SECURITIES AND EXCHANGE COMMISSION
FORM S-3
PATRIOT SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-1070278
(State or Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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10989 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
(858) 674-5000
(Address and telephone number of registrant's principal executive offices)
ROBERT PUTNAM, SECRETARY
PATRIOT SCIENTIFIC CORPORATION
10989 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
(858) 674-5000
(Name, address and telephone number of agent for service)
COPIES TO:
OTTO E. SORENSEN, ESQ.
STEVEN J. DAVIS, ESQ.
LUCE, FORWARD, HAMILTON & SCRIPPS LLP
600 WEST BROADWAY, SUITE 2600
SAN DIEGO, CALIFORNIA 92101
(619) 236-1414
(619) 232-8311 (fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Per Unit(1) Aggregate Offering Price Registration Fee
--------------------------------- ------------ -------------------------- ------------------------ ----------------
Common Stock, $.00001 par value 12,000,000 $2.50 $30,000,000 $ 7,920.00
Common Stock, $.00001 par value(2) 5,318,448 $2.50 $13,296,120 $ 3,510.18
TOTAL 17,318,448 $2.50 $43,296,120 $11,430.18
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(1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended (the "Act"), based on the average of the closing bid and asked prices for the Registrant's Common Stock (the "Common Stock") as reported on the OTC Electronic Bulletin Board on May 3, 2000.
(2) Issuable upon the exercise of Common Stock Purchase Warrants issued or issuable to Selling Shareholders.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.
Subject to Completion, Dated May 5, 2000
P R O S P E C T U S
PATRIOT SCIENTIFIC CORPORATION
10989 Via Frontera
San Diego, California 92127
(858) 674-5000
THE OFFERING
The resale of up to 17,318,448 shares of common stock in the over-the-counter market at the prevailing market price or in negotiated transactions.
- up to 12,000,000 shares are issuable to Swartz Private Equity, LLC as put shares,
- up to 1,800,000 shares are issuable upon the exercise of warrants issuable to Swartz, and
- 3,518,448 shares are issuable upon the exercise of warrants issuable to other selling shareholders.
We will receive no proceeds from the sale of the shares by the selling shareholders. However, we may receive proceeds from the sale of shares to Swartz and, if exercised, will receive proceeds from the sale of shares issuable upon the exercise of warrants by Swartz and certain other selling shareholders.
TRADING SYMBOL
PTSC (Over-the-counter Electronic Bulletin Board)
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
Please refer to Risk Factors Beginning on Page 6
The Securities and Exchange Commission (SEC) and state securities regulators have not approved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Please read this prospectus carefully. It describes our company, finances and products. Federal and state securities laws require that we include in this prospectus all the important information that you will need to make an investment decision.
You should rely only on the information contained in this prospectus to make your investment decision. We have not authorized anyone to provide you with information that is different from what is contained in this prospectus.
The following table of contents has been designed to help you find important information contained in this prospectus. We have included subheadings to aid you in searching for particular information you might want to return to. We encourage you to read the entire prospectus.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY 4
About our company 4
About our products and market 4
About our investment agreement 5
Additional shares we are registering 5
Key facts 5
RISK FACTORS 6
Our major product line has had limited revenues 6
We have incurred significant losses and may continue to do so 6
Our independent certified public accountants have added an explanatory
paragraph to their opinion 6
We will require additional financing 7
Our products may not be completed on time 7
The market in which we operate is highly competitive 7
Protection of our intellectual property is limited; there is a risk of
claims for infringement 8
We are a defendant in a pending lawsuit 8
Our products are dependent on the internet, ISDN, Java
and government funding 9
Violation of Section 5 of the Securities Act 9
Forward-looking statements 10
PLAN OF DISTRIBUTION 10
SELLING SHAREHOLDERS 11
Investment agreement 11
Overview 11
Put rights 11
Warrants 11
Limitations and conditions precedent to our put rights 12
Short sales 12
Cancellation of puts 12
Shareholder approval 12
Termination of investment agreement 13
Restrictive covenants 13
Right of first refusal 13
Swartz's right of indemnification 13
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Page
Additional shares being registered 13
Warrants 13
Selling shareholders 14
AVAILABLE INFORMATION 15
USE OF PROCEEDS 16
DESCRIPTION OF SECURITIES 17
LEGAL OPINION 18
EXPERTS 18
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 18
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PROSPECTUS SUMMARY
ABOUT OUR COMPANY
We develop, market, and sell microprocessors, our technology behind the microprocessors, and communication products which enable computers to talk to one another. These products can be used to connect to the Internet or other telecommunication networks. We also own special radar technology which, when fully developed, may allow us to penetrate the ground or structures to find various objects. We also owned gas plasma antenna technology which we sold for $250,000 in August 1999. We potentially could receive up to an additional $250,000 from the sale of the gas plasma technology in the form of royalties. Our strategy is to exploit our technologies through product sales, licensing, and strategic alliances.
ABOUT OUR PRODUCTS AND MARKET
The market for our products is growing swiftly because of the Internet. The Internet provides its users with new ways to communicate and to do business. The growth of the Internet is creating a demand for equipment such as ours, including our microprocessor, traditional analog modems and higher speed digital modems. The Internet has also introduced a new programming language known as Java. With Java, data and programs do not have to be stored on the user's computer; they can reside anywhere on the Internet to be called upon as needed. Java can run on a variety of computer operating systems, thus avoiding the problem of incompatibility across networks, and Java offers a high degree of data security. Because of Java's useful features, we believe that it may also become a popular programming language for another type of computer application known as embedded systems or controls. Our microprocessor enables people to program more efficiently in Java.
A microprocessor is the computer chip that provides intelligence for electronic devices. Our microprocessor technology, trade named ShBoom, uses our simplified proprietary design to produce a single high-performance computer chip, which can be used instead of several different chips to perform the same function. Our first microprocessors, the PSC1000 family, are targeted as Java programming language processors and for use in embedded controllers. Embedded controllers are used in sophisticated products, such as laser printers, motion and industrial controllers, cable and satellite modems and television set-top boxes. We are also licensing the ShBoom technology to others which allows them to customize applications of the technology depending upon their requirements.
One of our communication products, the CyberShark digital modem, provides consumers with a high-performance interface between a computer and telephone lines. We also offer original equipment manufacturers, systems integrators and value added resellers products for high speed access to the Internet, remote access drivers, video conferencing equipment and digital telephony products.
Our ground penetrating radar prototype has demonstrated the ability to see through solid objects (walls and barriers) and in certain types of ground has been able to see objects as small as six inches in size at a depth of ten feet.
ABOUT OUR INVESTMENT AGREEMENT
We have entered into an investment agreement with Swartz Private Equity, LLC to raise up to $30 million through a series of sales of our common stock. The dollar amount of each sale is limited by our common stock's trading volume, and a minimum period of time must elapse between each sale. Each sale will be to Swartz. In turn, Swartz will either sell our stock in the open market, place our stock through negotiated transactions with other investors, or hold our stock in their own portfolio. This prospectus covers the resale of our stock by Swartz either in the open market or to other investors.
ADDITIONAL SHARES WE ARE REGISTERING
Recently, we issued short-term notes (with warrants attached) payable to private investors. The resale of the common stock by these private investors, obtainable on the exercise of the warrants, is included in this registration.
KEY FACTS
Shares being offered for resale to the public 17,318,448
Total shares outstanding prior to the offering 50,991,374 as of May 3, 2000
Total shares outstanding after the offering 68,309,822
Total shares outstanding after the offering and
exercise of all options/warrants 72,854,507
Price per share to the public Market price at time of resale
Total proceeds raised by offering None, however up to $30 million may be
received from Swartz under the
investment agreement and additional
amounts may be received from the
exercise of warrants
Investment agreement Our investment agreement with Swartz
is included as an exhibit to this
registration statement
Dividend policy No dividends expected
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RISK FACTORS
The common shares being offered for resale by the selling shareholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose their entire investment in the common shares. Before purchasing any of the common shares, you should carefully consider the following factors relating to our business and prospects.
PATRIOT'S MAJOR PRODUCT LINE, THE MICROPROCESSOR, HAS HAD LIMITED REVENUES AND IS STILL IN THE PRE-PRODUCTION STAGE OF DEVELOPMENT
We are in the pre-production stage of development on our major product line, the microprocessor, which has had limited revenues. Our other product lines have not generated enough revenue to support our company. Therefore, we have limited financial results upon which you may judge our potential. We may not become profitable. We have experienced in the past and may experience in the future many of the problems, delays and expenses encountered by any early stage business, many of which are beyond our control. These include:
- substantial delays and expenses related to testing and development of our new products,
- production and marketing problems encountered in connection with our new and existing products and technologies,
- competition from larger and more established companies, and
- lack of market acceptance of our new products and technologies.
PATRIOT HAS A HISTORY OF LOSSES, EXPECTS FUTURE LOSSES AND MAY NOT ACHIEVE OR SUSTAIN ANNUAL PROFITABILITY
We expect to incur operating losses in the future. Sales of our products may never generate sufficient revenues to fund our continuing operations. We may never generate positive cash flow or attain profitability. To date, we have incurred significant losses. As of February 29, 2000, our accumulated deficit was $30,553,919. For the fiscal year ended May 31, 1999, we incurred a net loss of $4,276,456 and for the previous fiscal year a net loss of $7,514,785. These losses have resulted primarily from:
- significant costs associated with the development of our products,
- costs associated with the marketing of those products,
- the interest charges and expenses related to previous equity and debt financings, and
- compensation costs related the cashless exercise of options and to the earnout of escrowed common shares.
PATRIOT'S CERTIFIED PUBLIC ACCOUNTANTS HAVE ADDED AN EXPLANATORY PARAGRAPH TO THEIR OPINION ON PATRIOT'S FINANCIAL STATEMENT
In connection with their report on our Consolidated Financial Statements as of and for the year ended May 31, 1999, our independent certified public accountants expressed substantial doubt about our ability to continue operating as a going concern because of recurring net losses and negative cash flow from operations.
PATRIOT MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND ITS OPERATIONS WHEN NEEDED
A lack of additional funding could force us to substantially curtail or cease our operations, which would have a material adverse effect on our business. Our ability to raise funds under the investment agreement is subject to certain conditions. These conditions include the effectiveness of a registration statement covering the resale of the shares sold under the investment agreement and a limitation on our ability to issue shares based on the volume of trading in the common stock. We anticipate that our future cash requirements may be supplemented by improved product sales, the sale of additional equity securities, debt financing and/or the sale or licensing of certain of our technologies. However, there can be no assurance that any future funds required will be generated from operations or from other potential sources. Further, any such required funds may only be available on unattractive terms and may significantly dilute the value of our existing shares.
PATRIOT MAY EXPERIENCE DIFFICULTIES IN THE INTRODUCTION OF NEW PRODUCTS THAT COULD RESULT IN PATRIOT HAVING TO INCUR SIGNIFICANT UNEXPECTED EXPENSES OR DELAY THE LAUNCH OF NEW PRODUCTS
Our technologies and products are in various stages of development. These development stage products may not be completed in time to allow production or marketing due to the inherent risks of new product and technology development, limitations on financing, competition, obsolescence, loss of key personnel and other factors. Although we may license some of our technology at its current stage of development, there can be no assurance that we will be able to do so. Unanticipated technical obstacles can arise at any time and result in lengthy and costly delays or in a determination that further development is not feasible. Discovery of microprocessor design errors, frequent in the industry prior to and after production, could result in lengthy and costly redesign, fabrication (production) and testing in an industry where new technology rapidly eclipses prior innovations.
The development of our technologies has taken longer than anticipated and could be additionally delayed. Therefore, there can be no assurance of timely completion and introduction of improved products on a cost-effective basis, or that such products, if introduced, will achieve market acceptance such that, in combination with existing products, they will sustain us or allow us to achieve profitable operations.
INTENSE COMPETITION IN THE MARKET FOR MICROPROCESSORS COULD PREVENT PATRIOT FROM INCREASING OR SUSTAINING REVENUE AND PREVENT PATRIOT FROM ACHIEVING OR SUSTAINING ANNUAL PROFITABILITY
Our products could be rendered noncompetitive or obsolete. Technological competition from larger and more established microprocessor, digital communication and radar companies is significant and expected to increase. Most of the companies with which we compete and expect to compete have far greater capital resources and more significant research and development staffs, marketing and distribution programs and facilities, and many of them have substantially greater experience in the production and marketing of products. Our ability to compete effectively may be adversely affected by the ability of these competitors to devote greater resources to the sale and marketing of their products than we can. In addition, one or more of our competitors may succeed or may already have succeeded in developing technologies and products that are more effective than
any of those we currently offer or are developing.
PATRIOT'S LIMITED ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT ITS ABILITY TO COMPETE
A successful challenge to our ownership of our technology could materially damage our business prospects. Our technologies may infringe upon the proprietary rights of others. Licenses required by us from others may not be available on commercially reasonable terms, if at all. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We currently have eight U.S. patents issued and five U.S. patents pending. We have one patent pending in Europe and Japan and have filed an application for another patent in Europe, Japan and elsewhere. Any issued patent may be challenged and invalidated. Patents may not issue from any of our pending applications. Any claims allowed from existing or pending patents may not be of sufficient scope or strength to provide significant protection for our products. Patents may not be issued in all countries where our products can be sold so as to provide meaningful protection or any commercial advantage to us. Our competitors may also be able to design around our patents.
Vigorous protection and pursuit of intellectual property rights or positions characterize the fiercely competitive semiconductor industry, which has resulted in significant and often protracted and expensive litigation. Therefore, our competitors may assert that our technologies or products infringe on their patents or proprietary rights. Problems with patents or other rights could increase the cost of our products or delay or preclude new product development and commercialization by us. If infringement claims against us are deemed valid, we may not be able to obtain appropriate licenses on acceptable terms or at all. Litigation could be costly and time-consuming but may be necessary to protect our future patent and/or technology license positions or to defend against infringement claims.
We did not develop the basic ShBoom technology. We acquired the rights in this technology through a series of agreements from two co- inventors. We have been, and may again be, subject to claims from such prior parties related to the technology. Such parties may also attempt to exploit the technology independently of our rights to do so. One of the co-inventors of this technology has filed a lawsuit against another prior owner and us. Although many of the issues raised in this lawsuit have been dismissed in favor of the prior owner and us, one issue related to the release of our common shares to the co-inventor is still open and may go to trial if not resolved. The asset purchase agreement and plan of reorganization between Patriot, nanoTronics Corporation and Helmut Falk was the agreement under which we acquired the basic ShBoom technology. The agreement also contained a number of warranties and indemnities related to the ownership of the technology and other matters. We believe nanoTronics Corporation has been liquidated and, due to Mr. Falk's death in July 1995, our ability to obtain satisfaction for any future claims as a result of a breach of the agreement may be limited.
PATRIOT CAN NOT PREDICT THE OUTCOME OF A LAWSUIT IN WHICH IT IS A DEFENDANT
In October 1998, we were sued in the District Court for Travis County, Texas by a co-inventor of the original ShBoom technology. We removed the suit to the United States District Court for the Western District of Texas, Austin Division, where it was dismissed because the court
did not have jurisdiction over us. The suit has been refiled in the Superior Court of San Diego County, California. The suit also names as defendants nanoTronics and Gloria Felcyn on behalf of the Falk Family Trust. We purchased the technology from nanoTronics in 1994. The suit sought a judgment for damages based on royalties allegedly due the co-inventor, a rescission of the technology transfer agreement between nanoTronics and the co-inventor, and a restoration of the technology to the co-inventor. In February 2000 the judge ruled in our favor on all of the above issues, however, there remains one additional issue related to the release of our common shares to the co-inventor. If we can not settle out of court with the co-inventor, this remaining issue may go to trial. We and the other defendants intend to vigorously contest the plaintiff's last allegation.
PATRIOT IS DEPENDENT ON THE INTERNET, ISDN AND JAVA FOR ACCEPTANCE OF ITS PRODUCTS
The marketing of our digital communication products and microprocessor products will depend in large part upon a robust and growing industry and infrastructure for providing Internet access and carrying Internet traffic and the emergence of Java as a widespread programming language for the Internet or in embedded applications. The infrastructure or complementary products necessary to make the Internet a viable commercial marketplace may not be developed, or, even if they are developed, the Internet may not become a viable commercial marketplace. Even if the Internet continues its robust growth, there may not be a market for our ISDN products, given their dependence upon telephone company policies and rates and the intense competition from other access technologies such as cable modems and satellites. Also, Java may not become a widespread programming language for the Internet or in embedded applications, and a market may not develop for devices to run Java efficiently. If the Internet does not become a viable commercial marketplace, or if ISDN products become technologically obsolete, or if Java applications for microprocessors do not develop, then our business, operating results and financial condition will be materially and adversely affected.
