ANTIDILUTION AGREEMENT AND ADDENDUM TO WARRANTS
ANTIDILUTION
AGREEMENT AND ADDENDUM TO WARRANTS
THIS
AGREEMENT (the "Antidilution Agreement" or the “Agreement”) is entered into as
of March 19, 2003, by and among Patriot Scientific Corporation, a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company" or “Patriot”) and ▇▇▇▇▇▇ Private Equity, LLC (hereinafter referred to
as “▇▇▇▇▇▇” or “Holder”). This Agreement supersedes the Addendum to Amended
Secured Promissory Note (the “Addendum to Amended Note”) between the Company and
▇▇▇▇▇▇ dated on or about March 12, 2002, a copy of which is attached hereto
as
Exhibit
A,
which
superseded the
Agreement (the “Original Loan Advance Agreement”) between the Company and ▇▇▇▇▇▇
dated on or about January 28, 2002, a copy of which is attached hereto as
Exhibit
B.
RECITALS:
WHEREAS,
the Company and ▇▇▇▇▇▇ entered into an Amended Secured Promissory Note in an
initial amount of $87,500 dated as of October 9, 2001 (the “Secured
Note”);
WHEREAS,
▇▇▇▇▇▇ has advanced funds to the Company from time to time, as specified in
Schedule A to the Secured Note;
WHEREAS,
▇▇▇▇▇▇ agreed to loan one such advance, for one hundred thousand dollars
($100,000), to the Company on or about January 28, 2002 subject to the terms
of
the Original Loan Advance Agreement;
WHEREAS,
the Original Loan Advance Agreement, among other things, gave ▇▇▇▇▇▇ certain
antidilution protection;
WHEREAS,
▇▇▇▇▇▇ agreed to another such advance, for two hundred thousand dollars
($200,000), to the Company on or about March 12, 2002 subject to the terms
of
the Addendum to Amended Note;
WHEREAS,
▇▇▇▇▇▇ agreed to defer additional payments under the Secured Note pursuant
to
the Addendum to Amended Note;
WHEREAS,
the Addendum to Amended Note, among other things, gave ▇▇▇▇▇▇ certain additional
antidilution protection;
WHEREAS,
pursuant to advances under the Secured Note, Patriot has issued to ▇▇▇▇▇▇
certain warrants to purchase common stock of Patriot (the “Note
Warrants”);
WHEREAS,
pursuant to the terms of the Original Loan Advance Agreement and the Addendum
to
Amended Note, Patriot has issued to ▇▇▇▇▇▇ certain warrants to purchase common
stock of Patriot (the “Existing Snapshot Warrants”);
WHEREAS,
on or about July 12, 1999, the Company and ▇▇▇▇▇▇ entered into a private equity
line Investment Agreement, and related agreements (collectively, the “First
Equity Line Agreements”), pursuant to which the Company has issued to ▇▇▇▇▇▇
certain purchase warrants (the “First Equity Line Purchase
Warrants”);
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WHEREAS,
on or about May 2, 2000, the Company and ▇▇▇▇▇▇ entered into a private equity
line Investment Agreement, and related agreements (collectively, the “Second
Equity Line Agreements”), pursuant to which the Company has issued to ▇▇▇▇▇▇
certain purchase warrants (the “Second Equity Line Purchase Warrants”, together
with the First Equity Line Purchase Warrants, referred to herein as the
“Purchase Warrants”);
WHEREAS,
on or about September 17, 2001, the Company and ▇▇▇▇▇▇ entered into a private
equity line Investment Agreement, and related agreements (collectively, the
“Third Equity Line Agreements”, together with the First Equity Line Agreements
and the Second Equity Line Agreements, referred to as the “Equity Line
Agreements”), pursuant to which the Company has issued to ▇▇▇▇▇▇ a commitment
warrant (the “Commitment Warrant”) to purchase 900,000 shares, with an issue
date of September 17, 2001;
WHEREAS,
the Note Warrants, the Existing Snapshot Warrants, the Commitment Warrant and
the Purchase Warrants (collectively, the “Existing ▇▇▇▇▇▇ Warrants”) are all
described on Exhibit
C.
WHEREAS,
the parties mutually desire to enter into this Agreement whereby, among other
things, payments on the Secured Note are further deferred, certain of the
Existing ▇▇▇▇▇▇ Warrants are subjected to a contractual lock-up and 20,007,350
shares that were originally reserved for issuance upon exercise of certain
of
the Existing ▇▇▇▇▇▇ Warrants will be reserved for other purposes for a period
of
time, and in exchange, among other things, ▇▇▇▇▇▇ is granted certain additional
antidilution protection.
