11.12 If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
* * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
PATRIOT SCIENTIFIC CORPORATION
By: /s/ELWOOD G. NORRIS By:/s/MICHAEL A. CARENZO
- ----------------------- ------------------------
Elwood G. Norris Michael A. Carenzo
Chairman and a Director President, Chief Executive Officer,
and a Director
Initial Purchasers:
CC INVESTMENTS, LDC
By CSS Corporation Ltd., Corporate Secretary
By:/s/ W. KEUNEN By:/s/ S. FORWARD
---------------- -----------------
W. Keunen S. Forward
THE MATTHEW FUND, N.V.
By ABN-AMRO Trust Co. (Cayman Ltd.)
By:/s/JOSEPH KEANE By:/s/ DAWN DANIELS
------------------ -------------------
Joseph Keane Dawn Daniels
Managing Director
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<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
FORM 8-K
Current Report
EXHIBIT NO. 4.7
Form of Warrant to Purchase Common Stock
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<PAGE> 2
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
76,500 shares
WARRANT TO PURCHASE COMMON STOCK
OF
PATRIOT SCIENTIFIC CORPORATION
THIS CERTIFIES that Swartz Family Partnership, L.P. or any subsequent
("Holder") hereof, has the right to purchase from PATRIOT SCIENTIFIC
CORPORATION, a Delaware corporation (the "Company"), not more than 76,500 fully
paid and nonassessable shares of the Company's Common Stock, par value $.00001
per share ("Common Stock"), at a price equal to the Exercise Price as defined in
Section 3 below, subject to adjustment as provided herein, at any time on or
before 5:00 p.m., San Diego, California time, on May 31, 2002.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on June 2, 1997 ("Date of
Issuance").
2. Exercise.
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly executed, together
with the full Exercise Price (as defined in Section 3) for each share of Common
Stock as to which this Warrant is exercised, at the office of the Company,
Patriot Scientific Corporation, 10989 Via Frontera, San Diego, California 92127,
Attention: President, Telephone No. 619-679-4428, Telecopy No. 619-674-5000, or
at such other office or agency as the Company may designate in writing, by
overnight mail, with an advance copy of the Exercise Form attached as Exhibit A
("Exercise Form") by facsimile (such surrender and payment of the Exercise Price
hereinafter called the "Exercise of this Warrant").
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<PAGE> 3
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company within five (5) business days thereafter. The
original Warrant and Exercise Form must be received within five (5) business
days of the Date of Exercise, or the exercise may, at the Company's option, be
considered void. Alternatively, the Date of Exercise shall be defined as the
date the original Exercise Form is received by the Company, if Holder has not
sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price") shall equal $1.69125.
For purposes hereof, the term "Closing Price" shall mean the closing
price on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") Small Cap Market or OTC Bulletin Board, or if no longer traded
on the Nasdaq Small Cap Market or OTC Bulletin Board, the closing price on the
principal national securities exchange or the National Market System on which
the Common Stock is so traded and, if not available, the mean of the high and
low prices on the principal national securities exchange or the National
Securities Exchange on which the Common Stock is so traded.
Payment of the Exercise Price may be made by either of the following, or
a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire
transfer; or
(ii) Cashless Exercise: surrender of this Warrant at the principal
office of the Company together with notice of cashless election, in which event
the Company shall issue Holder a number of shares of Common Stock computed using
the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
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<PAGE> 4
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of
Common Stock (for purposes of this Section 3(ii), the "Market
Price" shall be defined as the average closing price of the
Common Stock for the five (5) trading days prior to the Date of
Exercise of this Warrant (the "Average Closing Price"), as
reported by Nasdaq or if the Common Stock is not traded on
Nasdaq, the Average Closing Price in the over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange. If the Common Stock is/was not traded during the
five (5) trading days prior to the Date of Exercise, then the
closing price for the last publicly traded day shall be deemed to
be the closing price for any and all (if applicable) days during
such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and the Holder of this Warrant shall be entitled to receive a new
Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitute "Registrable Securities" under that certain
Registration Rights Agreement dated on or about May 30, 1997 by and between the
Company and Swartz Investments, LLC and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the
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determination of Holders of Common Stock entitled to receive such dividend,
shall be entitled to receive upon Exercise of this Warrant, in addition to the
number of shares of Common Stock as to which this Warrant is Exercised, such
additional shares of Common Stock as such Holder would have received had this
Warrant been Exercised immediately prior to such record date and the Exercise
Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to
Holders of Common Stock cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or preceding year) then, in any such case, the
Holder of this Warrant shall be entitled to receive, upon exercise of this
Warrant, with respect to each share of Common Stock issuable upon such Exercise,
the amount of cash or evidences of indebtedness or other securities or assets
which such Holder would have been entitled to receive with respect to each such
share of Common Stock as a result of the happening of such event had this
Warrant been Exercised immediately prior to the record date or other date fixing
shareholders to be affected by such event (the "Determination Date") or, in lieu
thereof, if the Board of Directors of the Company should so determine at the
time of such distribution, a reduced Exercise Price determined by multiplying
the Exercise Price on the Determination Date by a fraction, the numerator of
which is the result of such Exercise Price reduced by the value of such
distribution applicable to one share of Common Stock (such value to be
determined by the Board in its discretion) and the denominator of which is such
Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be assumed by the
acquiring entity or any affiliate thereof and thereafter this Warrant shall be
exerciseable into such class and type of securities or other assets as the
Holder would have received had the Holder exercised this Warrant immediately
prior to such Corporate Change; provided, however, that Company may not affect
any Corporate Change unless it first shall have given thirty (30) business days
notice to the Holder hereof of any Corporate Change.