PATRIOT MAY BE IN VIOLATION OF SECTION 5 OF THE SECURITIES ACT AND CONSEQUENTLY CERTAIN INVESTORS MAY HAVE RESCISSION RIGHTS AS TO SHARES ACQUIRED AND PATRIOT AND CERTAIN PRINCIPALS OF PATRIOT MAY BE SUBJECT TO CIVIL AND CRIMINAL PENALTIES
In June 1999, we issued shares to an institutional investor upon the conversion of a short term note plus accrued interest in the amount of $116,183 and during the nine months ended February 29, 2000, we issued shares under a previous investment agreement with Swartz for $5,000,000. These sales occurred after the filing of a registration statement by us and, therefore, by making these sales we may have violated Section 5 of the Securities Act of 1933. In July 1999, we amended and restated a previous investment agreement with Swartz to eliminate the discretion of Swartz as to the timing of its purchase of our common stock. By entering into the amended and restated investment agreement, we completed our sale of common stock to Swartz. Since this private sale to Swartz occurred after we filed our registration statement, we may have sold securities to Swartz in violation of Section 5 of the Securities Act of 1933. Consequently, the institutional investor and Swartz, at their options, may have the right, for up to one year after the purchase of the common stock, to rescind their purchases. In addition, Patriot and certain officers and directors of Patriot may be subject to civil and criminal penalties for potential violation of either or both Section 5 of the Securities Act of 1933 and applicable state law as a result of these sales.
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, and we desire to take advantage of the "safe harbor" provisions in those laws. Therefore, we are including this statement for the express purpose of availing ourselves of the protections of these safe harbor provisions with respect to all of the forward-looking statements we make. The forward-looking statements in this prospectus reflect our current views with respect to possible future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including specifically the absence of significant revenues, financial resources, a history of losses, no assurance that technology cannot be completed or that its completion will not be delayed, significant competition, the uncertainty of patent and proprietary rights, uncertainty as to royalty payments and indemnification risks, trading risks of low-priced stocks and those other risks and uncertainties discussed herein that could cause our actual results to differ materially from our historical results or those we anticipate. In this prospectus, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify certain forward-looking statements. You are cautioned to consider the specific risk factors described in "Risk Factors" and elsewhere in this prospectus and not to place undue reliance on the forward-looking statements contained in this prospectus, which speak only as of the date of this prospectus. We undertake no obligation to publicly revise these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this prospectus. All written and oral forward-looking statements made subsequent to the date of this prospectus and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
PLAN OF DISTRIBUTION
Each selling shareholder is free to offer and sell his or her common shares at such times, in such manner and at such prices as he or she may determine. The types of transactions in which the common shares are sold may include transactions in the over-the-counter market (including block transactions), negotiated transactions, the settlement of short sales of common shares, or a combination of such methods of sale. The sales will be at market prices prevailing at the time of sale or at negotiated prices. Such transactions may or may not involve brokers or dealers. The selling shareholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities. The selling shareholders do not have an underwriter or coordinating broker acting in connection with the proposed sale of the common shares.
The selling shareholders may effect such transactions by selling common stock directly to purchasers or to or through broker-dealers, which may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions, or commissions from the selling shareholders. They may also receive compensation from the purchasers of common shares for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions).
Swartz Private Equity, LLC is, and each remaining selling shareholder and any broker-
dealer that acts in connection with the sale of common shares may be deemed to be, an "underwriter" within the meaning of Section 2(11) of the Securities Act. Any commissions received by such broker-dealers and any profit on the resale of the common shares sold by them while acting as principals might be deemed to be underwriting discounts or commissions.
Because Swartz is, and each remaining selling shareholder may be deemed to be, an "underwriter" within the meaning of Section 2(11) of the Securities Act, the selling shareholders will be subject to prospectus delivery requirements.
We have informed the selling shareholders that the anti-manipulation rules of the SEC, including Regulation M promulgated under the Securities and Exchange Act, may apply to their sales in the market and has provided the selling shareholders with a copy of such rules and regulations.
Selling shareholders also may resell all or a portion of the common shares in open market transactions in reliance upon Rule 144 under the Securities and Exchange Act, provided they meet the criteria and conform to the requirements of such Rule.
SELLING SHAREHOLDERS
INVESTMENT AGREEMENT
OVERVIEW. On May 2, 2000, we entered into an investment agreement with Swartz Private Equity, LLC. The investment agreement entitles us to issue and sell our common stock for up to an aggregate of $30 million from time to time during a three-year period following the effective date of this registration statement. This is also referred to as a put right.
PUT RIGHTS. In order to invoke a put right, we must have an effective registration statement on file with the SEC registering the resale of the common shares which may be issued as a consequence of the invocation of that put right. Additionally, we must give at least ten but not more than twenty business days advance notice to Swartz of the date on which we intend to exercise a particular put right and we must indicate the number of shares of common stock we intend to sell to Swartz. At our option, we may also designate a maximum dollar amount of common stock (not to exceed $3 million) which we will sell to Swartz during the put and/or a minimum purchase price per common share at which Swartz may purchase shares during the put. The number of common shares sold to Swartz may not exceed 20% of the aggregate daily reported trading volume during a period which begins on the business day immediately following the day we invoked the put right and ends on and includes the day which is twenty business days after the date we invoked the put right.
Swartz will pay us a percentage of the market price for each share of common stock under the put. If the market price is less than $2.00 per share, the percentage will be 90%; and if the market price is $2.00 or greater, the percentage will be 93%. Market price is defined as the lowest closing bid price for the common stock during the applicable pricing period which consists of two consecutive ten business day periods following the date notice of the put was provided to Swartz. However, the market price may not be less than the designated minimum per share price, if any, that we indicated in our notice.
WARRANTS. Within five business days after the end of each pricing period, we are
required to issue and deliver to Swartz a warrant to purchase a number of shares of common stock equal to 15% of the common shares issued to Swartz in the applicable put. Each warrant will be exercisable at a price which will initially equal 110% of the closing bid price on the put date for the applicable put. The warrants will have semi-annual reset provisions. Each warrant will be immediately exercisable and have a term beginning on the date of issuance and ending five years thereafter.
LIMITATIONS AND CONDITIONS PRECEDENT TO OUR PUT RIGHTS. Swartz is not required to acquire and pay for any common shares with respect to any particular put for which:
- we have announced or implemented a stock split or combination of our common stock;
- we have paid a common stock dividend;
- we have made a distribution of our common stock or of all or any portion of our assets between the put notice date and the date the particular put closes; or
- we have consummated a major transaction (including a transaction, which constitutes a change of control) between the advance put notice date and the date the particular put closes.
SHORT SALES. Swartz and its affiliates are prohibited from engaging in short sales of our common stock unless they have received a put notice and the amount of shares involved in a short sale does not exceed the number of shares specified in the put notice.
CANCELLATION OF PUTS. We must cancel a particular put between the date of the advance put notice and the last day of the pricing period if:
- we discover an undisclosed material fact relevant to Swartz's investment decision;
- the registration statement registering resales of the common shares becomes ineffective; or
- shares are delisted from the then primary exchange.
However, we will be required to issue common shares equal to the lesser of:
- 20% of the daily reported trading volume of our common stock during the pricing periods up to the applicable put cancellation date;
- the number of shares of common stock put to Swartz which when multiplied by the applicable put share price equals the designated maximum dollar amount for the put; or
- 9.9% of the total amount of our common stock that would be outstanding upon completion of the put.
SHAREHOLDER APPROVAL. We may currently issue more than 20% of our outstanding shares. If we become listed on the Nasdaq Small Cap Market or Nasdaq National Market, then we must get shareholder approval to issue more than 20% of our outstanding shares. Since we are currently a bulletin board company, we do not need shareholder approval.
TERMINATION OF INVESTMENT AGREEMENT. We may also terminate our right to initiate further puts or terminate the investment agreement by providing Swartz with notice of such intention to terminate; however, any such termination will not affect any other rights or obligations we have concerning the investment agreement or any related agreement.
RESTRICTIVE COVENANTS. During the term of the investment agreement and for a period of one-year thereafter, we are prohibited from certain transactions. These include the issuance of any debt or equity securities in a private transaction which are convertible or exercisable into shares of common stock at a price based on the trading price of the common stock at any time after the initial issuance of such securities or with a fixed conversion or exercise price subject to adjustment. We are also prohibited from entering into any private equity line type agreements similar to the investment agreement without obtaining Swartz's prior written approval.
RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to purchase any variable priced securities offered by us in any private transaction which closes on or prior to six months after the termination of the investment agreement.
SWARTZ'S RIGHT OF INDEMNIFICATION. We are obligated to indemnify Swartz (including their stockholders, officers, directors, employees and agents) from all liability and losses resulting from any misrepresentations or breaches we made in connection with the investment agreement, our registration rights agreement, other related agreements, or the registration statement.
ADDITIONAL SHARES BEING REGISTERED
WARRANTS. The following table shows the private investors and the number of shares issuable upon the exercise of warrants we granted to them in conjunction with short-term loans.
Name Date of Grant Number of Shares Issuable
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Castle Creek Technology Partners,
LLC August 21, 1999 60,000
October 5, 1999 58,667
James C. and Josephine M. Zolin July 8, 1999 71,428
August 27, 1999 234,285
October 13, 1999 100,000
October 19, 1999 215,000
November 8, 1999 80,000
November 14, 1999 100,000
December 29, 1999 30,000
Wayne Opperman July 8, 1999 10,715
August 27, 1999 171,428
November 25, 1999 60,000
December 8, 1999 40,000
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Name Date of Grant Number of Shares Issuable
---- ------------- -------------------------
Richard D. Daniels July 8, 1999 129,286
August 27, 1999 228,571
October 14, 1999 100,000
November 8, 1999 200,000
December 29, 1999 30,000
Robert Lewis, Jr. August 27, 1999 30,303
December 17, 1999 40,000
William J. Kalandros August 27, 1999 30,303
December 17, 1999 40,000
Victor Gabourel August 27, 1999 100,000
September 10, 1999 100,000
October 14, 1999 100,000
October 15, 1999 100,000
November 1, 1999 100,000
November 19, 1999 200,000
December 29, 1999 15,000
January 10, 2000 15,000
Wayne J. Coulon August 25, 1999 15,000
September 29, 1999 15,000
Gary Leikam September 23, 1999 100,000
Arthur D. Kinane August 25, 1999 15,000
October 29, 1999 15,000
November 30, 1999 15,000
Clifford E. Koerner August 27, 1999 100,000
December 30, 1999 15,000
Charles G. Moore September 19, 1999 200,000
Fortney Revocable Living Trust October 3, 1999 38,462
Robert Wood August 4, 1999 71,429
December 4, 1999 100,000
Al Eremita August 17, 1999 28,571
---------
Total shares issuable on exercise of warrants 3,518,448
---------
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SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the selling shareholders as of March 20, 2000. Except as set forth below, none of the selling shareholders currently is an affiliate of ours, and none of them has had a material relationship with us during the past three years. None of the selling shareholders are or were affiliated with registered broker-dealers. An asterisk indicates if their common stock ownership is less than one percent.
Amount and Percentage
Beneficial Maximum Number of Common Stock
Ownership of of Shares of After the Sale
Common Stock as Common Stock ----------------------
Name of March 20, 2000 Offered for Sale Number %
---- ----------------- ---------------- --------- ---
Swartz Private Equity, LLC 15,443,015 13,800,000 1,643,015 2.5
Al Eremita 28,571 28,571 -- *
Richard G. Daniels 1,122,496 687,857 434,639 *
William J. Kalandros 70,573 70,303 270 *
Robert Lewis, Jr 70,573 70,303 270 *
Clifford E. Koerner 415,000 115,000 300,000 *
Robert Wood 331,428 171,429 159,999 *
Wayne Opperman 282,143 282,143 -- *
Castle Creek Technology Partners,
LLC 118,667 118,667 -- *
James C. and Josephine M. Zolin 1,328,981 830,713 498,268 *
Gary Leikam 100,000 100,000 -- *
Victor Gabourel 875,000 730,000 145,000 *
Wayne J. Coulon 110,000 30,000 80,000 *
Arthur D. Kinane 125,000 45,000 80,000 *
Charles G. Moore 200,000 200,000 -- *
Fortney Revocable Living Trust 285,668 38,462 247,206 *
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AVAILABLE INFORMATION
We file reports, proxy statements and other information with the SEC, and these reports may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The same information may be obtained at the following Regional Offices of the SEC: 75 Park Place, New York, New York 10007, and the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of such material may be obtained from the Public Reference Section of the SEC's Washington, D.C. office at prescribed rates.
We mail a copy of our audited Annual Report on Form 10-KSB along with a proxy statement to our shareholders prior to our annual meeting.
We have filed a registration statement on Form S-3, of which this prospectus is a part, with the SEC. This registration statement or any part thereof may also be inspected and copied at the public reference facilities of the SEC.
Our filings may also be accessed through the SEC's web site (http://www.sec.gov) or by visiting our web site at (http://www.ptsc.com) and linking to the SEC's site.
USE OF PROCEEDS
We expect to sell to Swartz Private Equity, LLC, subject to effective registration and applicable volume limitations, $30,000,000 of common stock under the investment agreement. Additional amounts may be received if the warrants to purchase common stock are exercised. Net proceeds are determined after deducting all expenses of the offering (estimated to be $43,500).
We intend, in the following order of priority, to use the net proceeds from this offering (excluding proceeds from warrant exercises) as follows:
Marketing, sales, and commercialization $ 5,000,000
Expenses for marketing and sales in conjunction with the
market introduction of the microprocessor as a commercial
product. Such expenses include market research studies,
marketing collateral materials, trade show participation, public
relations, advertising expenses and sales and marketing
personnel.
Completion of the microprocessor development 5,000,000
Expenses for completion of the development include porting
an operating system and personal Java to the
microprocessor and obtaining tools to make use of
the processor more user- friendly.
Working capital and general corporate purposes 19,956,500
-----------
Total $29,956,500
===========
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The amount and timing of working capital expenditures may vary significantly depending upon numerous factors such as:
- The progress of our final development of the microprocessor,
- Revenues generated from existing and anticipated products and licenses,
- The development of marketing and sales resources,
- Administrative and legal expenses, and
- Other requirements not now known or estimable.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares of common stock, $.00001 par value per share. At May 2, 2000, a total of 50,991,374 common shares were issued and outstanding. The holders of common stock are entitled to one vote for each share held. The affirmative vote of a majority of votes cast at a meeting which commences with a lawful quorum is sufficient for approval of most matters upon which shareholders may or must vote, including the questions presented for approval or ratification at the Annual Meeting. However, removal of a director from office or repeal of the certificate of incorporation in its entirety require the affirmative vote of a majority of the total voting power for approval, and certain other matters (such as shareholder amendment of the bylaws, and amendment, repeal or adoption of any provision inconsistent with provisions in the certificate of incorporation regarding indemnification of directors, officers and others, exclusion of director liability, and our election not to be governed by statutory provisions concerning business combinations with interested shareholders) require the affirmative vote of two-thirds of the total voting power for approval. Common shares do not carry cumulative voting rights, and holders of more than 50% of the common stock have the power to elect all directors and, as a practical matter, to control the company. Holders of common stock are not entitled to preemptive rights, and the common stock may only be redeemed at our election.
A special meeting of shareholders may be called by or at the request of:
- the Chairman of the Board,
- the President or any two directors, and
- persons owning in the aggregate not less than 20% of the issued and outstanding common shares entitled to vote in elections for directors.
After the satisfaction of requirements with respect to preferential dividends, if any, holders of common stock are entitled to receive, pro rata, dividends when and as declared by the board of directors out of funds legally available therefor. Upon our liquidation, dissolution or winding-up, after distribution in full of the preferential amount, if any, to be distributed to holders of the preferred stock, holders of common stock are entitled to share ratably in our assets legally available for distribution to our shareholders.
Our board of directors is authorized to issue 5,000,000 shares of undesignated preferred stock, $.00001 par value, without any further action by the stockholders. The board of directors may also divide any and all shares of preferred stock into series and fix and determine the relative rights and preferences of the preferred stock, such as the designation of series and the number of shares constituting such series, dividend rights, redemption and sinking fund provisions, liquidation and dissolution preferences, conversion or exchange rights and voting rights, if any. Issuance of preferred stock by the board of directors will result in such shares having dividend and/or liquidation preferences senior to the rights of the holders of common stock and could dilute the voting rights of the holders of common stock. There are currently no shares of preferred stock issued and outstanding.
We have not paid any cash dividends to date, and no cash dividends will be declared or paid on the common shares in the foreseeable future. Payment of dividends is solely at the discretion of our board of directors.
Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117, acts as our transfer agent and registrar for our common stock. Their telephone number is (801) 272-9294.
LEGAL OPINION
Luce, Forward, Hamilton & Scripps LLP, 600 West Broadway Street, Suite 2600, San Diego, California 92101 will pass on the validity of the common stock offered by us.
EXPERTS
The financial statements incorporated by reference in the Prospectus have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report incorporated herein by reference (which contains an explanatory paragraph regarding the Company's ability to continue as a going concern), and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus the documents we file with them, which means that we can disclose important information to you by referring you to these documents. The information that we incorporate by reference into this prospectus is considered to be part of this prospectus, and information that we file later with the SEC automatically updates and supersedes any information in this prospectus. We incorporate by reference into this prospectus the documents listed below:
- Annual report on Form 10-KSB for the fiscal year ended May 31, 1999;
- Quarterly reports on Form 10-QSB for the quarters that ended on August 31 and November 30, 1999 and February 29, 2000;
- Current report on Form 8-K filed with the SEC on August 31, 1999;
- Definitive proxy statement dated March 25, 2000 filed in connection with our 2000 annual meeting of shareholders which was held on April 28, 2000; and
- The description of our common stock contained in our Registration Statement on Form S-18 filed under the Securities Exchange Act of 1934, including any amendment or report filed for the purpose of updating such description.
All documents we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after this offering is effective and before the conclusion of this offering will also be deemed incorporated by reference as of the date we file the information and should be treated as though they were made a part of this document. Please see the section named Available Information to find out where and how you can view information that is incorporated by reference into this document. As new information becomes available that modifies or supercedes previous information, the new information, even though it is incorporated by reference, should be used to make up a part of this document.
We will provide, without charge, upon written or oral request of any person to whom a copy of this prospectus is delivered, a copy of any or all of the foregoing documents and information that has been or may be incorporated in this prospectus by reference, other than exhibits to such documents. Requests for such documents and information should be directed to Patriot Scientific Corporation, Attention: Lowell W. Giffhorn, Chief Financial Officer, 10989 Via Frontera, San Diego, California 92127, telephone number (858) 674-5000.
Until the completion of the resale of the common stock included in this prospectus, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Table of Contents
Prospectus Summary .................... 4 Risk Factors .......................... 6 Plan of Distribution .................. 10 Selling Shareholders................... 11 Available Information.................. 15 Use of Proceeds ....................... 16 Description of Securities ............. 17 Legal Opinion.......................... 18 Experts ............................... 18 Incorporation of Certain Documents by Reference ................ 18 |
The Resale of 17,318,448 Shares of Common Stock Offered by Selling Shareholders
PATRIOT SCIENTIFIC
CORPORATION
PROSPECTUS
May 5, 2000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses payable in connection with the registration and distribution of the securities being registered hereunder, all of which will be borne by the Registrant, are as follows:
Registration Fee - Securities and Exchange Commission......... $11,500
Printing and Engraving........................................ 1,000*
Legal Fees and Expenses....................................... 15,000*
Accounting Fees............................................... 15,000*
Blue Sky Fees and Expenses.................................... 1,000*
-------
Total....................................... $43,500*
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* Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Pursuant to the Company's Certificate of Incorporation, and as permitted by
Section 145 of the General Corporation Law of Delaware, the Company may
indemnify its directors and officers under certain circumstances against
reasonable expenses (including court costs and attorney's fees), judgments,
penalties, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which any of them is a party by
reason of his being a director, officer, employee, or agent of the Company if it
is determined that he acted in accordance with the applicable standard of
conduct set forth in such statutory provisions. Thus, the indemnification
provisions will protect officers and directors from liability only if the
officer or director meets the applicable standard of conduct and the Company has
the financial ability to honor the indemnity.
ITEM 16. EXHIBITS.
The Exhibits to this Registration Statement are listed in the Exhibit Index commencing at page EX-1 hereof.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes the following:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in this Registration Statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in this registration, or any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment to this Registration Statement any of the securities being registered which remain unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Registrant pursuant to the General Corporation Law of Delaware, the Certificate of Incorporation, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in such Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or person controlling the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or person controlling the Registrant in connection with any securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on May 5, 2000.
PATRIOT SCIENTIFIC CORPORATION
By: /s/ LOWELL W. GIFFHORN --------------------------------- Lowell W. Giffhorn Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
/S/ JAMES T. LUNNEY Chairman, President, Director, and May 5, 2000
----------------------------- Chief Executive Officer
James T. Lunney
/S/ LOWELL W. GIFFHORN Chief Financial Officer, Principal May 5, 2000
----------------------------- Financial Officer, Principal Accounting
Lowell W. Giffhorn Officer and Director
/S/ HELMUT FALK, JR. Director May 5, 2000
-----------------------------
Helmut Falk, Jr.
/S/ DONALD BERNIER Director May 5, 2000
-----------------------------
Donald Bernier
/S/ RICHARD G. BLUM Director May 5, 2000
-----------------------------
Richard G. Blum
/S/ FREDERICK G. THIEL Director May 5, 2000
-----------------------------
Frederick G. Thiel
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
Registration Statement
Under The Securities Act of 1933
EXHIBITS
PATRIOT SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
EXHIBIT INDEX
PATRIOT SCIENTIFIC CORPORATION
The following exhibits are included as part of this registration statement, except those exhibits marked (1), which have previously been filed with the Securities and Exchange Commission and are incorporated by reference to another registration statement, report or document. References to the "Company" in this Exhibit Index mean PATRIOT SCIENTIFIC CORPORATION, a Delaware corporation.
Exhibit No. Document No.
----------- -------- ---
2.0 PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Agreement to Exchange Technology for Stock in Patriot Scientific (1)
Corporation, incorporated by reference to Exhibit 2.1 to Form
8-K dated August 10, 1989
2.2 Assets Purchase Agreement and Plan of Reorganization dated June (1)
22, 1994, among the Company, nanoTronics Corporation and Helmut
Falk, incorporated by reference to Exhibit 10.4 to Form 8-K
dated July 6, 1994
2.2.1 Amendment to Development Agreement dated April 23, 1996 between (1)
the Company and Sierra Systems, incorporated by reference to
Exhibit 2.2.1 to Pre-Effective Amendment No. 1 to Registration
Statement on Form SB-2 dated April 29, 1996
2.3 Form of Exchange Offer dated December 4, 1996 between the (1)
Company and certain shareholders of Metacomp, Inc. incorporated
by reference to Exhibit 2.3 to Form 8-K dated January 9, 1997
2.4 Letter of Transmittal to Accompany Shares of Common Stock of (1)
Metacomp, Inc. Tendered Pursuant to the Exchange Offer Dated
December 4, 1996 incorporated by reference to Exhibit 2.4 to
Form 8-K dated January 9, 1997
3.0 ARTICLES AND BYLAWS.
3.1 Original Articles of Incorporation of the Company's predecessor, (1)
Patriot Financial Corporation, incorporated by reference to
Exhibit 3.1 to registration statement on Form S-18, file no.
33-23143-FW
3.2 Articles of Amendment of Patriot Financial Corporation, as filed (1)
with the Colorado Secretary of State on July 21, 1988,
incorporated by reference to Exhibit 3.2 to registration
statement on Form S-18, File No. 33-23143-FW
3.3 Certificate of Incorporation of the Company, as filed with the (1)
Delaware Secretary of State on March 24, 1992, incorporated by
reference to Exhibit 3.3 to Form 8-K dated May 12, 1992
3.3.1 Certificate of Amendment to the Certificate of Incorporation of (1)
the Company, as filed with the Delaware Secretary of State on
April 18, 1995, incorporated by reference to Exhibit 3.3.1 to
Form 10-KSB for the fiscal year ended May 31, 1995
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Exhibit No. Document No.
----------- -------- ---
3.3.2 Certificate of Amendment to the Certificate of Incorporation of (1)
the Company, as filed with the Delaware Secretary of State on
June 19,1997, incorporated by reference to Exhibit 3.3.2 to Form
10-KSB for the fiscal year ended May 31, 1997
3.3.3 Certificate of Amendment to the Certificate of Incorporation of (2)
the Company, as filed with the Delaware Secretary of State on
April 28, 2000
3.4 Articles and Certificate of Merger of Patriot Financial (1)
Corporation into the Company dated May 1, 1992, with Agreement
and Plan of Merger attached thereto as Exhibit A, incorporated
by reference to Exhibit 3.4 to Form 8-K dated May 12, 1992
3.5 Certificate of Merger issued by the Delaware Secretary of State (1)
on May 8, 1992, incorporated by reference to Exhibit 3.5 to
Form 8-K dated May 12, 1992
3.6 Certificate of Merger issued by the Colorado Secretary of State (1)
on May 12, 1992, incorporated by reference to Exhibit 3.6 to
Form 8-K dated May 12, 1992
3.7 Bylaws of the Company, incorporated by reference to Exhibit 3.7 (1)
to Form 8-K dated May 12, 1992
4.0 INSTRUMENTS ESTABLISHING RIGHTS OF SECURITY HOLDERS.
4.1 Specimen common stock certificate, incorporated by reference to (1)
Exhibit 4.1 Form 8-K dated May 12, 1992
4.2 Form of Stock Purchase Warrant (Labway Corporation) dated (1)
February 29, 1996, exercisable to purchase 253,166 common shares
at $1.58 per share until August 31, 1996, granted to investors
in connection with an offering of securities made in reliance
upon Regulation S, incorporated by reference to Exhibit 4.2 to
Form 10-QSB for fiscal quarter ended 2/29/96
4.3 Form of 6% Convertible Subordinated Promissory Note due (1)
September 30, 1998 aggregating $1,500,000 to six investors
incorporated by reference to Exhibit 4.3 to Form 10-QSB for
fiscal quarter ended August 31, 1996
4.4 Form of 5% Convertible Term Debenture (CC Investments, LDC) due (1)
June 2, 1999 aggregating $2,000,000 to two investors
incorporated by reference to Exhibit 4.4 to Form 8-K dated June
16, 1997
4.5 Form of Stock Purchase Warrant (CC Investments, LDC) dated June (1)
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 incorporated by reference to Exhibit 4.5 to Form 8-K
dated June 16, 1997
4.6 Registration Rights Agreement dated June 2, 1997 by and among (1)
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 incorporated by reference to Exhibit 4.6 to
Form 8-K dated June 16, 1997
|
Exhibit No. Document No.
----------- -------- ---
4.7 Form of Warrant to Purchase Common Stock (Swartz Family (1)
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 incorporated by
reference to Exhibit 4.7 to Form 8-K dated June 16, 1997
4.8 Registration Rights Agreement dated June 2, 1997 by and among (1)
the Company and Swartz Investments, LLC related to the
registration of the common stock related to Exhibit 4.7
incorporated by reference to Exhibit 4.8 to Form 8-K dated June
16, 1997
4.9 Form of 5% Convertible Term Debenture (CC Investments, LDC) due (1)
June 2, 1999 aggregating $1,000,000 to two investors
incorporated by reference to Exhibit 4.9 to Form 10-KSB for the
fiscal year ended May 31, 1998
4.10 Form of Stock Purchase Warrant (CC Investments, LDC) dated (1)
November 24, 1997 exercisable to purchase an aggregate of
200,000 common shares at $1.50 per share until June 2, 2002,
granted to two investors in connection with the offering of
securities described in Exhibit 4.9 incorporated by reference to
Exhibit 4.10 to Form 10-KSB for the year ended May 31, 1998
4.11 Form of Warrant to Purchase Common Stock (Swartz Family (1)
Partnership, L.P.) dated November 24, 1997 exercisable to
purchase an aggregate of 105,867 common shares at $1.50 per
share until June 2, 2002, granted to a group of investors in
connection with the offering of securities described in Exhibit
4.9 incorporated by reference to Exhibit 4.11 to Form 10-KSB for
the year ended May 31, 1998
4.12 Form of Warrant to Purchase Common Stock (Investor (1)
Communications Group, Inc.) dated June 16, 1997 exercisable to
purchase an aggregate of 130,000 common shares at prices ranging
from $2.50 to $7.50 per share until June 15, 1999 incorporated
by reference to Exhibit 4.12 to Form 10-KSB for the year ended
May 31, 1998
4.13 Warrant to Purchase Common Stock issued to Spellcaster (1)
Telecommunications, Inc. dated April 28, 1998 exercisable to
purchase an aggregate of 100,000 common shares at $1.25 per
share until April 28, 2000 incorporated by reference to Exhibit
4.13 to Form 10-KSB for the year ended May 31, 1998
4.14 Investment agreement dated February 24, 1999 by and between the (1)
Company and Swartz Private Equity, LLC for a maximum aggregate
amount of $5,000,000 incorporated by reference to Exhibit 4.14
to Form 10-QSB/A for the fiscal quarter ended November 30, 1998
4.15 Registration Rights Agreement dated February 24, 1999 by and (1)
between the Company and Swartz Private Equity, LLC related to
the registration of the common stock related to Exhibit 4.14
incorporated by reference to Exhibit 4.15 to Form 10-QSB/A for
the fiscal quarter ended November 30, 1998
|
Exhibit No. Document No.
----------- -------- ---
4.16 Form of Warrant to Purchase Common Stock (Swartz Private Equity, (1)
LLC) dated February 24, 1999 exercisable to purchase common
shares in connection with the offering of securities in Exhibit
4.14 incorporated by reference to Exhibit 4.16 to Form 10-QSB/A
for the fiscal quarter ended November 30, 1998
4.17 Amended and Restated Investment Agreement dated July 12, 1999 by (1)
and between the Company and Swartz Private Equity, LLC for a
maximum aggregate amount of $5,000,000 incorporated by reference
to Exhibit 4.17 to Pre-Effective Amendment No. 2 to Registration
Statement on Form SB-2 dated July 14, 1999
4.18 Investment agreement dated April 28, 2000 by and between the (2)
Company and Swartz Private Equity, LLC for a maximum aggregate
amount of $30,000,000
5.0 OPINION RE LEGALITY.
5.1 Legal opinion of Luce, Forward, Hamilton & Scripps LLP, (2)
attorneys at law
10.0 MATERIAL CONTRACTS.
10.1 1992 Incentive Stock Option Plan of the Company, incorporated by (1)
reference to Exhibit 10.1 to Form 8-K dated May 12, 1992
10.1.1 Amendment to 1992 Incentive Stock Option Plan dated January 11, (1)
1995, incorporated by reference to Exhibit 10.1.1 to Form S-8
dated July 17, 1996
10.2 1992 Non-Statutory Stock Option Plan of the Company, incorporated (1)
by reference to Exhibit 10.2 to Form 8-K dated May 12, 1992
10.2.1 Amendment to 1992 Non-Statutory Stock Option Plan dated January (1)
11, 1995 incorporated by reference to Exhibit 10.2.1 to Form
10-KSB for fiscal year ended May 31, 1996
10.3 Lease Agreement between the Company's subsidiary Metacomp, Inc. (1)
and Clar-O-Wood Partnership, a California limited partnership
dated April 11, 1991 as amended November 11, 1992 and November
2, 1995 incorporated by reference to Exhibit 10.3 to Form 10-KSB
for fiscal year ended May 31, 1997
10.4 Stock Purchase Agreement dated November 29 and 30, 1995, between (1)
the Company and SEA, Ltd., incorporated by reference to Exhibit
10.4 to Form 8-K dated December 11, 1995
10.4.1 Letter Amendment to Stock Purchase Agreement dated February 21, (1)
1996, between the Company and SEA, Ltd., incorporated by
reference to Exhibit 10.4.1 to Form 10-QSB for fiscal quarter
ended 2/29/96
10.5 1995 Employee Stock Compensation Plan of the Company, (1)
incorporated by reference to Exhibit 10.5 to Form 10-QSB for
fiscal quarter ended 11/30/95
10.6 Letter Stock and Warrant Agreement dated January 10, 1996 (1)
between the Company and Robert E. Crawford, Jr., incorporated by
reference to Exhibit 10.6 to Form 10-QSB for fiscal quarter
ended February 29, 1996
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Exhibit No. Document No.
