EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of March 27, 2006, by and among Patron Systems, Inc., a Delaware
corporation (the "COMPANY"), ▇▇▇▇▇▇▇ & Co. (UK) Ltd. (the "PLACEMENT AGENT") and
each purchaser of securities of the Company pursuant to a Subscription Agreement
(as defined below) (each a "PURCHASER" and collectively, the "PURCHASERS").
This Agreement is made pursuant to Subscription Agreements by and
between the Company and each Purchaser (the "SUBSCRIPTION AGREEMENT"), submitted
in accordance with and subject to the terms and conditions described in the
Subscription Agreement and the Confidential Information Memorandum of the
Company dated as of January 23, 2006, including all documents incorporated by
reference therein and all attachments, schedules and exhibits thereto,
(collectively, the "PPM"), relating to the offering (the "OFFERING") by the
Company, on a "reasonable efforts" basis of its units (each a "UNIT," and,
collectively, the "UNITS"), on a 30 Unit ($3,000,000) minimum amount and a 54
Unit ($5,400,000) maximum amount, at a price of $100,000 per Unit. Each Unit
consists of (i) twenty (20) shares of the Company's Series A Convertible
Preferred Stock (the "PREFERRED STOCK") and (ii) a warrant (the "INVESTOR
WARRANTS"), to purchase 416,667 shares of the Company's Common Stock. The
Conversion Shares (as defined below) and Warrant Shares (as defined below) have
the registration rights as set forth herein.
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
that are defined in the PPM shall have the meanings given such terms in the PPM.
As used in this Agreement, the following terms shall have the following
meanings:
"AGENT WARRANTS" means the Common Stock purchase warrants issued to the
Placement Agent as a portion of the consideration for the Placement Agent's
services in connection with the Offering.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON STOCK" means common stock of the Company, $0.01 par value per
share.
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of the Preferred Stock.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in SECTION
2(A).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means May 30, 2006.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may be,
from time to time of Registrable Securities (including any permitted assignee).
"INDEMNIFIED PARTY" shall have the meaning set forth in SECTION 5(C).
"INDEMNIFYING PARTY" shall have the meaning set forth in SECTION 5(C).
"LOSSES" shall have the meaning set forth in SECTION 5(A).
"PERSON" shall mean an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or agency or subdivision thereof) or
other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"REGISTRABLE SECURITIES" means (i) the Conversion Shares, (ii) the
Warrant Shares, (iii) any shares of Common Stock issued as dividend payments on
the Preferred Stock, (iv) any shares of Common Stock underlying any shares of
Preferred Stock or other securities convertible into Common Stock issued as
dividend payments on the Preferred Stock, (v) any shares of Common Stock issued
or issuable upon any stock split, dividend or other distribution or
recapitalization, and (vi) any shares of Common Stock issued or issuable
pursuant to anti-dilution provisions or similar event with respect to any of the
foregoing in connection with or pursuant to the provisions of the Preferred
Stock or the Warrants.
"REGISTRATION STATEMENT" means any of the registration statements
required to be filed hereunder (which, at the Company's option, may be an
existing registration statement of the Company previously filed with the
Commission, but not declared effective), including (in each case) the
Prospectus, amendments and supplements to the registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in the registration statement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
Rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
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"RULE 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
Rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (i) a day on which the Common Stock is traded on a
Trading Market on which it is listed, or (ii) if the Common Stock is not listed
on a Trading Market, a day on which the Common Stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if
trades of the Common Stock are not reported by the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding to its functions or reporting prices); provided that in the
event that the Common Stock is not listed or quoted as set forth in (i), (ii)
and (iii) hereof, then Trading Day shall mean a Business Day.
"TRADING MARKET" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market, the Nasdaq Capital Market or the Over-the-Counter Market.
"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants.