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(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, as it may be adjusted from time to time, until the occurrence of an
event stated in subsection (a), (b) or (c) of this Section 5 and thereafter
shall mean said price as adjusted from time to time in accordance with the
provisions of said subsection. No such adjustment under this Section 5 shall be
made unless such adjustment would change the Exercise Price at the time by $.01
or more; provided, however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the Exercise Price at the time
by $.01 or more. No adjustment made pursuant to any provision of this Section 5
shall have the effect of increasing the total consideration payable upon
Exercise of this Warrant in respect of all the Common Stock as to which this
Warrant may be exercised. Notwithstanding anything to the contrary contained
herein, the Exercise Price shall not be reduced to an amount below the par value
of the Common Stock.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
the Holder of this Warrant shall, upon Exercise of this Warrant, become entitled
to receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
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<PAGE> 7
6. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, the Holder hereof may purchase only a whole number of shares of Common
Stock. If, on Exercise of this Warrant, the Holder hereof would be entitled to a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number
of authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for
Exercise and payment of the Exercise Price of this Warrant. The Company
covenants and agrees that upon Exercise of this Warrant, all shares of Common
Stock issuable upon such Exercise shall be duly and validly issued, fully paid,
nonassessable and not subject to preemptive rights, rights of first refusal or
similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant and the
Common Stock issuable on Exercise hereof have not been registered under the
Securities Act of 1933, as amended, and may not be sold, transferred, pledged,
hypothecated or otherwise disposed of in the absence of registration or the
availability of an exemption from registration under said Act. All shares of
Common Stock issued upon Exercise of this Warrant shall bear an appropriate
legend to such effect, if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
days, and shall deliver to the assignee(s) designated by Holder a Warrant or
Warrants of like tenor and terms for the appropriate number of shares.
(c) Investment Intent. The Warrant and Common Stock issuable upon
conversion are intended to be held for investment purposes and not with an
intent to distribution, as defined in the Act.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and the Holder of this Warrant any legal or
equitable right, remedy or claim under this Warrant and this Warrant shall be
for the sole and exclusive benefit of the Company and the Holder of this
Warrant.
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<PAGE> 8
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of Delaware,
without giving effect to conflict of law provisions thereof.
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<PAGE> 9
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably 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.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company,
Patriot Scientific Corporation, 10989 Via Frontera, San Diego, California
92127), Attention: President, Telephone No. 619-679-4428, Telecopy No.
619-674-5005. Notices or demands pursuant to this Warrant to be given or made by
the Company to or on the Holder of this Warrant shall be sufficiently given or
made if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, Attn: Holder, address: c/o Swartz Investments, LLC, 200
Roswell Summit, Suite 285, 1080 Holcomb Bridge Road, Roswell, Georgia 30076,
until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
2nd day of June, 1997.
PATRIOT SCIENTIFIC CORPORATION
By: /s/ LOWELL W. GIFFHORN
-----------------------------
Lowell Giffhorn
Chief Financial Officer
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<PAGE> 10
EXHIBIT A
EXERCISE FORM
TO: ___________________.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of PATRIOT SCIENTIFIC CORPORATION, a
__________ corporation, evidenced by the attached Warrant, and herewith makes
payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any of such Common Stock, except in accordance with the provisions of Section
8 of the Warrant, and consents that the following legend may be affixed to the
stock certificates for the Common Stock hereby subscribed for, if such legend is
applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
provincial or state securities law, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of until either (i) a
registration statement under the Securities Act and applicable
provincial or state securities laws shall have become effective with
regard thereto, or (ii) an exemption from registration under the
Securities Act or applicable provincial or state securities laws is
available in connection with such offer, sale or transfer."