----------- -------- ---
Non-Exclusive Manufacturing and Line of Credit Agreement dated (1)
10.7 February 28, 1996, between the Company and Labway Corporation,
incorporated by reference to Exhibit 10.7 to Form 10-QSB for
fiscal quarter ended February 29, 1996
10.8 Distribution and Representation Agreement dated February 28, (1)
1996, between the Company and Innoware, Inc., incorporated by
reference to Exhibit 10.8 to Form 10-QSB for fiscal quarter
ended February 29, 1996
10.9 Employment Agreement dated November 20, 1995 between the Company (1)
and Elwood G. Norris, incorporated by reference to Exhibit 10.9
to Registration Statement on Form SB-2 dated March 18, 1996
10.9.1 First Amendment to Employment Agreement dated May 17, 1996 (1)
between the Company and Elwood G. Norris, incorporated by
reference to Exhibit 10.9.1 to Pre-Effective Amendment No. 2 to
Registration Statement on Form SB-2 dated May 23, 1996
10.10 Employment Agreement dated November 20, 1995 between the Company (1)
and Robert Putnam, incorporated by reference to Exhibit 10.10 to
Registration Statement on Form SB-2 dated March 18, 1996
10.11 Sales Contractual Agreement dated March 19, 1996 between the (1)
Company and Evolve Software, Inc., incorporated by reference to
Exhibit 10.11 to Pre-Effective Amendment No. 1 to Registration
Statement on Form SB-2 dated April 29, 1996
10.11.1 Two Year Stock Purchase Warrant dated March 19, 1996 Granted to (1)
Evolve Software, Inc. Providing for the Purchase of up to 50,000
Common Shares at $2.85, incorporated by reference to Exhibit
10.11.1 to Pre-Effective Amendment No. 1 to Registration
Statement on Form SB-2 dated April 29, 1996
10.12 Employment Agreement dated as of May 8, 1996 between the Company (1)
and Michael A. Carenzo, including Schedule A - Stock Option
Agreement, incorporated by reference to Exhibit 10.12 to
Pre-Effective Amendment No. 2 to Registration Statement on Form
SB-2 dated May 23, 1996
10.13 1996 Stock Option Plan of the Company dated March 25, 1996 and (1)
approved by the Shareholders on May 17, 1996, incorporated by
reference to Exhibit 10.13 to Pre-Effective Amendment No. 2 to
Registration Statement on Form SB-2 dated May 23, 1996
10.14 Sales Contractual Agreement dated June 20, 1996 between the (1)
Company and Compunetics Incorporated incorporated by reference
to Exhibit 10.14 to Form 10-KSB for fiscal year ended May 31,
1996
10.15 Sales Contractual Agreement dated July 31, 1996 between the (1)
Company and Premier Technical Sales, Inc. incorporated by
reference to Exhibit 10.15 to Form 10-KSB for fiscal year ended
May 31, 1996
10.16 Employment Agreement dated January 1, 1997 between the Company (1)
and Norman J. Dawson incorporated by reference to Exhibit 10.16
to Form 10-KSB for fiscal year ended May 31, 1997
|
Exhibit No. Document No.
----------- -------- ---
10.17 Employment Agreement dated January 1, 1997 between the Company (1)
and Jayanta K. Maitra incorporated by reference to Exhibit 10.17
to Form 10-KSB for fiscal year ended May 31, 1997
10.18 Technology License and Distribution Agreement dated June 23, (1)
1997 between the Company and Sun Microsystems, Inc. incorporated
by reference to Exhibit 10.18 to Form 10-KSB for the fiscal year
ended May 31, 1997
10.19 Employment Agreement dated March 23, 1998 between the Company (1)
and James T. Lunney incorporated by reference to Exhibit 10.19
to Form 10-KSB for the fiscal year ended May 31, 1998
10.20 Employment Agreement dated July 28, 1997 between the Company and (1)
Phillip Morettini incorporated by reference to Exhibit 10.20 to
Form 10-KSB for the fiscal year ended May 31, 1998
10.21 Employment Agreement dated July 23, 1998 between the Company and (1)
Lowell W. Giffhorn incorporated by reference to Exhibit 10.21 to
Form 10-KSB for the fiscal year ended May 31, 1998
23.0 CONSENTS OF EXPERTS AND COUNSEL.
23.1 Consent of BDO Seidman, LLP (2)
23.2 Consent of Luce, Forward, Hamilton & Scripps LLP, attorneys at (2)
law (included in Exhibit 5.1)
99.0 ADDITIONAL EXHIBITS.
99.1 Form of ISO Plan Option (Gaspar) dated May 29, 1992, (1)
incorporated by reference to Exhibit 28.2 to registration
statement on Form SB-2, file no. 33-57858
99.2 Form of NSO Plan Option (Berlin) dated May 29, 1992, (1)
incorporated by reference to Exhibit 28.3 to registration
statement on Form SB-2, file no. 33-57858
99.3 Form of Incentive Stock Option Agreement to the Company's 1996 (1)
Stock Option Plan (individual agreements differ as to number of
shares, dates, prices and vesting), incorporated by reference to
Pre-Effective Amendment No. 2 to Registration Statement on Form
SB-2 dated May 23, 1996
99.4 Form of NonQualified Stock Option Agreement to the Company's (1)
1996 Stock Option Plan (individual agreement differ as to number
of shares, date, prices and vesting), incorporated by reference
to Pre-Effective Amendment No. 2 to Registration Statement on
Form SB-2 dated May 23, 1996
99.5 Press Release of the Company dated November 4, 1996 incorporated (1)
by reference to Exhibit 99.5 to Form 8-K dated January 9, 1997
|
Exhibit No. Document No. ----------- -------- --- |
(1) Previously filed in indicated registration statement or report.
(2) Exhibit filed herewith this Registration Statement on Form S-3.
EXHIBIT 3.3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION OF
PATRIOT SCIENTIFIC CORPORATION
Patriot Scientific Corporation, a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that:
I. The amendment to the Corporation's Certificate of Incorporation set forth below was duly adopted in accordance with the provisions of Section 242 and has been consented to in writing by the stockholders, in accordance with Section 228 of the General Corporation Law of the State of Delaware.
II. The first paragraph of the FIFTH Article of the Certificate of Incorporation of the Corporation be amended to read as follows:
FIFTH. The aggregate number of shares of capital stock of all classes which the Corporation shall have authority to issue is ONE HUNDRED FIVE MILLION (105,000,000), having a par value of $.00001 per share, of which ONE HUNDRED MILLION (100,000,000) shall be designated Common Stock (the "Common Stock" or "Common Shares"), and FIVE MILLION (5,000,000) shall be designated Preferred Stock, par value $.00001 per share (the "Preferred Stock"). The Preferred Stock may be issued from time to time in one or more series. All shares shall be issued for such consideration or considerations as the Board of Directors of the Corporation may from time to time determine. All rights, preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations or restrictions of the Preferred Stock shall be fixed by the Board of Directors of the Corporation. The rights, preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations or restrictions of the Common Stock shall be expressly made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock and shall be as follows:
IN WITNESS WHEREOF, Patriot Scientific Corporation has caused this Certificate to be executed by James T. Lunney, its authorized officer, on this 28th day of April, 2000.
/s/ JAMES T. LUNNEY ---------------------------------------- James T. Lunney, Chief Executive Officer |
EXHIBIT 4.18
PATRIOT SCIENTIFIC CORP.
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the 2nd day of May, 2000, by and between Patriot Scientific Corp., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and the undersigned Investor executing this Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue to the Investor, and the Investor shall purchase from the Company, from time to time as provided herein, shares of the Company's Common Stock, par value $0.00001 per share (the "Common Stock"), as part of an offering of Common Stock by the Company to Investor, for a maximum aggregate offering amount of Thirty Million Dollars ($30,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted by the Company, the offer and sale of the Common Stock are being made in reliance upon the provisions of Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as amended (the "Act"), and/or upon such other exemption from the registration requirements of the Act as may be available with respect to any or all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the recitals above), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"20% Approval" shall have the meaning set forth in Section 5.26.
"AAA" shall have the meaning set forth in Section 7.8.
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section 2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section 2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.5.
"Aggregate Issued Shares" equals the aggregate number of shares of Common Stock issued to Investor pursuant to the terms of this Agreement or the Registration Rights Agreement as of a given date, including Put Shares and Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.6.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section 2.3.2.
"Bid Price" shall mean the bid price of the Common Stock on the Company's Principal Market.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is open for business.
"Calendar Month" shall mean the period of time beginning on the numeric day in question in a calendar month (the "Numeric Day") and for Calendar Months thereafter, beginning on the earlier of (i) the same Numeric Day of the next calendar month or (ii) the last day of the next calendar month. Each Calendar Month shall end on the day immediately preceding the beginning of the next succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in
Section 6.6.1.
"Capitalization Schedule" shall have the meaning set forth in Section 3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section 2.
"Closing Bid Price" means, for any security as of any date, the last closing bid price for such security during Normal Trading on the O.T.C. Bulletin Board, or, if the O.T.C. Bulletin Board is not the principal securities exchange or trading market for such security, the last closing bid price during Normal Trading of such security on the principal securities exchange or trading market where such security is listed or traded as reported by such principal securities exchange or trading market, or if the foregoing do not apply, the last closing bid price during Normal Trading of such security in the over-the-counter market on the electronic bulletin board for such security, or, if no closing bid price is reported for such security, the average of the bid prices during Normal Trading 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 mutually determined by the Company and the Investor in this Offering. If the Company and the Investor in this Offering are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved by an investment banking firm mutually acceptable to the Company and the Investor in this offering and any fees and costs associated therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.7.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company, par value $0.00001 per share.
"Company" shall mean Patriot Scientific Corp., a corporation duly organized and existing under the laws of the State of Delaware.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.14.
"Conditions to Investor's Obligations" shall have the meaning as set forth in Section 2.2.4.
"Delisting Event" shall mean any time during the term of this Investment Agreement, that the Company's Common Stock is not listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange, or the New York Stock Exchange or is suspended or delisted with respect to the trading of the shares of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section 3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.6
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advanced Put Notice Date until the Pricing Period End Date.
"First Pricing Date" shall have the meaning set forth in Section 2.3.1(d).
"First Pricing Period" shall have the meaning set forth in Section 2.3.1(d).
"First Put Dollar Amount" shall have the meaning set forth in Section 2.3.1(d).
"First Put Limit" shall have the meaning set forth in Section 2.3.1(b).
"First Volume Limitation" shall have the meaning set forth in Section 2.3.1(b).
"Gross Discount Amount," for each Purchase of Put Shares, shall equal the product of (i) the difference of one minus the quotient obtained when the Put Share Price for such Purchase is divided by the
Market Price for such Purchase, multiplied by (ii) the Put Dollar Amount paid to the Company by the Investor for the Put Shares in that Purchase.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1 (b).
"Ineffective Period" shall mean any period of time that the Registration Statement or any Supplemental Registration Statement (each as defined in the Registration Rights Agreement) becomes ineffective or unavailable for use for the sale or resale, as applicable, of any or all of the Registrable Securities (as defined in the Registration Rights Agreement) for any reason (or in the event the prospectus under either of the above is not current and deliverable) during any time period required under the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section 2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.3.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from Company's independent counsel, substantially in the form attached as Exhibit B, or such other form as agreed upon by the parties, as to the Investment Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.18, as set forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at such time upon any of the following events:
(i) a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved in
such consolidation, merger, combination or event is a publicly traded company
with "Substantially Similar Trading Characteristics" (as defined below) as the
Company and the holders of Common Stock are to receive solely Common Stock or no
consideration (if the Company is the surviving entity) or solely common stock of
such other entity (if such other entity is the surviving entity), such
transaction shall not be deemed to be a Major Transaction (provided the
surviving entity, if other than the Company, shall have agreed to assume all
obligations of the Company under this Agreement and the Registration Rights
Agreement). For purposes hereof, an entity shall have Substantially Similar
Trading Characteristics as the Company if the average daily dollar Trading
Volume of the common stock of such entity is equal to or in excess of $200,000
for the 90th through the 31st day prior to the public announcement of such
transaction;
(ii) the sale or transfer of all or substantially all of the Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common Stock on the Principal Market during the ten (10) Business Days immediately preceding the applicable Pricing Date.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (a) the Company Designated Maximum Put Dollar Amount, if any, specified by the Company in a Put Notice, and (ii) $3 million.
"Maximum Offering Amount" shall mean Thirty Million Dollars ($30,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"NASD" shall have the meaning set forth in Section 6.10.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00 PM, New York City Time, on any Business Day, and shall expressly exclude "after hours" trading.
"NYSE" shall have the meaning set forth in Section 6.10.
"Numeric Day" shall mean the numerical day of the month of the Investment Date.
"Offering" shall mean the Company's offering of common stock and warrants issued under this
Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of the Company, to the effect that the representations and warranties of the Company in this Agreement required to be true for the applicable Closing are true and correct in all material respects and all of the conditions and limitations set forth in this Agreement for the applicable Closing are satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment Opinion of Counsel, the Put Opinion of Counsel and the Purchase Warrant Opinion of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Dates" shall have the meaning set forth in Section 2.3.1(d).
"Pricing Period" shall mean the First Pricing Period or the Second Pricing period, as applicable.
"Pricing Period End Date" shall mean the last Business Day of any Pricing Period.
"Principal Market" shall mean the Nasdaq Small Cap Market, the O.T.C. Bulletin Board, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7(a).
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from Company's independent counsel, substantially in the form attached as Exhibit O, or such other form as agreed upon by the parties, as to the issuance of Purchase Warrants to the Investor.
"Put" shall have the meaning set forth in Section 2.3.1(e).
"Put Cancellation" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth in Section 2.3.13(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice" shall have the meaning set forth in Section 2.3.13(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any Put Notice for which the Company intends to exercise a Put under Section 2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which case the "Put Date" is such postponed date.
"Put Dollar Amount," with respect to any Put, shall equal the First Put Dollar Amount plus the Second Put Dollar Amount for such Put, subject to the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(e), the form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section 2.3.1(e), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent counsel, in the form attached as Exhibit I, or such other form as agreed upon by the parties, as to any Put Closing.
"Put Share Amount" shall mean the Individual Put Limit for the applicable Put.
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section 2.3.6(a).
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration rights agreement entered into by the Company and Investor on even date herewith, in the form attached hereto as Exhibit A, or such other form as agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth in the Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the Recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section 2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4, attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5, and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Second Pricing Date" shall have the meaning set forth in Section 2.3.1(d).
"Second Pricing Period" shall have the meaning set forth in Section 2.3.1(d).
"Second Put Dollar Amount" shall have the meaning set forth in Section 2.3.1(d).
"Second Put Limit" shall have the meaning set forth in Section 2.3.1(b).
"Second Volume Limitation" shall have the meaning set forth in Section 2.3.1(b).
"Securities" shall mean this Investment Agreement, together with the Common Stock of the Company, the Warrants and the Warrant Shares issuable pursuant to this Investment Agreement.
"Semi-Annual Commitment Shortfall" shall have the meaning set forth in
Section 2.7.
"Share Authorization Increase Approval" shall have the meaning set forth in Section 5.26.
"Six Month Anniversary" shall mean the date that is the same Numeric Day of the sixth (6th) calendar month after the Investment Date, and the date that is the same Numeric Day of each sixth (6th) calendar month thereafter, provided that if such date is not a Business Day, the next Business Day thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section 6.12.
"Supplemental Registration Statement" shall have the meaning set forth in the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of time beginning on the date of this Agreement and ending on the Termination Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that
the Company has delivered a Termination Notice to the Investor, (c) the date of an Automatic Termination, and (d) the date that all of the Warrants have been exercised.
"Termination Notice" shall have the meaning as set forth in Section 2.3.14.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume" shall mean the volume of shares of the Company's Common Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any Business Day, and shall expressly exclude any shares trading during "after hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section 2.3.13(d).
"Truncated Put Share Amount" shall have the meaning set forth in Section 2.3.13(b).
"Unlegended Share Certificates" shall mean a certificate or certificates (in denominations as instructed by Investor) representing the shares of Common Stock to which the Investor is then entitled to receive, registered in the name of Investor or its nominee (as instructed by Investor) and not containing a restrictive legend, including but not limited to the Put Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in
Section 3.2.4, attached hereto as Exhibit L.
"Variable Priced Securities" shall have the meaning set forth in Section 6.6.1.
"Volume Limitations" shall have the meaning set forth in Section 2.3.1(b).
"Warrant Shares" shall mean the Common Stock issuable upon exercise of the Warrants.
"Warrants" shall mean Purchase Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor hereby agrees to purchase such amounts of Common Stock and accompanying Warrants as the Company may, in its sole and absolute discretion, from time to time elect to issue and sell to Investor according to one or more Puts pursuant to Section 2.3 below.
2.2 Investment Commitment.
2.2.1 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 Investment Commitment Closing. The closing of this Agreement (the "Investment Commitment Closing") shall be deemed to occur when this Agreement and the Registration Rights Agreement have been executed by both Investor and the Company, and the other Conditions to Investor's Obligations set forth in Section 2.2.4 below have been met.