TERMS:
NOW,
THEREFORE, in consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Deferral
of Payments on Secured Promissory Note. ▇▇▇▇▇▇
hereby agrees that the principal payments on the Secured Note that were
originally due on the first day of each month beginning January 1, 2002
throughout the term of the Secured Note shall be deferred until March 1, 2004,
at which time Patriot shall pay ▇▇▇▇▇▇ all outstanding principal and interest
which shall be due and payable on March 1, 2004, at which time the Secured
Notes
shall be retired. The parties acknowledge that the balance of the Secured Note
as of the close of business on March 19, 2003 is $635,275.53 in principal and
$53,317.27 in accrued interest. Patriot shall continue to make timely interest
payments under the Secured Note, notwithstanding such deferral of
principal.
2
2. Extension
of Warrants. The
Company agrees that the respective term of each of the Existing ▇▇▇▇▇▇ Warrants
that would otherwise expire prior to December 31, 2006, including but not
limited to those warrants specified in Exhibit
D,
are
hereby extended through December 31, 2006.
3. Contractual
Lock-Up of Specified Existing ▇▇▇▇▇▇ Warrants. ▇▇▇▇▇▇
agrees that it shall not exercise any of the warrants specified on Exhibit
E,
representing an aggregate of 20,007,350
shares
(the “Specified Existing ▇▇▇▇▇▇ Warrants”) prior to the Reservation Trigger Date
(as defined below).
4.
Antidilution;
Issuance of Snapshot Warrants. As
part
of the consideration for ▇▇▇▇▇▇ entering into this Agreement, (i) on April
1,
2003, the Company shall issue and deliver to ▇▇▇▇▇▇ a warrant (a “First New
Snapshot Warrant”), to purchase 621,512 shares of common stock of the Company
(“Common Stock”), and (ii) on each three (3) month anniversary of April 1, 2003
thereafter (and if such date is not a business day, then on the next business
day), and on the trading day immediately preceding the closing of any Major
Transaction, as defined below (each, a “Snapshot Date”) continuing through March
19, 2008, the Company shall calculate a value for “X,” as defined below, with
respect to that Snapshot Date. Within three (3) business days of each Snapshot
Date, the Company shall issue and deliver to ▇▇▇▇▇▇ (each, a “Snapshot
Issuance”) warrants (the “New Snapshot Warrants,” together with the First New
Snapshot Warrant and the Existing Snapshot Warrants, referred to herein as
the
“Snapshot Warrants”), to purchase a number of shares of common stock of the
Company (“Common Stock”), if any, equal to the value of “X” for that Snapshot
Date.
For
purposes hereof:
“X”
=
(Snapshot Rate Multiplier * [“Current Adjusted FDO” - 179,800,00 shares]) - the
number of Snapshot Warrants issued to ▇▇▇▇▇▇ under this Agreement after March
19, 2003 but prior to the current Snapshot Date .
“Snapshot
Rate Multiplier” shall equal 0.30, unless increased by the terms of this
Agreement.
“Current
Adjusted FDO” shall mean (i) the number of Fully Diluted Shares (as defined
below) of Common Stock of the Company determined after the close of business
on
the Snapshot Date with respect to which Snapshot Warrants are being issued
(the
“Current Snapshot Date”), minus (ii) any shares or warrants that are issued to
▇▇▇▇▇▇ under this Agreement, minus (iii) any shares or warrants (“Future
Agreement Shares”) that are issued to ▇▇▇▇▇▇ under any new agreement(s) which
are entered into between ▇▇▇▇▇▇ and the Company after the date
hereof.
“Fully
Diluted Shares” shall include all of the following: (i) all outstanding shares
of Common Stock of the Company, including but not limited to those owned by
▇▇▇▇▇▇ Private Equity, LLC, and (ii) all shares of Common Stock of the Company
that would be issuable if all outstanding Convertible Securities (as defined
below), including but not limited to those Convertible Securities owned by
▇▇▇▇▇▇ Private Equity, LLC, were converted, exchanged or exercised, in their
entirety, into Common Stock of the Company on the date in question, without
regard for any contractual, legal or regulatory restrictions on the exercise,
conversion or exchange thereof, and without regard to whether there are a
sufficient number of authorized and reserved shares to effect such conversion,
exchange or exercise.
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“Convertible
Securities” shall mean any securities of the Company that are, or could become,
convertible, exercisable or exchangeable into Common Stock of the Company,
including but not limited to convertible preferred stock, convertible
debentures, convertible notes, warrants and options.
“Current
Snapshot Date” shall mean the Snapshot Date for which “X” is being
calculated.
Notwithstanding
the above, if the average closing bid price of the Company’s common stock for
the five (5) trading days immediately preceding a given Snapshot Date (the
“5
Day Average Price”) is greater than or equal to $1.00 (subject to appropriate
adjustments for stock splits), then no Snapshot Warrants shall be issued with
respect to that Snapshot Date, provided that if the 5 Day Average Price for
one
or more subsequent Snapshot Dates is less than $1.00 (subject to with
appropriate adjustments for stock splits), then Snapshot Warrants shall be
issued with respect to such subsequent Snapshot Dates as set forth in this
Agreement.