The undersigned requests that stock certificates for such shares be
issued, and a warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Registered Holder and delivered to
the undersigned at the address set forth below:
Dated:
- ------------------------------------------------------------------------
Signature of Registered Holder
- ------------------------------------------------------------------------
Name of Registered Holder (Print)
- ------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of PATRIOT SCIENTIFIC CORPORATION
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
- -----------------------------------
Name
- -----------------------------------
Address
- -----------------------------------
Please print name and address of assignee
(including zip code number)
- -----------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
- ------------------------------------------------------------------------
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<PAGE> 1
PATRIOT SCIENTIFIC CORPORATION
FORM 8-K
Current Report
EXHIBIT NO. 4.8
Registration Rights Agreement
79
<PAGE> 2
PATRIOT SCIENTIFIC CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
June 2, 1997, by and between PATRIOT SCIENTIFIC CORPORATION, a Delaware
corporation ("Company"), and SWARTZ INVESTMENTS, LLC, a Georgia limited
liability corporation, on behalf of itself and its designees or permitted
assigns ("Swartz" sometimes referred to herein, together with its designees or
permitted assigns, as "Holder" or "Holders") with respect to the Company's
offering ("Offering") of up to Three Million Dollars ($3,000,000) of Convertible
Term Debentures and/or Convertible Preferred Stock ("Securities") pursuant to
the Securities Purchase Agreements between the Company and certain investors.
1. REQUIRED REGISTRATION. The Company shall cause to be included
in the "Required Registration Statement" (as defined below) the resale of all of
the Common Stock ("Warrant Shares") issuable upon exercise of the warrants
("Warrants") issued to Holders on or about June 2, 1997 in connection with the
Offering. For purposes hereof, "Required Registration Statement" shall mean the
SEC registration statement filed on Form S-3 (or other appropriate form)
pursuant to the Registration Rights Agreement by and among the Company, CC
Investments, LDC and the Matthew Fund, N.V., on or about June 2, 1997 in
conjunction with the Offering, and thereafter shall not be obligated to effect a
Piggyback Registration under Section 2 hereof for as long as the Required
Registration Statement is maintained effective.
2. PIGGYBACK REGISTRATION. If (but without any obligation to do
so) the Company proposes to register any of its Common Stock under the Act in
connection with the public offering of such securities solely for cash (other
than (i) a registration relating solely to the sale of securities to
participants in a Company stock or other benefit plan, or (ii) a registration of
stock options, stock purchase or compensation or incentive plans or securities
issued or issuable pursuant to any such plan on Form S-8 or comparable form then
in effect), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given by
fax within ten (10) days after mailing of such notice by the Company, which
request shall state the intended method of disposition of such shares by such
Holder, the Company shall cause to be included in such registration all of the
Warrant Shares that each such Holder has requested to be registered (a
"Piggyback Registration").
3. EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1 or 2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company (and including the reasonable fees
and disbursements incurred of only one counsel for the selling Holders selected
by them) shall be borne by the Company.
4. INDEMNIFICATION. In the event any Warrant Shares are included
in a registration statement under this Agreement:
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(a) To the extent permitted by law, the Company will indemnify and hold
harmless each "Holder Indemnified Persons" (defined for purposes of this Section
4 as each Holder, the officers and directors of each Holder acting in their
capacity as such, any underwriter (as defined in the Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Act or the Securities Exchange Act of 1934, as amended (the "1934 Act")),
against any losses, claims, damages, expenses, or liabilities (joint or
several)("Losses") to which they may become subject under the Act, the 1934 Act
or other federal or state law, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
of a material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or (ii) the omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation by the Company of the Act, the 1934 Act, any
state securities law or rule or regulation promulgated under the Act, the 1934
Act, or any state securities law and the Company will reimburse each such Holder
Indemnified Person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Loss or action; provided,
however, that the indemnity agreement contained in this subsection 4(a) shall
not apply to amounts paid in settlement of any such Loss or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such Loss or action to the extent that it arises out of or is based upon
a Violation which occurs (i) in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder Indemnified Person, or (ii) the failure of such Holder
Indemnified Person to deliver a copy of the registration statement or the
prospectus, or any amendments or supplements thereto, after the Company or
underwriters has furnished such person with a sufficient number of copies of the
same.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the "Company Indemnified Persons" (defined for the purpose of
this Section 4 as the Company, each of its directors in their capacity as such,
each of its officers who have signed the registration statement in their
capacity as such, each person, if any, who controls the Company within the
meaning of the Act in their capacity as such, any underwriter and any other
Holder Indemnified Person selling securities in such registration statement),
against any Loss (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or controlling person, or other such
Holder Indemnified Person may become subject, under the Act, the 1934 Act or
other federal or state law, insofar as such Loss (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company and any such Company
Indemnified Person in connection with investigating or defending any such Loss
or action; provided, however, that the indemnity agreement contained in this
subsection 4(b) shall not apply to amounts paid in settlement of any such Loss
or action if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld); provided, that, in no event
shall any indemnity under this subsection 4(b) exceed the gross proceeds from
the offering received by such Holder.