2.2.4 Conditions to Investor's Obligations. As a prerequisite to the Investment Commitment Closing and the Investor's obligations hereunder, all of the following (the "Conditions to Investor's Obligations") shall have been satisfied prior to or concurrently with the Company's execution and delivery of this Agreement:
(a) the following documents shall have been delivered to the Investor: (i) the Registration Rights Agreement, in the form attached hereto as Exhibit A, or such other form as agreed upon by the parties, (the "Registration Rights Agreement") (executed by the Company and Investor), (ii) the Investment Commitment Opinion of Counsel (signed by the Company's counsel), and (iii) a Secretary's Certificate as to (A) the resolutions of the Company's board of directors authorizing this transaction, (B) the Company's Certificate of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have been received by the Investor;
(c) [Intentionally Left Blank];
(d) the Company's Common Stock shall be listed for trading and actually trading on the O.T.C. Bulletin Board or the Nasdaq Small Cap Market;
(e) other than continuing losses described in the Risk Factors
set forth in the Disclosure Documents (provided for in
Section 3.2.4), as of the Closing there have been no
material adverse changes in the Company's business
prospects or financial condition since the date of the
last balance sheet included in the Disclosure Documents,
including but not limited to incurring material
liabilities; and
(f) the representations and warranties of the Company in this Agreement shall be true and correct in all material respects and the conditions to Investor's obligations set forth in this Section 2.2.4 shall have been satisfied as of such Closing; and the Company shall deliver an Officer's Certificate, signed by an officer of the Company, to such effect to the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the Individual Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and the other conditions and limitations set forth in this Agreement, at any time beginning on the date on which the Registration Statement is declared effective by the SEC (the "Effective Date"), the Company may, in its sole and absolute discretion, elect to exercise one or more Puts according to the following procedure:
(a) Delivery of Advance Put Notice. At least ten
(10) Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the form
of which is attached hereto as Exhibit E, the date of such Advance Put Notice
being the "Advance Put Notice Date") to Investor stating the Put Date for which
the Company shall, subject to the limitations and restrictions contained herein,
exercise a Put and stating the number of shares of Common Stock (subject to the
Individual Put Limit and the Maximum Put Dollar Amount) which the Company
intends to sell to the Investor during the Put (the "Intended Put Share
Amount").
The Company may, at its option, also designate in an Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $3,000,000, which it
shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which the
Investor may purchase Shares pursuant to such Put Notice (a "Company Designated
Minimum Put Share Price"). The Company Designated Minimum Put Share Price shall
be no greater than 80% of the Closing Bid Price of the Company's common stock on
the Advance Put Notice Date.
Notwithstanding the above, if more than two (2) Calendar Months have
passed since the date of the previous Put Closing, the Company shall deliver the
Advance Put Notice at least twenty (20) Business Days prior to any intended Put
Date, unless waived in writing by the Investor. In order to effect delivery of
the Advance Put Notice, the Company shall (i) send the Advance Put Notice by
facsimile on such date so that such notice is received by the Investor by 6:00
p.m., New York, NY time, and (ii) surrender such notice on such date to a
courier for overnight delivery to the Investor (or two (2) day delivery in the
case of a Investor residing outside of the U.S.). Upon receipt by the Investor
of a facsimile copy of the Advance Put Notice, the Investor shall, within two
(2) Business Days, send, via facsimile, a confirmation of receipt (the "Advance
Put Notice Confirmation," the form of which is attached hereto as Exhibit F) of
the Advance Put Notice to the Company specifying that the Advance Put Notice has
been received and affirming the intended Put Date and the Intended Put Share
Amount.
(b) Individual Put Limit. The "Individual Put Limit" is the number of shares of Common Stock that the Investor shall be obligated to purchase in a given Put, and shall equal the sum of the First Put Limit and the Second Put Limit for that Put, subject to the further limitations set forth in this subsection (b).
The "First Put Limit" shall mean a number of Put Shares equal to the lesser of (i) 20% of the sum of the aggregate daily reported Trading Volumes in the outstanding Common Stock on the Company's Principal Market, excluding any block trades which exceed "X" shares of Common Stock made by persons other than
the Investor or any affiliates of the Investor, for all Evaluation Days (as defined in Section 2.3.1(b) below) in the First Pricing Period (this limitation is referred to herein as the "First Volume Limitation"), where "X" shall equal the lesser of (x) 100,001 shares or (y) 25% of that day's Trading Volume, (ii) the Intended Put Share Amount, and (iii) the number of Put Shares which, when multiplied by their respective Put Share Prices, equals the Maximum Put Dollar Amount.
The "Second Put Limit" shall mean a number of Put Shares equal to the lesser of (i) 20% of the sum of the aggregate daily reported Trading Volumes in the outstanding Common Stock on the Company's Principal Market, excluding any block trades which exceed "X" (as defined above) shares of Common Stock made by persons other than the Investor or any affiliates of the Investor, for all Evaluation Days (as defined in Section 2.3.1(b) below) in the Second Pricing Period (this limitation is referred to herein as the "Second Volume Limitation"), (ii) the difference of the Intended Put Share Amount minus the First Put Limit, and (iii) the number of Put Shares which, when multiplied by their respective Put Share Prices, and added to the First Put Dollar Amount, equals the Maximum Put Dollar Amount.
Notwithstanding the above, in no event shall the First Put Limit, the Second Put Limit, or the sum of the First Put Limit and the Second Put Limit (i) exceed the 9.9% Limitation, or (ii) exceed 20% of the sum of the aggregate daily reported Trading Volumes in the outstanding Common Stock on the Company's Principal Market, excluding any block trades which exceed "X" (as defined above) shares of Common Stock made by persons other than the Investor or any affiliates of the Investor, for the twenty (20) Trading Days immediately preceding the Put Date (this limitation, together with together with the First Volume Limitation and the Second Volume Limitation are referred to collectively as the "Volume Limitations"). The Company agrees not to trade Common Stock or arrange for Common Stock to be traded for the purpose of artificially increasing the Volume Limitations. In the event that the Second Put Limit, when added to the First Put Limit, would cause (i) or (ii) above to be exceeded, the Second Put Limit shall be reduced accordingly.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of
(i) the Company Designated Minimum Put Share Price, plus $.10, or (ii) (100% ~
X%) multiplied by the Company Designated Minimum Put Share Price, where "X" is
defined in Section 2.3.1(c) below.
An "Evaluation Day" shall mean each Business Day during a Pricing Period where the lowest intra-day trading price of the Common Stock is greater than or equal to the Trigger Price.
An "Excluded Day" shall mean each Business Day where the lowest intra-day trading price of the Common Stock is less than the Trigger Price.
(c) Put Share Price. The purchase price for the Put Shares (the "Put Share Price") shall equal the lesser of (i) the Market Price for the applicable Pricing Period (as set forth in Section 2.3.1(d) below), minus $.10, or (ii) X% (as defined below) of the Market Price for such Pricing Period, provided that the Put Share Price shall in no event be less than the Company Designated Minimum Put Share
Price, where, for purposes hereof, "X" is defined as follows:
Market Price for the Pricing Period "X"
----------------------------------- ---
Below $2.00 90%
$2.00 or greater 93%
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(d) Pricing Dates/Pricing Periods. With respect to each Put, the Put Share Price for a number of Put Shares equal to the First Put Limit for that Put shall be determined based upon the First Pricing Period (the "First Pricing Period Put Share Price"), and the Put Share Price for a number of Put Shares equal to the Second Put Limit for that Put shall be determined based upon the Second Pricing Period (the "Second Pricing Period Put Share Price").
For purposes hereof:
The "First Pricing Date" shall mean the tenth
(10th) Business Day after each Put Date.
The "Second Pricing Date" shall mean the twentieth
(20th) Business Day after each Put Date.
The First Pricing Date and the Second Pricing Date shall be referred to singularly as a "Pricing Date" and collectively as "Pricing Dates."
The "First Pricing Period" with respect to any Put shall mean the period of time beginning on the Business Day immediately following the Put Date for that Put, and ending on the First Pricing Date.
The "Second Pricing Period" with respect to any Put shall mean the period of time beginning on the Business Day immediately following the First Pricing Date and ending on the Second Pricing Date.
The "First Put Dollar Amount" shall be determined by multiplying the First Put Limit by the First Pricing Period Put Share Price.
The "Second Put Dollar Amount" shall be determined by multiplying the Second Put Limit by the Second Pricing Period Put Share Price
(e) Delivery of Put Notice. After delivery of an Advance Put Notice, on the Put Date specified in the Advance Put Notice, or on the sixth (6th) Business Day following the last day of the Second Pricing Period for the previous Put, whichever is later, the Company shall deliver written notice (the "Put Notice," the form of which is attached hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the Intended Put Share Amount as specified in the Advance Put Notice (such exercise a "Put"), (iii) the Company Designated Maximum Put Dollar Amount (if applicable), and (iv) the Company Designated Minimum Put Share Price (if applicable). In order to effect delivery of the Put Notice, the Company shall (i) send the Put Notice by facsimile on the Put Date so that such notice is received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender such notice on the Put Date to a courier for overnight delivery to the Investor (or two (2) day delivery in the case of a Investor residing outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the Put Notice, the Investor shall, within two (2) Business Days, send, via facsimile, a confirmation of receipt (the "Put Notice Confirmation," the form of which is attached hereto as Exhibit H) of the Put Notice to Company specifying that the Put Notice has been received and affirming the Put Date and the Intended Put Share Amount.
(f) Delivery of Required Put Documents. On or before the Put Date for such Put, the Company shall deliver the Required Put Documents (as defined in Section 2.3.5 below) to the Investor (or to an agent of Investor, if Investor so directs). Unless otherwise specified by the Investor, the Put Shares of Common Stock shall be transmitted electronically pursuant to such electronic delivery system as the Investor shall request; otherwise delivery shall be by physical certificates. If the Company has not delivered all of the Required Put Documents to the Investor on or before the Put Date, the Put shall be automatically cancelled, unless the Investor agrees to delay the Put Date by up to three (3) Business Days, in which case the Pricing Period begins on the Business Day following such new Put Date. If the Company has not delivered all of the Required Put Documents to the Investor on or before the Put Date (or new Put Date, if applicable), and the Investor has not agreed in writing to delay the Put Date, the Put is automatically canceled (an "Impermissible Put Cancellation") and, unless the Put was otherwise canceled in accordance with the terms of Section 2.3.13, the Company shall pay the Investor $5,000 for its reasonable due diligence expenses incurred in preparation for the canceled Put and the Company may deliver an Advance Put Notice for the subsequent Put no sooner than ten (10) Business Days after the date that such Put was canceled.
(g) Limitation on Investor's Obligation to Purchase
Shares. Notwithstanding anything to the contrary in this Agreement, in no event
shall the Investor be required to purchase, and an Intended Put Share Amount may
not include, an amount of Put Shares, which when added to the number of Put
Shares acquired by the Investor pursuant to this Agreement during the 31 days
preceding the Put Date with respect to which this determination of the permitted
Intended Put Share Amount is being made, would exceed 9.99% of the number of
shares of Common Stock outstanding (on a fully diluted basis, to the extent that
inclusion of unissued shares is mandated by Section 13(d) of the Exchange Act)
on the Put Date for such Pricing Period, as determined in accordance with
Section 13(d) of the Exchange Act (the "Section 13(d) Outstanding Share
Amount"). Each Put Notice shall include a representation of the Company as to
the Section 13(d) Outstanding Share Amount on the related Put Date. In the event
that the Section 13(d) Outstanding Share Amount is different on any date during
a Pricing Period than on the Put Date associated with such Pricing Period, then
the number of shares of Common Stock outstanding on such date during such
Pricing Period shall govern for purposes of determining whether the Investor,
when aggregating all purchases
of Shares made pursuant to this Agreement in the 31 calendar days preceding such date, would have acquired more than 9.99% of the Section 13(d) Outstanding Share Amount. The limitation set forth in this Section 2.3.1(f) is referred to as the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's right to require the Investor to purchase any subsequent Put Shares shall terminate permanently (an "Automatic Termination"), unless waived in writing by the Investor, upon the occurrence of any of the following:
(a) the Company shall not exercise a Put or any Put thereafter if, at any time, either the Company or any director or executive officer of the Company has engaged in a transaction or conduct related to the Company that gives rise to (i) a Securities and Exchange Commission enforcement action, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation, or for any other offense that, if prosecuted criminally, would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put
thereafter, on any date after a cumulative time period, including both
Ineffective Periods and Delisting Events, that lasts for an aggregate of four
(4) months;
(c) the Company shall not exercise a Put or any Put thereafter if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors instituted by or against the Company or any subsidiary of the Company; provided that in the event that an involuntary bankruptcy petition is filed against the Company, the Company shall have sixty (60) days to obtain dismissal of such petition before such Put prohibition shall initiate; and
(d) the Company shall not exercise a Put after the sooner of (i) the date that is three (3) years after the Effective Date, or (ii) the Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts equal the Maximum Offering Amount.
(e) if no Registration Statement has been declared effective by the date that is one (1) year after the date of this Agreement, the Automatic Termination shall occur on the date that is one (1) year after the date of this Agreement.
2.3.3 Put Limitations. The Company's right to exercise a Put shall be limited as follows, unless waived in writing by the Investor:
(a) [Intentionally Left Blank].
(b) notwithstanding the amount of any Put, the Investor shall not be obligated to purchase any additional Put Shares once the aggregate Put Dollar Amount paid by Investor equals the Maximum Offering Amount;
(c) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which the Company has announced a subdivision or combination, including a reverse split, of its Common Stock or has subdivided or combined its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which the Company has paid a dividend of its Common Stock or has made any other distribution of its Common Stock during the Extended Put Period;
(e) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which the Company has made, during the Extended Put Period, a distribution of all or any portion of its assets or evidences of indebtedness to the holders of its Common Stock;
(f) the Investor shall not be obligated to acquire and pay for the Put Shares with respect to any Put for which a Major Transaction has occurred during the Extended Put Period;
2.3.4 Conditions Precedent to the Right of the Company to Deliver an Advance Put Notice or a Put Notice and the Obligation of the Investor to Purchase Put Shares. The right of the Company to deliver an Advance Put Notice or a Put Notice and the obligation of the Investor hereunder to acquire and pay for the Put Shares incident to a Closing is subject to the satisfaction, on (i) the date of delivery of such Advance Put Notice or Put Notice and (ii) the applicable Put Closing Date, of each of the following conditions, unless waived in writing by the Investor:
(a) the Company's Common Stock shall be listed for and actively trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market or the New York Stock Exchange and the Put Shares shall be so listed, and to the Company's knowledge there is no notice of any suspension or delisting with respect to the trading of the shares of Common Stock on such market or exchange;
(b) the Company shall have satisfied any and all obligations pursuant to the Registration Rights Agreement, including, but not limited to, the filing of the Registration Statement with the SEC with respect to the resale of all Registrable Securities and the requirement that the Registration Statement shall have been declared effective by the SEC for the resale of all Registrable Securities and the Company shall have satisfied and shall be in compliance with any and all obligations pursuant to this Agreement and the Warrants;
(c) [Intentionally Left Blank].
(d) the representations and warranties of the Company are true and correct in all material respects as if made on such date and the conditions to Investor's obligations set forth in this Section 2.3.4 are satisfied as of such Closing, and the Company shall deliver
a certificate, signed by an officer of the Company, to such effect to the Investor;
(e) the Company shall have reserved for issuance a sufficient number of Common Shares for the purpose of enabling the Company to satisfy any obligation to issue Common Shares pursuant to any Put and to effect exercise of the Warrants;
(f) the Registration Statement is not subject to an Ineffective Period as defined in the Registration Rights Agreement, the prospectus included therein is current and deliverable, and to the Company's knowledge there is no notice of any investigation or inquiry concerning any stop order with respect to the Registration Statement; and
(g) if the Aggregate Issued Shares after the Closing of the
Put would exceed the Cap Amount, the Company shall have
obtained the Stockholder 20% Approval as specified in
Section 6.12.
2.3.5 Documents Required to be Delivered on the Put Date as Conditions to Closing of any Put. The Closing of any Put and Investor's obligations hereunder shall additionally be conditioned upon the delivery to the Investor of each of the following (the "Required Put Documents") on or before the applicable Put Date, unless waived or extended in writing by the Investor:
(a) a number of Unlegended Share Certificates equal to the Intended Put Share Amount, in denominations of not more than 50,000 shares per certificate;
(b) the following documents: Put Opinion of Counsel, Officer's Certificate, Put Notice, any required Registration Opinion, and any report or disclosure required under Section 2.3.6 or Section 2.6;
(c) current Risk Factors; and
(d) all documents, instruments and other writings required to be delivered on or before the Put Date pursuant to any provision of this Agreement in order to implement and effect the transactions contemplated herein.