The
Snapshot Warrants shall be in the form of Exhibit
F
hereto,
and shall be exerciseable at an exercise price (the “Exercise Price”) which
shall initially equal (the
“Initial Exercise Price”) the
average closing bid price of the Company’s common stock for the five (5) trading
days immediately preceding the applicable Snapshot Date, subject to resets
as
further described below and as described in the Snapshot Warrants. If
the
Date of Exercise is more than six (6) months after the Date of Issuance (as
defined in the Snapshot Warrants), the Exercise Price shall be reset to equal
the lesser of (i) the Exercise Price then in effect, or (ii) the “Lowest Reset
Price,” as that term is defined below. The Company shall calculate a “Reset
Price” on each six-month anniversary date of the Date of Issuance which shall
equal the lowest Closing Bid Price (as defined below) of the Company’s Common
Stock for the five (5) trading days ending on such six-month anniversary date
of
the Date of Issuance. The “Lowest Reset Price” shall equal the lowest Reset
Price determined on any six-month anniversary date of the Date of Issuance
up
through the applicable Date of Exercise, taking into account, as appropriate,
any adjustments made pursuant to Section 5 of the warrant.
For
purposes hereof, the term “Closing Bid Price” shall mean the closing bid price
on the Nasdaq Small Cap Market, the National Market System (“NMS”), the New York
Stock Exchange, or the O.T.C. Bulletin Board, or if no longer traded on the
Nasdaq Small Cap Market, the National Market System (“NMS”), the New York Stock
Exchange, or the O.T.C. Bulletin Board, the “Closing Bid Price” shall equal the
closing price on the principal national securities exchange or the
over-the-counter system on which the Common Stock is so traded and, if not
available, the mean of the high and low prices on the principal national
securities exchange on which the Common Stock is so traded.
The
Snapshot Warrants shall have the registration rights set forth in the
Registration Rights Agreement (“Registration Rights Agreement”) entered into by
and between the parties concurrently herewith and shall have a 5-year term.
5.
Addendum
to Amended Note is Superseded; Other Agreements and Securities Remain in Effect.
As
part
of the consideration for this Agreement, the Addendum to Amended Note is
superseded hereby, effective as of the date that this Agreement is entered
into
by both the Company and ▇▇▇▇▇▇, provided that, except as expressly specified
to
the contrary in this Agreement, all other agreements between the parties and
all
securities that have been previously issued by the Company to ▇▇▇▇▇▇ shall
remain in full force and effect, including but not limited to the
following:
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-
all
Existing ▇▇▇▇▇▇ Warrants (provided that the Specified Existing ▇▇▇▇▇▇ Warrants
are subject to the contractual lockups and share reservation adjustments
specified herein),
-
the
Secured Note, and all Note Warrants to be issued in the future
thereunder.
-
the
Equity Line Agreements, the Commitment Warrant and the Purchase
Warrants.
6. Addendum
to Note Warrants and Snapshot Warrants. All
warrants that have been issued from the Company to ▇▇▇▇▇▇ as of the date hereof,
including but not limited to the Existing ▇▇▇▇▇▇ Warrants, and all Snapshot
Warrants to be issued under this Agreement (collectively, the “▇▇▇▇▇▇ Warrants”
or the “Warrants”), shall be considered to contain and be subject to the
following provision, which shall replace Section 5(a) of such
Warrants:
Adjustment
Due to Distribution. If at any time after the Issue Date hereof, the Company
shall declare or make any distribution of its assets (or rights to acquire
its
assets) or shares of its capital stock to Holders of Common Stock of the Company
as a partial liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Company’s shareholders in cash or
shares [or rights to acquire shares] of capital stock of any other public or
private company, including but not limited to a subsidiary or spin-off of the
Company (a “Distribution”)), then the Holders of this Warrant shall be entitled,
to immediately receive the amount of such distribution (in kind) which would
have been payable to the Holder with respect to the shares of Common Stock
issuable upon a full exercise of this Warrant (without
regard to any contractual, legal or regulatory limitations on the amount of
such
conversion),
had
such Holder been the holder of such shares of Common Stock on the record date
for determination of shareholders entitled to such
Distribution.
7. 9.9%
Provision.