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<PAGE> 4
(c) Promptly after receipt by an indemnified party under this Section 4
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 4, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding; provided, further, that the
indemnifying party shall be responsible for the fees and expenses incurred by
only one (1) counsel for all indemnified parties. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 4, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 4.
(d) If the indemnification provided for in this Section 4 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any Loss, then the indemnifying party, in lieu of indemnifying the
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such Loss in such proportion as such court
finds appropriate to reflect the relative fault of the indemnifying party, on
the one hand, and the indemnified party, on the other, in connection with the
statements or omissions that resulted in such Loss as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by the indemnifying party
or the indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) The obligations of the Company and Holders under this Section 4
shall survive the completion of any offering of Warrant Shares in a registration
statement under this Agreement.
5. FURNISH INFORMATION. It shall be condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall timely furnish to the Company such information
regarding themselves, the Warrant Shares held by them, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Warrant Shares or to determine that registration is not
required pursuant to Rule 144 or other applicable provision of the Act, as well
as to execute any agreements as may be reasonably requested by the Company in
connection therewith.
6. MISCELLANEOUS
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<PAGE> 5
(a) Company use its best efforts to maintain any registration statement
filed under this Agreement effective as provided above until the distribution
described in that registration statement has been completed or the Securities
are sold pursuant to Rule 144 of the Securities Act of 1933.
(b) Each Holder shall give the Company one business day's prior written
notice of any proposed sale of Warrant Shares under the registration statement,
and shall not make such sale unless (i) one business day lapses without response
from the Company, or (ii) the Company notifies the Holder in writing that the
registration statement requires a post-effective amendment or supplement to be
current. In the event of (ii) above, and subject to section 4 above, the Company
shall use its reasonable efforts to file a complete and accurate post-effective
amendment or supplement with the SEC and have any such amendment declared
effective as soon as reasonably possible and provide copies to the Holders to
enable them to sell their Warrant Shares in accordance with applicable law and
regulations.
(c) Any provision of this Agreement may be amended and the observance
thereof may be waived only with the written consent of the Company and the
Holders of a majority of the Warrant Shares. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder, each future
Holder, and the Company. The undersigned acknowledge that Holders of the Warrant
Shares are third party beneficiaries of this Agreement.
(d) All notices required or permitted under this Agreement shall be made
in writing signed by the party making the same, shall specify the section under
this Agreement pursuant to which it is given, and shall be addressed if to (i)
the Company at: Patriot Scientific Corporation, 10989 Via Frontera, San Diego,
California 92127, Attention: President, Telephone No. 619-674-5000, Telecopy No.
619-674-5005 and (ii) the Holders at their respective last address as the party
shall have furnished in writing as a new address to be entered on such register.
Any notice, except as otherwise provided in this Agreement, shall be made by fax
and shall be deemed given at the time of transmission of the fax.
(e) This Agreement shall terminate on the earlier of (i) the date that
is five (5) years from the date of this Agreement and (ii) the date that all of
the Warrants have been exercised and all of the resulting Warrant Shares have
been sold either under the Registration Statement or pursuant to Rule 144 of the
Securities Act of 1933; but without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination or (ii) other indemnification obligations under this Agreement.
(f) The rights of a Holder under this Agreement may be transferred to a
subsequent holder of the Holder's Warrant Shares (provided such transferee shall
provide to the Company, together with or prior to such transferee's request to
have such Registrable Shares included in a Demand Registration or Piggyback
Registration, a copy of this Agreement executed by such transferee agreeing to
be bound as a Holder by the terms of this Agreement).
(g) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, U.S.A. applicable to agreements made in and
wholly to be performed in that jurisdiction, except for matters arising under
the Act or the Securities Exchange Act of 1934, which
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matters shall be construed and interpreted in accordance with such laws. Any
action brought to enforce, or otherwise arising out of, this Agreement shall be
heard an determined only in either a federal or state court sitting in the
county of Dover in the State of Delaware, U.S.A.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
PATRIOT SCIENTIFIC CORPORATION
By: /s/ LOWELL W. GIFFHORN
--------------------------
Lowell W. Giffhorn
Chief Financial Officer
SWARTZ INVESTMENTS, LLC
By: _/s/ ERIC SWARTZ
--------------------
Eric Swartz
President
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