2.3.6 Accountant's Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the Investor, (i) whenever required by Section 2.3.6(b) or by Section 2.6.3, and (ii) on the date that is three (3) Business Days prior to each Put Date (the "Registration Opinion Deadline"), an opinion of the Company's independent counsel, in substantially the form of Exhibit R (the "Registration Opinion"), addressed to the Investor stating, inter alia, that no facts ("Material Facts") have come to such counsel's attention that have caused it to believe that the Registration Statement is subject to an Ineffective Period or to believe that the Registration Statement, any Supplemental Registration Statement (as each may be amended, if applicable), and any related prospectuses, contains an untrue statement of material fact or omits a material fact required to make the
statements contained therein, in light of the circumstances under which they were made, not misleading. If a Registration Opinion cannot be delivered by the Company's independent counsel to the Investor on the Registration Opinion Deadline due to the existence of Material Facts or an Ineffective Period, the Company shall promptly notify the Investor and as promptly as possible amend each of the Registration Statement and any Supplemental Registration Statement, as applicable, and any related prospectus or cause such Ineffective Period to terminate, as the case may be, and deliver such Registration Opinion and updated prospectus as soon as possible thereafter. If at any time after a Put Notice shall have been delivered to Investor but before the related Pricing Period End Date, the Company acquires knowledge of such Material Facts or any Ineffective Period occurs, the Company shall promptly notify the Investor and shall deliver a Put Cancellation Notice to the Investor pursuant to Section 2.3.13 by facsimile and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the parties
hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as shall
have been reasonably requested by the Investor with respect to certain financial
information contained in the Registration Statement and shall have delivered to
the Investor such a report addressed to the Investor, on the date that is three
(3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall
have requested delivery of an "Agreed Upon Procedures Report" pursuant to
Section 2.6.3, the Company shall engage its independent auditors to perform
certain agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this Section
2.3.6(b) cannot be delivered by the Company's independent auditors, the Company
shall, if necessary, promptly revise the Registration Statement and the Company
shall not deliver a Put Notice until such report is delivered.
2.3.7 Investor's Obligation and Right to Purchase Shares. Subject to the conditions set forth in this Agreement, following the Investor's receipt of a validly delivered Put Notice, the Investor shall be required to purchase (each a "Purchase") from the Company a number of Put Shares equal to the Put Share Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company and the Investor shall deliver all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement at or prior to each Closing. Subject to such delivery and the satisfaction of the conditions set forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor of Put Shares shall occur by 5:00 PM, New York City Time, on the date which is five (5) Business Days following the last day of the Second Pricing Period for the applicable Put (the "Payment Due Date") at the offices of Investor. On each Closing Date, the Investor shall deliver to the Company, in the manner specified in Section 8 below, the Put Dollar Amount to be paid for such Put Shares, determined as aforesaid. The closing (each a "Put Closing") for each Put shall occur on the date that both (i) the Company has delivered to the Investor all Required Put
Documents, and (ii) the Investor has delivered to the Company such Put Dollar Amount and any Late Payment Amount, if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for such Put on or before the Payment Due Date, then the Investor shall pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late Payment Amount") at a rate of X% per month, accruing daily, multiplied by such Put Dollar Amount, where "X" equals one percent (1%) for the first month following the date in question, and increases by an additional one percent (1%) for each month that passes after the date in question, up to a maximum of five percent (5%).
2.3.9 [Intentionally Left Blank].
2.3.10 Limitation on Short Sales. The Investor and its Affiliates shall not engage in short sales of the Company's Common Stock; provided, however, that the Investor may enter into any short sale or other hedging or similar arrangement it deems appropriate with respect to Put Shares after it receives a Put Notice with respect to such Put Shares so long as such sales or arrangements do not involve more than the number of such Put Shares specified in the Put Notice.
2.3.11 Cap Amount. If the Company becomes listed on the Nasdaq Small Cap Market or the Nasdaq National Market, then, unless the Company has obtained Stockholder 20% Approval as set forth in Section 6.12 or unless otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the maximum number of shares of Common Stock (the "Cap Amount") that the Company can, without stockholder approval, so issue pursuant to Nasdaq Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor rule) (the "Nasdaq 20% Rule").
2.3.12 [Intentionally Left Blank]
2.3.13 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time
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during a Pricing Period the Company discovers the existence of Material Facts or
any Ineffective Period or Delisting Event occurs, the Company shall cancel the
Put (a "Put Cancellation"), by delivering written notice to the Investor (the
"Put Cancellation Notice"), attached as Exhibit Q, by facsimile and overnight
courier. The Company shall not be entitled to cancel a Put for any other reason
except for the reasons set forth in the immediately preceding sentence. The "Put
Cancellation Date" shall be the date that the Put Cancellation Notice is first
received by the Investor, if such notice is received by the Investor by 6:00
p.m., New York, NY time, and shall be the following date, if such notice is
received by the Investor after 6:00 p.m., New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put Cancellation Notice is delivered to Investor during a Pricing Period, the Put shall remain effective for such Pricing Period with respect to a number of Put Shares (the "Truncated Put Share Amount") which shall equal the lesser of (i) 20% of the sum of the daily reported Trading Volume in the outstanding Common Stock on the Company's Principal Market during each Evaluation Day of the Truncated Pricing Period (as defined in Section 2.3.7(b)),
(ii) the number of Put Shares which, when multiplied by their respective Put Share Prices, equals the Maximum Put Dollar Amount, subject to the Individual Put Limit.
(c) Put Cancellation Notice Confirmation. Upon receipt by the Investor of a facsimile copy of the Put Cancellation Notice, the Investor shall promptly send, via facsimile, a confirmation of receipt (the "Put Cancellation Notice Confirmation," a form of which is attached as Exhibit S) of the Put Cancellation Notice to the Company specifying that the Put Cancellation Notice has been received and affirming the Put Cancellation Date.
(d) Truncated Pricing Period. If a Put Cancellation Notice has been delivered to the Investor, pursuant to Section 2.3.13 below, during a Pricing Period, that Pricing Period shall end at the close of trading on the last full trading day on the Principal Market that ends prior to the moment of initial delivery of the Put Cancellation Notice (a "Truncated Pricing Period") to the Investor.
2.3.14 Investment Agreement Cancellation. The Company may terminate (a "Company Termination") its right to initiate future Puts by providing written notice ("Termination Notice") to the Investor, by facsimile and overnight courier, at any time other than during an Extended Put Period, provided that such termination shall have no effect on the parties' other rights and obligations under this Agreement, the Registration Rights Agreement or the Warrants. Notwithstanding the above, any cancellation occurring during an Extended Put Period is governed by Section 2.3.13.
2.3.15 Return of Excess Common Shares. In the event that the number of Shares purchased by the Investor pursuant to its obligations hereunder is less than the Intended Put Share Amount, the Investor shall promptly return to the Company any shares of Common Stock in the Investor's possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 [Intentionally Omitted].
2.4.2 Purchase Warrants. Within five (5) Business Days of the end of the Second Pricing Period for each Put, the Company shall issue and deliver to the Investor a warrant ("Purchase Warrant"), in the form attached hereto as Exhibit D, or such other form as agreed upon by the parties, to purchase a number of shares of Common Stock equal to 15% of the Put Share Amount for that Put. Each Purchase Warrant shall be exercisable at a price (the "Purchase Warrant Exercise Price") which shall initially equal 110% of the Closing Bid Price on the applicable Put Date, and shall have semi-annual reset provisions. Each Purchase Warrant shall be immediately exercisable at the Purchase Warrant Exercise Price, and shall have a term beginning on the date of issuance and ending on date that is five (5) years thereafter. The Warrant Shares shall be registered for resale pursuant to the Registration Rights Agreement. Concurrently with the issuance and delivery of the Purchase Warrant to the Investor, the Company shall deliver to the Investor a Purchase Warrant Opinion of Counsel (signed by the Company's independent counsel).
2.5 [Intentionally Left Blank].
2.6 Due Diligence Review. The Company shall make available for inspection and review by the Investor (the "Due Diligence Review"), advisors to and representatives of the Investor (who may or may not be affiliated with the Investor and who are reasonably acceptable to the Company), any underwriter participating in any disposition of Common Stock on behalf of the Investor pursuant to the Registration Statement, any Supplemental Registration Statement, or amendments or supplements thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement.
2.6.1 Treatment of Nonpublic Information. The Company shall not disclose nonpublic information to the Investor or to its advisors or representatives unless prior to disclosure of such information the Company identifies such information as being nonpublic information and provides the Investor and such advisors and representatives with the opportunity to accept or refuse to accept such nonpublic information for review. The Company may, as a condition to disclosing any nonpublic information hereunder, require the Investor and its advisors and representatives to enter into a confidentiality agreement (including an agreement with such advisors and representatives prohibiting them from trading in Common Stock during such period of time as they are in possession of nonpublic information) in form reasonably satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate nonpublic information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting nonpublic information (whether or not requested of the Company specifically or generally during the course of due diligence by and such persons or entities), which, if not disclosed in the Prospectus included in the Registration Statement, would cause such Prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 2.6 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain nonpublic information in the course of conducting due diligence in accordance with the terms of this Agreement; provided, however, that in no event shall the Investor's advisors or representatives disclose to the Investor the nature of the specific event or circumstances constituting any nonpublic information
discovered by such advisors or representatives in the course of their due diligence without the written consent of the Investor prior to disclosure of such information.
2.6.2 Disclosure of Misstatements and Omissions. The Investor's advisors or representatives shall make complete disclosure to the Investor's counsel of all events or circumstances constituting nonpublic information discovered by such advisors or representatives in the course of their due diligence upon which such advisors or representatives form the opinion that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in the light of the circumstances in which they were made, not misleading. Upon receipt of such disclosure, the Investor's counsel shall consult with the Company's independent counsel in order to address the concern raised as to the existence of a material misstatement or omission and to discuss appropriate disclosure with respect thereto; provided, however, that such consultation shall not constitute the advice of the Company's independent counsel to the Investor as to the accuracy of the Registration Statement and related Prospectus.
2.6.3 Procedure if Material Facts are Reasonably Believed to be Untrue or are Omitted. In the event after such consultation the Investor or the Investor's counsel reasonably believes that the Registration Statement contains an untrue statement or a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading,
(a) the Company shall file with the SEC an amendment to the Registration Statement responsive to such alleged untrue statement or omission and provide the Investor, as promptly as practicable, with copies of the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of
any such material misstatement or omission, (i) the Company's independent
counsel shall provide the Investor's counsel with a Registration Opinion and
(ii) in the event the dispute relates to the adequacy of financial disclosure
and the Investor shall reasonably request, the Company's independent auditors
shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
2.7 Commitment Payments. On each six (6) month anniversary of the Investment Commitment Closing, if the Investor has not received at least an amount equal to the applicable Semi-Annual Commitment Fee, as set forth below, in aggregate Gross Discount Amounts for the preceding six (6) Calendar Months (each such period a "Commitment Evaluation Period"), the Company, in consideration of Investor's commitment costs, including, but not limited to, due diligence expenses, shall pay to the Investor an amount (the "Semi-Annual Commitment Shortfall") equal to the difference of (i) the applicable Semi-Annual Commitment Fee, as defined below, minus (ii) the aggregate of the Gross Discount Amounts received by the Investor during the preceding six (6) Calendar Months. In the event that the Company delivers a Termination Notice to the Investor, the Company shall pay to the Investor the greater of (i) the Semi-Annual Commitment
Fee for the applicable Commitment Evaluation Period, less the Gross Discount
Amount on amounts put to the Investor in that Commitment Evaluation Period, or
(ii) the difference of (x) $200,000, minus (y) the aggregate of the Gross
Discount Amounts for all Puts to date, and the Company shall not be required to
pay the Semi-Annual Commitment Shortfall thereafter.
For purposes hereof, the Semi-Annual Commitment Fee shall be as follows:
Commitment Evaluation Period Semi-Annual Commitment Fee
---------------------------- --------------------------
First 6 Calendar Months after Closing* $50,000**
6 through 12 Calendar Months after Closing $75,000
12 through 18 Calendar Months after Closing $100,000
18 through 24 Calendar Months after Closing $100,000
24 through 30 Calendar Months after Closing $125,000
30 through 36 Calendar Months after Closing $150,000
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* = Investment Commitment Closing
** = If the date of effectiveness of the Registration Statement is more than 4 Calendar Months after the date of filing of the Registration Statement, and the Company has used its best efforts to cause such Registration Statement to become effective as soon as possible, the Semi-Annual Commitment Fee for the First 6 Calendar Months After Closing shall be reduced to $25,000.
The Company shall not be required to deliver any payments to Investor under this subSection until Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor ("Accredited Investor"), as defined in Rule 501 of Regulation D, and has checked the applicable box set forth in Section 12 of this Agreement.
3.2 Investment Experience; Access to Information; Independent Investigation.
3.2.1 Access to Information. Investor or Investor's professional advisor has been granted the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the terms and conditions of this Offering, the Company and its business and prospects, and to obtain any additional information which Investor or Investor's professional advisor deems necessary to verify the accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied completely on the advice of, or has consulted with, Investor's own personal tax, investment, legal or other advisors and has not relied on the
Company or any of its affiliates, officers, directors, attorneys, accountants or any affiliates of any thereof and each other person, if any, who controls any of the foregoing, within the meaning of Section 15 of the Act for any tax or legal advice (other than reliance on information in the Disclosure Documents as defined in Section 3.2.4 below and on the Opinion of Counsel). The foregoing, however, does not limit or modify Investor's right to rely upon covenants, representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and experience in financial and business matters so as to enable such Investor to utilize the information made available to it in connection with the Offering in order to evaluate the merits and risks of the prospective investment, which are substantial, including without limitation those set forth in the Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's investment decision to subscribe for the Investment Agreement hereunder, represents that (a) Investor has received and had an opportunity to review (i) the Company's Annual Report on Form 10-KSB for the year ended May 31, 1999, (ii) the Company's quarterly report on Form 10-QSB for the quarters ended August 31, 1999, November 30 , 1999, and February 29, 2000 (iii) the Risk Factors, attached as Exhibit J, (the "Risk Factors") (iv) the Capitalization Schedule, attached as Exhibit K, (the "Capitalization Schedule") and (v) the Use of Proceeds Schedule, attached as Exhibit L, (the "Use of Proceeds Schedule"); (b) Investor has read, reviewed, and relied solely on the documents described in (a) above, the Company's representations and warranties and other information in this Agreement, including the exhibits, documents prepared by the Company which have been specifically provided to Investor in connection with this Offering (the documents described in this Section 3.2.4 (a) and (b) are collectively referred to as the "Disclosure Documents"), and an independent investigation made by Investor and Investor's representatives, if any; (c) Investor has, prior to the date of this Agreement, been given an opportunity to review material contracts and documents of the Company which have been filed as exhibits to the Company's filings under the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") and has had an opportunity to ask questions of and receive answers from the Company's officers and directors; and (d) is not relying on any oral representation of the Company or any other person, nor any written representation or assurance from the Company other than those contained in the Disclosure Documents or incorporated herein or therein. The foregoing, however, does not limit or modify Investor's right to rely upon covenants, representations and warranties of the Company in Sections 5 and 6 of this Agreement. Investor acknowledges and agrees that the Company has no responsibility for, does not ratify, and is under no responsibility whatsoever to comment upon or correct any reports, analyses or other comments made about the Company by any third parties, including, but not limited to, analysts' research reports or comments (collectively, "Third Party Reports"), and Investor has not relied upon any Third Party Reports in making the decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has substantial experience in investing in securities and it has made investments in securities other than those of the Company. Investor acknowledges that Investor is able to fend for Investor's self in the transaction contemplated by this Agreement, that Investor has the ability to bear the economic risk of Investor's investment pursuant to this Agreement and that Investor is an "Accredited Investor" by virtue of the fact that Investor meets the investor qualification standards set forth in Section 3.1 above. Investor has not been organized for the purpose of investing in securities of the Company, although such investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 [Intentionally Left Blank].
3.3.2 No General Solicitation. The Investment Agreement
was not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
3.3.3 Restricted Securities. Investor understands that the Investment Agreement is, the Common Stock and Warrants issued at each Put Closing will be, and the Warrant Shares will be, characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction exempt from the registration requirements of the federal securities laws and that under such laws and applicable regulations such securities may not be transferred or resold without registration under the Act or pursuant to an exemption therefrom. In this connection, Investor represents that Investor is familiar with Rule 144 under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act.