The
parties agree that, if by virtue of the addendum in Section 6 above (the
“Distribution Provision”), or by virtue of any other agreement between the
parties, the Holder becomes entitled to receive a number of shares of common
stock of another issuer company (the “Other Issuer”), such that the sum of (1)
the number of shares of common stock of the Other Issuer beneficially owned
by
the Holder and any applicable affiliates, and (2) the number of shares of common
stock of the Other Issuer that is issuable by virtue of the Distribution
Provision described above, with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 9.99% of the outstanding shares of common stock
of
the Other Issuer (collectively, the “9.99% LIMITATION”), then the Company shall
immediately deliver to ▇▇▇▇▇▇ the number of shares of common stock of the Other
Issuer that can be issued without exceeding the 9.99% Limitation, and shall,
each five (5) business days thereafter (or such longer time period that ▇▇▇▇▇▇
requests in writing), issue additional such shares to ▇▇▇▇▇▇, in an amount
equal
to the number of shares that ▇▇▇▇▇▇ states, by written notice, may then be
issued to ▇▇▇▇▇▇ without causing a violation of the 9.99%
limitation.
5
For
purposes of the proviso to the immediately preceding sentence, (i) beneficial
ownership shall be determined by the Holder in accordance with Section 13(d)
of
the Exchange Act and Regulations 13D-G thereunder, except as otherwise provided
in clause (1) of such proviso to the immediately preceding sentence, and
PROVIDED THAT the 9.99% Limitation shall be conclusively satisfied if the
applicable notice from ▇▇▇▇▇▇ includes a signed representation by the Holder
that the issuance of the shares in such notice will not violate the 9.99%
Limitation, and the Company shall not be entitled to require additional
documentation of such satisfaction.
8.
Term.
The term
of this Agreement shall be from the date hereof through the date that is 5
years
after the date hereof.
9. Opinion
of Counsel and Board Resolutions. Concurrently
with the execution of this Agreement, the Company shall deliver to ▇▇▇▇▇▇ an
Opinion of Counsel (signed by the Company’s independent counsel) and a board
resolution, signed by all disinterested members of the board, covering the
execution and legality of this Agreement, the Share Reservation Tolling (as
defined below), the issuance of the Snapshot Warrants hereunder, and the
issuance and resale of the Common Stock issuable upon exercise of the Snapshot
Warrants.
10. Repayment
of Funds.
Notwithstanding the full repayment of the Secured Note, this Agreement,
including but not limited to the Company’s obligation to issue the Snapshot
Warrants, shall remain in full force and effect throughout the term hereof,
and
may not be terminated.
11. Removal
of Legend Upon Conversion.
(a)
Legend
Removal.
As
contemplated by the Warrants, upon exercise of the Warrants, the Holder shall
submit an Exercise Notice, substantially in the form attached to the Warrants.
Any legend on the shares of common stock issued upon exercise of a warrant
restricting the resale of such share of common stock (a “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, unless otherwise
required by state securities laws, (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
Company), 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.
The Holder 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
(b)
Legend
Replacement.
In the
event the Legend is removed from any Security or any Security is issued without
the Legend and thereafter the effectiveness of a registration statement covering
the resale of such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws,
then
upon reasonable advance notice to Subscriber holding such Security, the Company
may require that the Legend be placed on any such Security that cannot then
be
sold pursuant to an effective registration statement or Rule 144 or with respect
to which the opinion referred to in clause (b) next above has not been rendered,
which Legend shall be removed when such Security may be sold pursuant to an
effective registration statement or Rule 144 or such holder provides the opinion
with respect thereto described in clause (b) next above.
(c)
Acknowledgement
of Tacking Periods.
For
purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon any cashless
exercise of a Warrant shall be deemed to have been acquired at the time the
applicable Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon any
cashless exercise of a Warrant shall be deemed to have commenced on the date
the
applicable Warrant was issued.
12. Authorization
and Reservation of Shares of Common Stock. Except
as
expressly set forth herein, the Company shall be required to maintain a
sufficient number of authorized and reserved shares of common stock to effect
the conversion or exercise of all warrants or other Convertible Securities
owned
by ▇▇▇▇▇▇ as required by the terms of such securities, including, but not
limited to, the ▇▇▇▇▇▇ Warrants. Under the terms of the Specified Existing
▇▇▇▇▇▇ Warrants, the Company is required to have and maintain a sufficient
number of reserved shares of common stock to effect the full exercise of each
such warrant. ▇▇▇▇▇▇ hereby agrees that the Company shall be entitled to
“unreserved” (the “Share Reservation Tolling”) up to 20,007,350 shares of common
stock that are currently reserved for issuance upon exercises of the Specified
Existing ▇▇▇▇▇▇ Warrants (the “Specified Existing ▇▇▇▇▇▇ Warrant Shares”), and
to issue such shares of common stock to other persons or entities or to reserve
such shares for issuance to others persons or entities, even if such actions
temporarily cause there to be an insufficient number of authorized and reserved
shares available to effect the exercise of the Specified Existing ▇▇▇▇▇▇
Warrants, provided that at all times after the earlier of (i) March 1, 2004
or
(ii) the date that is ninety (90) days after the first date, if any, after
the
date hereof for which the Closing Price of the Company’s common stock has
exceeded $0.375 (subject to adjustment to account for any forward or reverse
stock splits) for ten (10) consecutive trading days (the earlier of which is
referred to herein as the “Reservation Trigger Date”), the Company shall have
authorized and reserved and keep available for issuance, solely for the purpose
of effecting the exercise of the Specified Existing ▇▇▇▇▇▇ Warrants, a number
of
shares of common stock equal to the aggregate number of outstanding Specified
Existing ▇▇▇▇▇▇ Warrants, which number shall not be reduced thereafter. Upon
shareholder approval to authorize additional shares after the date hereof,
the
required number of shares shall be reserved for issuance to ▇▇▇▇▇▇ upon the
exercise of the Specified Existing ▇▇▇▇▇▇ Warrants before any of such shares
are
reserved for any other purpose (the requirements of this Section 12 are referred
to as the “Share Reservation Requirements”). In the event that, due to a failure
of the Company to meet the Share Reservation Requirements (a “Share Reservation
Failure,” or otherwise, the Company has an insufficient number of reserved
shares available to effect the full exercise of any ▇▇▇▇▇▇ Warrant that is
submitted for exercise, in addition to any other remedies for such failure,
the
Company shall use all authorized but unreserved shares as necessary to honor
exercises of the ▇▇▇▇▇▇ Warrants.