3.3.4 Disposition. Without in any way limiting the representations set forth above, Investor agrees that until the Securities are sold pursuant to an effective Registration Statement or an exemption from registration, they will remain in the name of Investor and will not be transferred to or assigned to any broker, dealer or depositary. Investor further agrees not to sell, transfer, assign, or pledge the Securities (except for any bona fide pledge arrangement to the extent that such pledge does not require registration under the Act or unless an exemption from such registration is available and provided further that if such pledge is realized upon, any transfer to the pledgee shall comply with the requirements set forth herein), or to otherwise dispose of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement under the Act and any applicable state securities laws covering such proposed disposition and such disposition is made in accordance with such registration statement and in compliance with applicable prospectus delivery requirements; or
(b) (i) Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition to the extent relevant for determination of the availability of an exemption from registration, and (ii) if reasonably requested by the Company, Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of the Securities under the Act or state securities laws. It is agreed that the Company will not require the Investor to provide opinions of counsel for transactions made pursuant to Rule 144 provided that Investor and Investor's broker, if necessary, provide the Company with the necessary representations for counsel to the Company to issue an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account and the Investor has no
present arrangement (whether or not legally binding) at any time to sell the Common Stock to or through any person or entity; provided, however, that by making the representations herein, the Investor does not agree to hold the Common Stock for any minimum or other specific term and reserves the right to dispose of the Common Stock at any time in accordance with federal and state securities laws applicable to such disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment Agreement, if executing this Agreement in a representative or fiduciary capacity, has full power and authority to execute and deliver this Agreement and each other document included herein for which a signature is required in such capacity and on behalf of the subscribing individual, partnership, trust, estate, corporation or other entity for whom or which Investor is executing this Agreement. Investor has reached the age of majority (if an individual) according to the laws of the state in which he or she resides.
3.4.2 Due Authorization. If Investor is a corporation, Investor is duly and validly organized, validly existing and in good tax and corporate standing as a corporation under the laws of the jurisdiction of its incorporation with full power and authority to purchase the Securities to be purchased by Investor and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the representations, warranties, agreements and understandings set forth above are true with respect to all partners of Investor (and if any such partner is itself a partnership, all persons holding an interest in such partnership, directly or indirectly, including through one or more partnerships), and the person executing this Agreement has made due inquiry to determine the truthfulness of the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a representative or fiduciary capacity, the representations and warranties shall be deemed to have been made on behalf of the person or persons for whom Investor is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in the Company involves substantial risks, including the potential loss of Investor's entire investment herein. Investor recognizes that the Disclosure Documents, this Agreement and the exhibits hereto do not purport to contain all the information, which would be contained in a registration statement under the Act;
4.2 No Government Approval. No federal or state agency has passed upon the Securities, recommended or endorsed the Offering, or made any finding or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of this Agreement, the
Securities and any component thereof have not been registered under the Act or any applicable state securities laws by reason of exemptions from the registration requirements of the Act and such laws, and may not be sold, pledged (except for any limited pledge in connection with a margin account of Investor to the extent that such pledge does not require registration under the Act or unless an exemption from such registration is available and provided further that if such pledge is realized upon, any transfer to the pledgee shall comply with the requirements set forth herein), assigned or otherwise disposed of in the absence of an effective registration of the Securities and any component thereof under the Act or unless an exemption from such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Securities or any component thereof in the absence of either an effective registration statement or an exemption from the registration requirements of the Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that any registration statement will become effective at the scheduled time, or ever, or remain effective when required, and Investor acknowledges that it may be required to bear the economic risk of Investor's investment for an indefinite period of time;
4.6 Exempt Transaction. Investor understands that the Securities are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state law and that the representations, warranties, agreements, acknowledgments and understandings set forth herein are being relied upon by the Company in determining the applicability of such exemptions and the suitability of Investor to acquire such Securities.
4.7 Legends. The certificates representing the Put Shares shall not bear a Restrictive Legend. The certificates representing the Warrant Shares shall not bear a Restrictive Legend unless they are issued at a time when the Registration Statement is not effective for resale. It is understood that the certificates evidencing any Warrant Shares issued at a time when the Registration Statement is not effective for resale, subject to legend removal under the terms of Section 6.9 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, nor the securities laws of any other jurisdiction. They may not be sold or transferred in the absence of an effective registration statement under those securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company . The Company hereby makes the following representations and warranties to Investor (which shall be true at the signing of this Agreement, and as of any such later date as contemplated hereunder) and agrees with Investor that, except as set forth in the Schedule of Exceptions attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, USA and has all requisite corporate power and authority to carry on
its business as now conducted and as proposed to be conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on the
business or properties of the Company and its subsidiaries taken as a whole. The
Company is not the subject of any pending, threatened or, to its knowledge,
contemplated investigation or administrative or legal proceeding (a
"Proceeding") by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, or the Securities and Exchange Commission, The
National Association of Securities Dealer, Inc., The Nasdaq Stock Market, Inc.
or any state securities commission, or any other governmental entity, which have
not been disclosed in the Disclosure Documents. None of the disclosed
Proceedings, if any, will have a material adverse effect upon the Company or the
market for the Common Stock. The Company has the following subsidiaries:
Metacomp, Inc. (a California corporation) and Plasma Scientific Corporation (a
Delaware corporation).
5.2 Corporate Condition. The Company's condition is, in all material respects, as described in the Disclosure Documents (as further set forth in any subsequently filed Disclosure Documents, if applicable), except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the Company. Except for continuing losses, there have been no material adverse changes to the Company's business, financial condition, or prospects since the dates of such Disclosure Documents. The financial statements as contained in the 10-KSB and 10-QSB have been prepared in accordance with generally accepted accounting principles, consistently applied (except as otherwise permitted by Regulation S-X of the Exchange Act), subject, in the case of unaudited interim financial statements, to customary year end adjustments and the absence of certain footnotes, and fairly present the financial condition of the Company as of the dates of the balance sheets included therein and the consolidated results of its operations and cash flows for the periods then ended,. Without limiting the foregoing, there are no material liabilities, contingent or actual, that are not disclosed in the Disclosure Documents (other than liabilities incurred by the Company in the ordinary course of its business, consistent with its past practice, after the period covered by the Disclosure Documents). The Company has paid all material taxes that are due, except for taxes that it reasonably disputes. There is no material claim, litigation, or administrative proceeding pending or, to the best of the Company's knowledge, threatened against the Company, except as disclosed in the Disclosure Documents. This Agreement and the Disclosure Documents do not contain any untrue statement of a material fact and do not omit to state any material fact required to be stated therein or herein necessary to make the statements contained therein or herein not misleading in the light of the circumstances under which they were made. No event or circumstance exists relating to the Company which, under applicable law, requires public disclosure but which has not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance and delivery of the Common Stock being sold hereunder and the issuance (and/or the reservation for issuance) of the Warrants and the Warrant Shares have been taken, and this Agreement and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except insofar as the enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors' rights generally or by principles governing the availability of equitable remedies. The Company has obtained all consents and approvals required for it to execute, deliver and perform each agreement referenced in the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the Warrants, when issued, sold and delivered in accordance with the terms hereof, for the consideration expressed herein, will be validly issued, fully paid and nonassessable and, based in part upon the representations of Investor in this Agreement, will be issued in compliance with all applicable U.S. federal and state securities laws. The Warrant Shares, when issued in accordance with the terms of the Warrants, shall be duly and validly issued and outstanding, fully paid and nonassessable, and based in part on the representations and warranties of Investor, will be issued in compliance with all applicable U.S. federal and state securities laws. The Put Shares, the Warrants and the Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Certificate of Incorporation or Bylaws, each as amended and in effect on and as of the date of the Agreement, or of any material provision of any material instrument or material contract to which it is a party or by which it is bound or of any provision of any federal or state judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which would have a material adverse effect on the Company's business or prospects, or on the performance of its obligations under this Agreement or the Registration Rights Agreement. The execution, delivery and performance of this Agreement and the other agreements entered into in conjunction with the Offering and the consummation of the transactions contemplated hereby and thereby will not (a) result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company, which would have a material adverse effect on the Company's business or prospects, or on the performance of its obligations under this Agreement, the Registration Rights Agreement, (b) violate the Company's Certificate of Incorporation or By-Laws or (c) violate any statute, rule or governmental regulation applicable to the Company which violation would have a material adverse effect on the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of this
Offering and thereafter, to make such reports available, for the full term of
this Agreement, including any extensions thereof, and for as long as Investor
holds the Securities. The Common Stock is duly listed on the O.T.C. Bulletin
Board. The Company is not in violation of the listing requirements of the O.T.C.
Bulletin Board and does not reasonably anticipate that the Common Stock will be
delisted by the O.T.C. Bulletin Board for the foreseeable future. The Company
has filed all reports required under the Exchange Act. The Company has not
furnished to the Investor any material nonpublic information concerning the
Company.
5.7 Capitalization. The capitalization of the Company as of the date hereof, is, and the
capitalization as of the Closing, subject to exercise of any outstanding warrants and/or exercise of any outstanding stock options, after taking into account the offering of the Securities contemplated by this Agreement and all other share issuances occurring prior to this Offering, will be, as set forth in the Capitalization Schedule as set forth in Exhibit K. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities. Except as disclosed in the Capitalization Schedule, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Act (except the Registration Rights Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and exclusive ownership of or rights to use the patents, trademarks, trademark registrations, trade names, copyrights, know-how, technology and other intellectual property necessary to the conduct of its business. Exhibit M lists all patents, trademarks, trademark registrations, trade names and copyrights of the Company. The Company has granted such licenses or has assigned or otherwise transferred a portion of (or all of) such valid, unrestricted and exclusive patents, trademarks, trademark registrations, trade names, copyrights, know-how, technology and other intellectual property necessary to the conduct of its business as set forth in Exhibit M. The Company has been granted licenses, know-how, technology and/or other intellectual property necessary to the conduct of its business as set forth in Exhibit M. To the best of the Company's knowledge after due inquiry, the Company is not infringing on the intellectual property rights of any third party, nor is any third party infringing on the Company's intellectual property rights. There are no restrictions in any agreements, licenses, franchises, or other instruments that preclude the Company from engaging in its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to use the proceeds from this Offering (less fees and expenses) for the purposes and in the approximate amounts set forth on the Use of Proceeds Schedule set forth as Exhibit L hereto. These purposes and amounts are estimates and are subject to change without notice to any Investor.
5.10 No Rights of Participation. Other than Swartz Investments, LLC, no person or entity, including, but not limited to, current or former stockholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the financing contemplated by this Agreement which has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that Investor may elect to hold the Securities for various periods of time, as permitted by the terms of this Agreement, the Warrants, and other agreements contemplated hereby, and the Company further acknowledges that Investor has made no representations or warranties, either written or oral, as to how long the Securities will be held by Investor or regarding Investor's trading history or investment strategies.
5.12 [Intentionally Left Blank].
5.13 Underwriter's Fees and Rights of First Refusal. The Company is not obligated to pay any compensation or other fees, costs or related expenditures in cash or securities to any underwriter, broker, agent or other representative other than the Investor in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company is currently eligible and agrees to maintain its eligibility to register the resale of its Common Stock on a registration statement on a suitable form under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any of the Company's securities or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from registration under Regulation D of the Act or would require the issuance of any other securities to be integrated with this Offering under the Rules of Nasdaq. The Company has not engaged in any form of general solicitation or advertising in connection with the offering of the Common Stock or the Warrants.
5.16 [Intentionally Left Blank].
5.17 Foreign Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
5.18 Key Employees. Each "Key Employee" (as defined in Exhibit N) is currently serving the Company in the capacity disclosed in Exhibit N. No Key Employee, to the best knowledge of the Company and its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its subsidiaries to any liability with respect to any of the foregoing matters. No Key Employee has, to the best knowledge of the Company and its subsidiaries, any intention to terminate his employment with, or services to, the Company or any of its subsidiaries.
5.19 Representations Correct. The foregoing representations, warranties and agreements are true, correct and complete in all material respects, and shall survive any Put Closing and the issuance of the shares of Common Stock thereby.
5.20 Tax Status. The Company has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and as set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
5.21 Transactions With Affiliates. Except as set forth in the Disclosure Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
5.22 Application of Takeover Protections. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under Delaware law which is or could become applicable to the Investor as a result of the transactions contemplated by this Agreement, including, without limitation, the issuance of the Common Stock, any exercise of the Warrants and ownership of the Common Shares and Warrant Shares. The Company has not adopted and will not adopt any "poison pill" provision that will be applicable to Investor as a result of transactions contemplated by this Agreement.
5.23 Other Agreements. The Company has not, directly or indirectly, made any agreements with the Investor under a subscription in the form of this Agreement for the purchase of Common Stock, relating to the terms or conditions of the transactions contemplated hereby or thereby except as expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.24 Major Transactions. There are no other Major Transactions currently pending or contemplated by the Company.
5.25 Financings. There are no other financings currently pending or contemplated by the Company.
5.26 Shareholder Authorization. The Company shall, at its next annual shareholder meeting following its listing on either the Nasdaq Small Cap Market or the Nasdaq National Market, or at a special meeting to be held as soon as practicable thereafter, use its best efforts to obtain approval of its shareholders to (i) authorize the issuance of the full number of shares of Common Stock which would be issuable under this Agreement and eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the
Company or any of its securities with respect to the Company's ability to issue shares of Common Stock in excess of the Cap Amount (such approvals being the "20% Approval") and (ii) the increase in the number of authorized shares of Common Stock of the Company (the "Share Authorization Increase Approval") such that at least 12,000,000 shares can be reserved for this Offering. In connection with such shareholder vote, the Company shall use its best efforts to cause all officers and directors of the Company to promptly enter into irrevocable agreements to vote all of their shares in favor of eliminating such prohibitions. As soon as practicable after the 20% Approval and the Share Authorization Increase Approval, the Company agrees to use its best efforts to reserve 12,000,000 shares of Common Stock for issuance under this Agreement.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the Termination Date, maintain as its independent auditors an accounting firm authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at least the Termination Date, maintain its corporate existence in good standing and remain a "Reporting Issuer" (defined as a Company which files periodic reports under the Exchange Act) (provided, however, that the foregoing covenant shall not prevent the Company from entering into any merger or corporate reorganization as long as the surviving entity in such transaction, if not the Company, assumes the Company's obligations with respect to the Common Stock and has Common Stock listed for trading on a stock exchange or on Nasdaq and is a Reporting Issuer) and shall pay all its taxes when due except for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into a registration rights agreement covering the resale of the Common Shares and the Warrant Shares substantially in the form of the Registration Rights Agreement attached as Exhibit A.
6.4 [Intentionally Omitted].
6.5 Asset Transfers. The Company shall not (i) transfer, sell, convey or otherwise dispose of any of its material assets to any Subsidiary except for a cash or cash equivalent consideration and for a proper business purpose or (ii) transfer, sell, convey or otherwise dispose of any of its material assets to any Affiliate, as defined below, during the Term of this Agreement. For purposes hereof, "Affiliate" shall mean any officer of the Company, director of the Company or owner of twenty percent (20%) or more of the Common Stock or other securities of the Company.
6.6 Capital Raising Limitations; Rights of First Refusal.
6.6.1 Capital Raising Limitations. During the period from the date of this Agreement until the earlier of (i) the date that is one year after the Termination Date, or (ii) (a) in the case of a Company Termination, the date that is one (1) year after the date of such Company Termination, or (b) in the case of an Automatic Termination that is not waived by the Investor, the date that is six (6) months after the date of such Automatic Termination, the Company shall not issue or sell, or agree to issue or sell, for cash in private capital raising transactions (the following to be collectively referred to herein as, the "Variable Priced
Securities"), any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (i) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (ii) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security or upon the occurrence of specified contingent events directly or indirectly related to the business of the Company or the market for the Common Stock. During the period from the date of this Agreement until the Termination Date, the Company shall not issue or sell, or agree to issue or sell, for cash in private capital raising transactions any securities of the Company pursuant to an equity line structure or format similar in nature to this Offering without obtaining the prior written approval of the Investor of the Offering (the limitations referred to in this sentence are collectively referred to as the "Capital Raising Limitations").
6.6.2 Investor's Right of First Refusal. For any private capital raising transactions of Variable Priced Securities or equity line structured investments which close after the Capital Raising Deadline and on or prior to the date that is six (6) months after the Termination Date of this Agreement, not including any warrants issued in conjunction with this Investment Agreement, the Company agrees to deliver to Investor, at least ten (10) days prior to the closing of such transaction, written notice describing the proposed transaction, including the terms and conditions thereof, and providing the Investor and its affiliates an option during the ten (10) day period following delivery of such notice to purchase the securities being offered in such transaction on the same terms as contemplated by such transaction.
6.6.3 Exceptions to the Capital Raising Limitation and Rights of First Refusal. Notwithstanding the above, the Capital Raising Limitations and the Rights of First Refusal shall not apply to any securities issued or issuable pursuant to the private equity line Investment Agreement between the Company and the Investor dated on or about February 24, 1999, as amended on or about July 12, 1999, or to any transaction involving issuances of securities in connection with a merger, consolidation, acquisition or sale of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company or exercise of options by employees, consultants or directors. The Capital Raising Limitations also shall not apply to (a) the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof, (b) the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan for the benefit of the Company's employees, directors or consultants, or (c) the issuance of debt securities, with no equity feature, incurred solely for working capital purposes.
6.7 Financial 10-KSB Statements, Etc. and Current Reports on Form 8-K. The Company shall deliver to the Investor copies of its annual reports on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the Investor current reports on Form 8-K within two (2) days of filing for the Term of this Agreement.
6.8 Opinion of Counsel. Investor shall, concurrent with the purchase of the Common Stock and accompanying Warrants pursuant to this Agreement, receive an opinion letter from the Company's legal
counsel, in the form attached as Exhibit B or in such form as agreed upon by the parties, as to the Investment Commitment Closing and in the form attached as Exhibit I or in such form as agreed upon by the parties, as to any Put Closing.
6.9 Removal of Legend. If the certificates representing any Securities are issued with a restrictive Legend in accordance with the terms of this Agreement, the Legend shall be removed and the Company shall issue a certificate without such Legend to the holder of any Security upon which it is stamped, and a certificate for a security shall be originally issued without the Legend, if (a) the sale of such Security is registered under the Act, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions (the reasonable cost of which shall be borne by the Investor), to the effect that a public sale or transfer of such Security may be made without registration under the Act, or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144. Each Investor agrees to sell all Securities, including those represented by a certificate(s) from which the Legend has been removed, or which were originally issued without the Legend, pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of the Act.
6.10 Listing. Subject to the remainder of this Section 6.10, the Company shall ensure that its shares of Common Stock (including all Warrant Shares) are listed and available for trading on the O.T.C. Bulletin Board. Thereafter, the Company shall (i) use its best efforts to continue the listing and trading of its Common Stock on the O.T.C. Bulletin Board or to become eligible for and listed and available for trading on the Nasdaq Small Cap Market, the NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in all material 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.
6.11 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock, by delivering instructions
in the form of Exhibit T hereto, to issue certificates, registered in the name
of each Investor or its nominee, for the Put Shares and Warrant Shares in such
amounts as specified from time to time by the Company upon any exercise by the
Company of a Put and/or exercise of the Warrants by the holder thereof. Such
certificates shall not bear a Legend unless issuance with a Legend is permitted
by the terms of this Agreement and Legend removal is not permitted by Section
6.9 hereof and the Company shall cause the Transfer Agent to issue such
certificates without a Legend. Nothing in this Section shall affect in any way
Investor's obligations and agreement set forth in Sections 3.3.3 or 3.3.4 hereof
to resell the Securities pursuant to an effective registration statement and to
deliver a prospectus in connection with such sale or in compliance with an
exemption from the registration requirements of applicable securities laws. If
(a) a Investor provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
registration or (b) a Investor transfers Securities to an affiliate which is an
accredited investor pursuant to Rule 144, the Company shall permit the transfer,
and, in the case of Put Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Investor. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to a
Investor by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 6.11 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 6.11, that a
Investor shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6.12 Stockholder 20% Approval. Prior to the closing of any Put that would cause the Aggregate Issued Shares to exceed the Cap Amount, the Company shall obtain approval of its stockholders to authorize (i) the issuance of the full number of shares of Common Stock which would be issuable pursuant to this Agreement but for the Cap Amount and eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities with respect to the Company's ability to issue shares of Common Stock in excess of the Cap Amount (such approvals being the "Stockholder 20% Approval").
6.13 Press Release. The Company agrees that the Investor shall have the right to review and comment upon any press release issued by the Company in connection with the Offering which approval shall not be unreasonably withheld by Investor.
6.14 Change in Law or Policy. In the event of a change in law, or policy of the SEC, as evidenced by a No-Action letter or other written statements of the SEC or the NASD which causes the Investor to be unable to perform its obligations hereunder, this Agreement shall be automatically terminated and no further Commitment Fees shall be due.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing; Severability. Investor's and the Company's representations and warranties shall survive the Investment Date and any Put Closing contemplated by this Agreement notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, or is altered by a term required by the Securities Exchange Commission to be included in the Registration Statement, this Agreement shall continue in full force and effect without said provision; provided that if the removal of such provision materially changes the economic benefit of this Agreement to the Investor, the Investor, at its option, may terminate this Agreement or require that other terms of the Agreement be amended to compensate for such material economic changes.
7.2 Successors and Assigns. This Agreement shall not be assignable without the Company's written consent, If assigned, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Investor may assign Investor's rights hereunder, in connection with any private sale of the Common Stock of such Investor, so long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement in a form acceptable to the Company and provides an original copy of such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The use in this Agreement of a masculine, feminine or neither pronoun shall be deemed to include a reference to the others.
7.5 Written Notices, Etc. Any notice, demand or request required or permitted to be given by the Company or Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally, or by facsimile or upon receipt if by overnight or two (2) day courier, addressed to the parties at the addresses and/or facsimile telephone number of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing; provided, however, that in order for any notice to be effective as to the Investor such notice shall be delivered and sent, as specified herein, to all the addresses and facsimile telephone numbers of the Investor set forth at the end of this Agreement or such other address and/or facsimile telephone number as Investor may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights Agreement, each of the Company and Investor shall pay all costs and expenses that it respectively incurs, with respect to the negotiation, execution, delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement, including the Exhibits attached hereto, the Common Stock certificates, the Warrants, the Registration Rights Agreement, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought.
7.8 Arbitration. Except as otherwise provided in Section 6.11 of this Agreement, any controversy or claim arising out of or related to the Transaction Documents or the breach thereof, shall be settled by binding arbitration in Wilmington, Delaware in accordance with the Expedited Procedures (Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). A proceeding shall be commenced upon written demand by Company or any Investor to the other. The arbitrator(s) shall enter a judgment by default against any party, which fails or refuses to appear in any properly noticed
arbitration proceeding. The proceeding shall be conducted by one (1) arbitrator, unless the amount alleged to be in dispute exceeds two hundred fifty thousand dollars ($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s) will be chosen by the parties from a list provided by the AAA, and if they are unable to agree within ten (10) days, the AAA shall select the arbitrator(s). The arbitrators must be experts in securities law and financial transactions. The arbitrators shall assess costs and expenses of the arbitration, including all attorneys' and experts' fees, as the arbitrators believe is appropriate in light of the merits of the parties' respective positions in the issues in dispute. Each party submits irrevocably to the jurisdiction of any state court sitting in Wilmington, Delaware or to the United States District Court sitting in Delaware for purposes of enforcement of any discovery order, judgment or award in connection with such arbitration. The award of the arbitrator(s) shall be final and binding upon the parties and may be enforced in any court having jurisdiction. The arbitration shall be held in such place as set by the arbitrator(s) in accordance with Rule 55.
Although the parties, as expressed above, agree that all claims, including claims that are equitable in nature, for example specific performance, shall initially be prosecuted in the binding arbitration procedure outlined above, if the arbitration panel dismisses or otherwise fails to entertain any or all of the equitable claims asserted by reason of the fact that it lacks jurisdiction, power and/or authority to consider such claims and/or direct the remedy requested, then, in only that event, will the parties have the right to initiate litigation respecting such equitable claims or remedies. The forum for such equitable relief shall be in either a state or federal court sitting in Wilmington, Delaware. Each party waives any right to a trial by jury, assuming such right exists in an equitable proceeding, and irrevocably submits to the jurisdiction of said Delaware court. Delaware law shall govern both the proceeding as well as the interpretation and construction of the Transaction Documents and the transaction as a whole.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(a) Wire transfer of Subscription Funds. Investor shall deliver Put Dollar Amounts (as payment towards any Put Share Price) by wire transfer, to the Company pursuant to a wire instruction letter to be provided by the Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and agrees, subject to the provisions of any applicable laws providing for the refund of subscription amounts submitted by Investor, that this Agreement is irrevocable and that Investor is not entitled to cancel, terminate or revoke this Agreement or any other agreements executed by such Investor and delivered pursuant hereto, and that this Agreement and such other agreements shall survive the death or disability of such Investor and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. If the Securities subscribed for are to be owned by more than one person, the obligations of all such owners under this Agreement shall be joint and several, and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors,
administrators, successors, legal representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of securities purchased hereby will pass to Investor upon the Warrant Closing or any Put Closing.
8.3 [Intentionally Omitted]
9. Indemnification.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in addition
to all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless Investor and all of
its stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents, members, partners or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorney's fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
documents contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim, derivative or otherwise, by any
stockholder of the Company based on a breach or alleged breach by the Company or
any of its officers or directors of their fiduciary or other obligations to the
stockholders of the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which it would be required to make if such foregoing undertaking was enforceable which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the commencement of any action pursuant to which indemnification may be sought, such Indemnified Party will, if a claim in respect thereof is to be made against the other party (hereinafter "Indemnitor") under this Section 9, deliver to the Indemnitor a written notice of the commencement thereof and the Indemnitor shall have the right to participate in and to assume the defense thereof with counsel reasonably selected by the Indemnitor, provided, however, that an Indemnified Party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of such counsel to be paid by the Indemnitor, if representation of such Indemnified Party by the counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interest between such Indemnified Party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the Indemnitor within a reasonable time of the commencement of any such
action, if prejudicial to the Indemnitor's ability to defend such action, shall
relieve the Indemnitor of any liability to the Indemnified Party under this
Section 9, but the omission to so deliver written notice to the Indemnitor will
not relieve it of any liability that it may have to any Indemnified Party other
than under this Section 9 to the extent it is prejudicial.
10. [Intentionally Left Blank].
11. [Intentionally Left Blank].
12. Accredited Investor. Investor is an "accredited investor" because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of the Internal Revenue Code, or a corporation, limited duration company, limited liability company, business trust, or partnership not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of the issuer of the securities being offered or sold or a director, executive officer or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity described in a - b above or is an individual who could check one (1) of the last three (3) boxes under subparagraph (c) above.
The undersigned hereby subscribes for ___________% of The Maximum Offering Amount and acknowledges that this Agreement and the subscription represented hereby shall not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify under penalty of perjury that the foregoing statements are true and correct and that Investor by the following signature(s) executed this Agreement.
Dated this 2nd day of May, 2000.
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Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
SECURITY DELIVERY INSTRUCTIONS:
------------------------------------ Please type or print address where
Name: Please Print your security is to be delivered
------------------------------------ ATTN:
Title/Representative Capacity -------------------------------
(if applicable)
------------------------------------ ------------------------------------
Name of Company You Represent Street Address
(if applicable)
------------------------------------ ------------------------------------
Place of Execution of this Agreement City, State or Province, Country,
Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Notice Please print address where Copy is
to be delivered
is to be delivered
ATTN: ATTN:
------------------------------ ------------------------------
------------------------------------ ------------------------------------
Street Address Street Address
------------------------------------
------------------------------------ ------------------------------------
City, State or Province, Country, City, State or Country,
Offshore Postal Code Offshore Postal Code
Telephone: Telephone:
------------------------- --------------------------
Facsimile: Facsimile:
------------------------- --------------------------
Facsimile: Facsimile:
------------------------- --------------------------
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THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF 100% OF THE MAXIMUM OFFERING AMOUNT ON THE 2nd DAY OF MAY, 2000.
PATRIOT SCIENTIFIC CORP.
Address: PATRIOT SCIENTIFIC CORP.
10989 Via Frontera
San Diego, CA 92127
Telephone No. (858) 674-5000
Fax: (858) 674-5005
ADVANCE PUT NOTICE
PATRIOT SCIENTIFIC CORP. (the "Company") hereby intends, subject to the Individual Put Limit (as defined in the Investment Agreement), to elect to exercise a Put to sell the number of shares of Common Stock of the Company specified below, to _____________________________, the Investor, as of the Intended Put Date written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about ___________.
Company Designation Maximum Put Dollar Amount
(Optional): .
---------------------------------------
Company Designation Minimum Put Share Price
(Optional): .
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PATRIOT SCIENTIFIC CORP.
Address: PATRIOT SCIENTIFIC CORP.
10989 Via Frontera
San Diego, CA 92127
Telephone No. (858) 674-5000
Fax: (858) 674-5005
EXHIBIT E
CONFIRMATION OF ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of PATRIOT SCIENTIFIC CORP.'S (the "Company") Advance Put Notice on the Advance Put Date written below, and its intention to elect to exercise a Put to sell shares of common stock ("Intended Put Share Amount") of the Company to the Investor, as of the intended Put Date written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about ____________.
Date of Confirmation:
-----------------------------
Date of Advance Put Notice:
------------------------
Intended Put Date:
---------------------------------
Intended Put Share Amount: ________________
(Subject to the Individual Put Limit)
Company Designation Maximum Put Dollar Amount
(Optional): .
---------------------------------------
Company Designation Minimum Put Share Price
(Optional): .
---------------------------------------
INVESTOR(S)
-----------------------------------
Investor's Name
By:
---------------------------------
(Signature)
Address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
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EXHIBIT F
PUT NOTICE
PATRIOT SCIENTIFIC CORP. (the "Company") hereby elects to exercise a Put to sell shares of common stock ("Common Stock") of the Company to _____________________, the Investor, as of the Put Date, at the Put Share Price and for the number of Put Shares written below, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about ____________.
Common Shares
(Subject to the Individual Put Limit)
Company Designation Maximum Put Dollar Amount
(Optional): .
---------------------------------------
Company Designation Minimum Put Share Price
(Optional): .
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Note: Capitalized terms shall have the meanings ascribed to them in this Investment Agreement.
PATRIOT SCIENTIFIC CORP.
Address: PATRIOT SCIENTIFIC CORP.
10989 Via Frontera
San Diego, CA 92127
Telephone No. (858) 674-5000
Fax: (858) 674-5005
EXHIBIT G
CONFIRMATION OF PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of PATRIOT SCIENTIFIC CORP. (the "Company") Put Notice and election to exercise a Put to sell ___________________________ shares of common stock ("Common Stock") of the Company to Investor, as of the Put Date, all pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about _____________.
INVESTOR(S)
EXHIBIT H
PUT CANCELLATION NOTICE
PATRIOT SCIENTIFIC CORP. (the "Company") hereby cancels the Put specified below, pursuant to that certain Investment Agreement (the "Investment Agreement") by and between the Company and Swartz Private Equity, LLC dated on or about ___________, as of the close of trading on the date specified below (the "Cancellation Date," which date must be on or after the date that this notice is delivered to the Investor), provided that such cancellation shall not apply to the number of shares of Common Stock equal to the Truncated Put Share Amount (as defined in the Investment Agreement).
[ ] Material Facts, Ineffective
Registration Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20) Business Days advance written notice to the Investor before effecting the next Put.
PATRIOT SCIENTIFIC CORP.
Address: PATRIOT SCIENTIFIC CORP.
10989 Via Frontera
San Diego, CA 92127
Telephone No. (858) 674-5000
Fax: (858) 674-5005
EXHIBIT Q
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment Agreement") by and between the Company, and Swartz Private Equity, LLC dated on or about ____________, hereby confirms receipt of Patriot Scientific Corp.'s (the "Company") Put Cancellation Notice, and confirms the following:
INVESTOR(S)
EXHIBIT S
EXHIBIT 5.1
(Luce, Forward, Hamilton & Scripps LLP Letterhead)
May 5, 2000
Patriot Scientific Corporation
10989 Via Frontera
San Diego, CA 92127
Re: Registration Statement on Form S-3 Patriot Scientific Corporation common stock, par value $.00001 per share
Ladies and Gentlemen:
We are counsel for Patriot Scientific Corporation, a Delaware corporation (the "Company"), in connection with the preparation of the Registration Statement on Form S-3 (the "Registration Statement") as to which this opinion is a part, filed with the Securities and Exchange Commission (the "Commission") on May 5, 2000 for the resale of up to 17,318,448 shares of common stock, $.00001 par value, of the Company by selling shareholders (the "Shares").
In connection with rendering our opinion as set forth below, we have reviewed and examined originals or copies of such corporate records and other documents and have satisfied ourselves as to such other matters as we have deemed necessary to enable us to express our opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that:
The issued Shares covered by the Registration Statement and registered on behalf of the Company, when issued in accordance with the terms and conditions set forth in the Registration Statement, will be duly authorized, validly issued, fully paid and nonassessable. The Shares to be issued upon the conversion of certain warrants, as covered by the Registration Statement and registered on behalf of the Company, when issued in accordance with the terms and conditions set forth in the Registration Statement, will be duly authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Luce, Forward, Hamilton & Scripps LLP LUCE, FORWARD, HAMILTON & SCRIPPS LLP |
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Patriot Scientific Corporation
San Diego, California
We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated September 1, 1999, relating to the consolidated financial statements of Patriot Scientific Corporation, appearing in the Company's Annual Report on Form 10-KSB for the year ended May 31, 1999. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the Prospectus.
/s/ BDO Seidman, LLP Denver, Colorado May 5, 2000 |