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13. Major
Transactions; Automatic Redemption.
(a) Redemption
Option Upon Major Transaction.
The
Company shall not effect any Major Transaction (as defined below) unless it
first gives at least forty five (45) business days prior notice of such Major
Transaction, during which time the Holder shall be entitled, at its option,
to
exercise its warrants, in whole or in part, into Common Stock (to the extent
that shares of common stock are authorized and reserved for such issuance).
Any
▇▇▇▇▇▇ Warrants not previously exercised as of the closing date of the Major
Transaction shall be automatically redeemed (“Automatic Redemption”) by the
Company as of such closing date at a price per share (that is, per share of
common stock represented by the warrants) for each Warrant equal to the
“Redemption Price,” which shall be defined as the greater of (A) $0.375 per
share, less the Exercise Price per share in effect for that Warrant on the
trading day immediately preceding the date of closing of the Major Transaction
(each subject to adjustment to account for any forward or reverse stock splits),
or (B) the applicable Warrant Redemption Market Value (as defined below). In
addition, the Secured Note shall be automatically redeemed as of the closing
date of the Major Transaction (“Automatic Note Redemption”) by the Company as of
such closing date for an amount (the “Secured Note Redemption Amount”) equal to
the outstanding principal amount plus all accrued and unpaid interest. As a
condition to the Company entering into any Major Transaction, either the Company
or the resulting successor or acquiring entity in such transaction (if not
the
Company), must place into an escrow account (“Escrow Account”) an amount of cash
equal to the aggregate Redemption Price of all ▇▇▇▇▇▇ Warrants the are required
to be redeemed (or, if applicable, the Holder Demand Prepayment Amount for
all
affected Warrants), plus the amount of the Secured Note Redemption Amount,
which
funds are to be distributed to ▇▇▇▇▇▇ at closing of such transaction. Company
agrees not to consummate any Major Transaction until either the Holder has
received any outstanding Redemption Price and Secured Note Redemption Amount
in
full, or the amount of such Redemption Price and Secured Note Redemption Amount
has been placed in an escrow account for distribution to ▇▇▇▇▇▇ upon closing.
For purposes hereof, the “Warrant Redemption Market Value,” for purposes of a
Major Transaction, shall equal the aggregate of the highest Warrant Market
Values (as defined in Section 15(c) below) for all of the Warrants being so
redeemed calculated on any date during the forty five (45) business day period
ending on the date that such Major Transaction closes.
(b) "Major
Transaction".
A
"Major Transaction" shall be deemed to have occurred at such time as any of
the
following events:
(i) a
consolidation, merger, exchange of shares, recapitalization, reorganization,
business combination or other similar event, (A) 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 or (B) as a result of which shares of Common
Stock of the Company shall be changed into (or the shares of Common Stock become
entitled to receive) the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
(collectively, a “Change of Control”);
8
(ii) the
sale
or transfer of all or substantially all of the Company's assets, or the sale
or
transfer of all or any portion of the Critical IP, as defined in Section 14
below (each, an “Asset Sale”); 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.
(c) Mechanics
of Redemption.
On
the
5th
business
day prior to the closing date of any Major Transaction, the Company shall
provide notice to the Holder, by facsimile and overnight courier, indicating
the
number of Warrants that are being automatically redeemed and the applicable
Redemption Price.
(d) Tender
of Warrant Certificates; Payment of Redemption Price.
The
Holder shall tender the Warrants being redeemed (or notice that such Warrants
have been lost, stolen or mutilated, if applicable) to the Company, promptly
after receiving notice of redemption from the Company, by delivering such
warrant certificates so redeemed to the Company’s Transfer Agent by overnight
or, if outside the U.S., two-day courier within two business days of the date
of
the redemption, and the Company shall pay the applicable Redemption Price to
the
Holder within five (5) business days of the date the Transfer Agent receives
the
original warrants being redeemed (or a written statement that such Warrants
have
been lost, stolen or mutilated)(the “Redemption Payment Deadline”). The agent of
the Escrow Account (the “Escrow Agent”) shall be instructed that it is obligated
to deliver the Redemption Price to the Holder once the Warrants so redeemed
are
delivered to the Transfer Agent, or, in the event one (1) or more warrants
have
been lost, stolen, mutilated or destroyed, unless the Holder has notified the
Company, in writing, of such loss or destruction. In the event that the Warrants
being redeemed are inadvertently forwarded to the Company instead of the
Transfer Agent, the Company shall promptly forward such certificates to the
Transfer Agent. The Escrow Agent shall be instructed that, if the Major
Transaction does not close within forty five (45) days of the initial notice
of
Major Transaction from the Company to the Holder, then the Escrow Agent return
the Warrants in its possession to the Holder and return the funds reserved
for
payment of the Redemption Prices to the sender, and the automatic redemption
of
such Warrants shall be considered to be null and void.
14. Critical
Intellectual Property.
The
patents and other intellectual property set forth as follows, shall be referred
to herein as the “Critical IP”:
Patents:
U.S.
Patent No. 5,440,749 Issued
August 8, 1995
U.S.
Patent No. 5,457,784 Issued
October 10, 1995
9
U.S.
Patent No. 5,530,890 Issued
June 25, 1996
U.S.
Patent No. 5,604,915 Issued
February 18, 1997
U.S.
Patent No. 5,648,787 Issued
July 15, 1997
U.S.
Patent No. 5,659,703 Issued
August 19, 1997
U.S.
Patent No. 5,784,584 Issued
July 21, 1998
U.S.
Patent No. 5,809,336 Issued
September 15, 1998
Japanese
Patent No. ▇▇▇▇▇▇▇ Issued
October 25, 1999
Patent
Applications
| U.S. Patent Application Serial No. 09/779,395 | Filed February 7, 2001 |
| U.S. Patent Application Serial No. 09/872,762 | Filed June 1, 2001 |
| European Patent Application No. 97200767.8 | Filed August 2, 1990 |
| European Patent Application No. 96934069.4 | Filed October 4, 1996 |
|
Japanese
Patent Application No. 9-515848
|
Filed October 4, 1996 |
Trademarks
U.S.
Trademark Application for the “ShBoom” ▇▇▇▇, U.S. Class 21, Ind Class 9 along
with any and all good will associated therewith
U.S.
Trademark Application for the “NetShark” ▇▇▇▇, U.S. Class 21, Ind Class 9 along
with any and all good will associated therewith 75/699034
7/28/98
U.S.
Trademark Application for the “PTSC” ▇▇▇▇, U.S. Class 21, Ind Class 9 along with
any and all good will associated therewith 76/170283
11/21/00
U.S.
Trademark Application for the “Driving Innovation” ▇▇▇▇, U.S. Class 21, Ind
Class 9 along with any and all good will associated therewith
76/167143 11/16/00
U.S.
Trademark Application for the “Ignite I” ▇▇▇▇, U.S. Class 21, Ind Class 9 along
with any and all good will associated therewith 76/159514
11/3/00
U.S.
Trademark Application for the “Ignite II” ▇▇▇▇, U.S. Class 21, Ind Class 9 along
with any and all good will associated therewith 76/159517
11/3/00
10
U.S.
Trademark Application for the “Ignite III” ▇▇▇▇, U.S. Class 21, Ind Class 9
along with any and all good will associated therewith
76/159515 11/3/00
U.S.
Trademark Application for the “Ignite IV” ▇▇▇▇, U.S. Class 21, Ind Class 9 along
with any and all good will associated therewith 76/159519
11/3/00
U.S.
Trademark Application for the “JUICEtechnology” ▇▇▇▇, U.S. Class 21, Ind Class 9
along with any and all good will associated therewith
76/265801 5/31/01
15. Events
of Default.
(a) Increase
in Snapshot Multiplier Upon Event of Default.
Upon
the occurrence of an Event of Default (as herein defined), the Snapshot Rate
Multiplier, with respect to such default, shall be increased by 0.01 for each
thirty (30) days (pro rated) that passes from the date of the Event of Default
through the date that either the Event of Default is cured or until the ▇▇▇▇▇▇
Warrants are prepaid under this Section.
(b) Holder’s
Option to Demand Prepayment.
In
addition, if any Event of Default remains uncured for a period of sixty (60)
days, ▇▇▇▇▇▇ shall have the right to elect at any time and from time to time
prior to the cure by Company of such Event of Default to have all or any portion
of such Holder’s then outstanding Warrants prepaid by the Company (a “Holder
Demand Prepayment”) for an amount equal to the Holder Demand Prepayment Amount
(as herein defined).
(i) The
right
of a Holder to elect prepayment shall be exercisable upon the occurrence of
an
Event of Default by such Holder in its sole discretion by delivery of a Demand
Prepayment Notice (as herein defined) in accordance with the procedures set
forth in this Section 15. Notwithstanding the exercise of such right, the Holder
shall be entitled to exercise all other rights and remedies available under
the
provisions of this Agreement, the provisions of the Warrants and at law or
in
equity.
(ii) ▇▇▇▇▇▇
shall effect each demand for prepayment under this Section 15 by giving at
least
two (2) business days prior written notice (the “Demand Prepayment Notice”) of
the date which such prepayment is to become effective (the “Effective Date of
Demand of Prepayment”), the warrants selected for prepayment and the Holder
Demand Prepayment Amount to the Company at the address and facsimile number
provided in the stock records of the Company, which Demand Prepayment Notice
shall be deemed to have been delivered on the business day after the date of
transmission of Holder’s facsimile (with a copy sent by overnight courier to the
Company) of such notice.
(iii)
The
Holder Demand Prepayment Amount shall be paid to ▇▇▇▇▇▇ within five (5) business
days following the date that the Company receives a written demand for
prepayment; provided, however, that the Company shall not be obligated to
deliver any portion of the Holder Demand Prepayment Amount until one (1)
business day following either the date on which the warrant(s) being prepaid
are
delivered to the office of the Company or the Transfer Agent, or the date on
which ▇▇▇▇▇▇ notifies the Company or the Transfer Agent that such warrant(s)
have been lost, stolen or destroyed.
11
(c) Holder
Demand Prepayment Amount.
The
“Holder Demand Prepayment Amount” means the greater of: (a) 1.3 times the
aggregate of the highest Warrant Market Value of the warrant(s) for which demand
is being made calculated on any date beginning on the date that the Event of
Default commenced through the date of prepayment, where “Warrant Market Value”
shall be calculated as follows:
“Warrant
Market Value” = the number of shares that would be issuable in a “cashless
exercise” on the date in question, under the terms of the warrant (without
regard to any contractual, legal, or regulatory restrictions on such exercise
and issuance, if any, and without regard to whether or not a sufficient number
of shares are authorized and reserved to effect any such exercise and issuance),
multiplied by the Closing Price of the Company’s common stock for the preceding
trading day.
For
purposes hereof, the term “Closing Price” shall mean the closing price on the
O.T.C. Bulletin Board, Nasdaq Small Cap Market, the National Market System
(“NMS”), the New York Stock Exchange, or if no longer traded on the Nasdaq Small
Cap Market, the National Market System (“NMS”), the New York Stock Exchange, or
the O.T.C. Bulletin Board, the “Closing Bid Price” shall equal the closing price
on the principal national securities exchange or the over-the-counter system
on
which the Common Stock is so traded and, if not available, the mean of the
high
and low prices on the principal national securities exchange on which the Common
Stock is so traded.
(d) Events
of Default.
An
“Event of Default” means any one of the following:
(i)
an
“Exercise Failure” (as defined below) which is uncured fifteen (15) business
days after the Date of Exercise (as defined in the Warrants);
(ii) one
or
more Share Reservation Failures occur and continue uncured for an aggregate
of
thirty (30) days;
(iii) the
Company fails to pay any cash payments due to Holder under the terms of this
Agreement within five (5) days after Holder has notified the Company, in
writing, that such payment is past due and that the Holder intends to declare
an
“Event of Default” under this Section 15;
(iv) the
Company fails to cause the registration statement required by the Registration
Rights Agreement to become effective within thirty (30) days of the date that
it
is required by the Registration Rights Agreement to become effective, or if
any
Amended or New Registration Statement required to be filed under the
Registration Rights Agreement is not declared effective within two (2) calendar
months of the date it is required to be filed, or if Registration Blackouts
(as
defined in the Registration Rights Agreement) are in effect for a number of
days
that, in the aggregate, exceeds of the Maximum Annual Blackout Allowance by
fifteen or more trading days, or if the Company otherwise fails to maintain
an
effective registration statement as required by the Registration Rights
Agreement (the “Registration Rights Agreement”) between the Company and the
Holder(s) (each, a “Registration Failure”), provided that a Registration Failure
shall not constitute an Event of Default where all of (a) - (c) following are
true: (a) where all of the outstanding ▇▇▇▇▇▇ Warrants (except for Snapshot
Warrants that have been issued during the prior 12 month period) have been
outstanding for more than one year (“Cured Warrants”), (b) where the shares
issuable upon the cashless exercise of all of such outstanding ▇▇▇▇▇▇ Warrants
(except for Snapshot Warrants that have been issued during the prior 12 month
period) may be sold immediately, without volume limitations, without
registration under the Act, by virtue of Rule 144 or similar provisions, and
(ii) where the Company has not, at any time, failed or refused to issue
unrestricted and unlegended shares of common stock upon the cashless exercise
of
a Cured Warrant.
12
(v) for
three
(3) consecutive trading days or for an aggregate of ten (10) trading days in
any
nine (9) month period, the Common Stock (including any of the shares of Common
Stock issuable upon exercise of the ▇▇▇▇▇▇ Warrants) is (i) suspended from
trading on any of the OTC Bulletin Board, Nasdaq SmallCap, NMS, NYSE, or the
AMEX, or (ii) is not qualified for trading on at least one of the OTC Bulletin
Board, Nasdaq SmallCap, NMS, NYSE, or the AMEX;
(vi) the
Company fails, and such failure continues uncured for three (3) business days
after the Company has been notified thereof in writing by a Holder, to remove
any restrictive Legend on any certificate for any shares of Common Stock issued
to a Holder upon exercise as and when required by this Agreement or the
Registration Rights Agreement;
(vii) the
Company or any subsidiary of the Company shall make an assignment for the
benefit of its creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such receiver or trustee shall otherwise be appointed;
or
(viii) bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
for
relief under any bankruptcy law or any law for the relief of debtors shall
be
instituted by or against the Company or any subsidiary of the Company (and
such
proceedings shall continue unstayed for thirty (30) days).
The
parties agree that the damages caused by any Event of Default breach hereof
would be difficult or impossible to estimate accurately.
16. Exercise
Failure. Subject
to the restrictions on exercise of the Specified Existing ▇▇▇▇▇▇ Warrants,
if
(x) a Holder submits an Exercise Notice, and the Company fails for any reason
to
deliver, within ten (10) trading days (“Delivery Period”) for such exercise,
such number of shares of Common Stock to which such exercising Holder is
entitled upon such exercise (which shares shall be listed, authorized, reserved,
registered (if and when required hereunder or under the Registration Rights
Agreement or other applicable agreement), and freely tradeable to the extent
required in the governing agreements, or (y) the Company provides notice to
Holder at any time of its intention not to issue shares of Common Stock upon
exercise by Holder of its exercise rights in accordance with the terms of the
applicable governing agreements (each of (x) and (y) being a “Exercise
Failure”), then in addition to all other available remedies which such Holder
may pursue hereunder and under the applicable governing agreements, such
Exercise Failure shall constitute an Event of Default under Section 15
hereunder.
13
17. Failure
to Pay Damages Amount.
If the
Company fails to pay the Holder Demand Prepayment Amount within five (5)
business days of its receipt of a Demand Prepayment Notice, then such Holder
shall have the right, at any time and from time to time prior to the payment
of
the Holder Demand Prepayment Amount, to require the Company, upon written
notice, to immediately exercise all or any portion of the Holder Demand
Prepayment Amount, into shares of Common Stock at a price per share (the “Demand
Conversion Price”) equal to the lowest Closing Bid Price of the Company’s common
stock over the five (5) trading days immediately preceding the date of such
notice, provided that if the Company has not delivered the full number of shares
of Common Stock issuable upon such notice within three (3) business days after
the Company receives written notice of such conversion, the Demand Conversion
Price with respect to such Holder Demand Prepayment Amount shall thereafter
be
deemed to be the lowest Demand Conversion Price in effect during the period
beginning on the date of the Event of Default through the date on which the
Company delivers to the Holder the full number of freely tradable shares of
Common Stock issuable upon such conversion.
18. Adjustments
Due to Stock Splits.
Any
applicable price or number of shares specified in this Agreement shall be
subject to adjustment in the event of a forward or reverse stock split by the
Company, if necessary, to properly account for such split.
19. Arbitration;
Governing Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York applicable to agreements made in and wholly to be performed
in
that jurisdiction, except for matters arising under the Act or the Securities
Exchange Act of 1934, which matters shall be construed and interpreted in
accordance with such laws. Any controversy or claim arising out of or related
to
the this Agreement or the breach thereof, shall be settled by binding
arbitration in New York, New York 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 ▇▇▇▇▇▇ 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 New York, New York or to the United
States District Court sitting in New York 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.
14
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 New York, New York. 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 New York court. New York law shall govern both
the
proceeding as well as the interpretation and construction of this Agreement
and
the transaction as a whole.
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of this
19th
day of
March, 2003.
| PATRIOT SCIENTIFIC CORPORATION | ▇▇▇▇▇▇ PRIVATE EQUITY, LLC. | ||
| By: _/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | ||
|
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, CFO |
▇▇▇▇ ▇. ▇▇▇▇▇▇, Manager |
||
|
▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Telephone:
▇▇▇-▇▇▇-▇▇▇▇
Fax:
▇▇▇-▇▇▇-▇▇▇▇
|
15