"WARRANTS" means the Investor Warrants and the Agent Warrants.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. In the event that all of the
Registrable Securities have not been included in a Registration Statement
declared effective by the Commission, prior to, and which remains effective as
of, the Filing Date, then, in the absence of the foregoing, the Company shall
prepare and file with the Commission, no later than the Filing Date, a
Registration Statement covering the resale of all of the Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement required hereunder shall be on Form SB-1, Form SB-2 or
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form SB-1, Form SB-2 or Form S-3, in which case the
Registration Statement shall be on another appropriate form in accordance
herewith). The Registration Statement required hereunder shall contain the Plan
of Distribution, attached hereto as ANNEX A (which may be modified to respond to
comments, if any, received by the Commission). The Company shall cause the
Registration Statement to become effective and remain effective as provided
herein. The Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof and shall use its best efforts to keep the
Registration Statement continuously effective under the Securities Act until the
earlier of the date when all Registrable Securities covered by the Registration
Statement (a) have been sold pursuant to the Registration Statement or an
exemption from the registration requirements of the Securities Act or (b) may be
sold without any limitation pursuant to Rule 144(k) (the "EFFECTIVENESS
PERIOD").
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(b) PIGGYBACK REGISTRATIONS RIGHTS. If, at any time during the
Effectiveness Period, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, including without limitation, in connection with the registration of
the Company's securities in a subsequent financing, other than on Form S-4 or
Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall include in such registration statement all of the Registrable Securities;
PROVIDED, HOWEVER, that (i) if, at any time after giving written notice of is
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
determines for any reason not to proceed with such registration, the Company
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration, and (ii) in case of a determination by the
Company to delay registration of its securities, the Company will be permitted
to delay the registration of Registrable Securities for the same period as the
delay in registering such other securities.
3. REGISTRATION PROCEDURES. In connection with the Company's registration
obligations hereunder, the Company shall:
(a) Not less than five (5) business days prior to the filing of
the Registration Statement or any related Prospectus or any amendment or
supplement thereto, furnish to the Holders a draft of the Registration
Statement.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; and (iii) respond to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto.
(c) Notify the Holders of Registrable Securities to be sold as
promptly as reasonably possible: (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of the Registration Statement and whenever the Commission comments in
writing on the Registration Statement (the Company shall upon request provide
true and complete copies thereof and all written responses thereto to each of
the Holders, subject, if appropriate, to the execution of confidentiality
agreements in form acceptable to the Company); and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
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the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event or passage of time that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) Promptly deliver to each Holder who so requests, a copy of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto (and, upon the request of the Holder such
additional copies as such Persons may reasonably request in connection with
resales by the Holder of Registrable Securities). The Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by the
Holder in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving of any notice pursuant to SECTION 3(C).
(f) Prior to any resale of Registrable Securities by a Holder, use
its best efforts to register or qualify or cooperate with the selling Holders in
connection with the registration or qualification (or exemption from the
registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder reasonably requests in writing, to keep such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; PROVIDED, HOWEVER, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified, subject itself to any material
tax in any such jurisdiction where it is not then so subject or file a general
consent to service of process in any such jurisdiction.
(g) Upon the occurrence of any event contemplated by SECTION
3(C)(V), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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(h) Use its best efforts to comply with all applicable rules and
regulations of the Commission relating to the registration of the Registrable
Securities pursuant to the Registration Statement or otherwise.
(i) The Company agrees that the Selling Shareholder Questionnaire
attached hereto as EXHIBIT A, satisfies all of the information required to be
provided by each Holder in connection with the Registration Statement. The
Company shall not be required to include any Holder that does not complete, date
and execute a Selling Shareholder Questionnaire.
(j) The Company shall either (a) cause all the Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (b) secure designation and
quotation of all the Registrable Securities covered by the Registration
Statement on the Nasdaq National Market or the Nasdaq Capital Market, or, (c) if
the Company is unsuccessful in satisfying the preceding clauses (a) or (b), the
Company shall secure the inclusion for quotation on The American Stock Exchange,
Inc. or if it is unable to, the Over The Counter Bulletin Board for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two (2) market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this SECTION 3(J).
(k) The Company covenants that it shall file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder so long as any Holder owns any
Registrable Securities; PROVIDED, HOWEVER, the Company may delay any such filing
but only pursuant to Rule 12b-25 under the Exchange Act, and the Company shall
take such further reasonable action as the Holder may reasonably request
(including, without limitation, promptly obtaining any required legal opinions
from Company counsel necessary to effect the sale of Registrable Securities
under Rule 144 and paying the related fees and expenses of such counsel), all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
4. REGISTRATION EXPENSES. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement, other than fees and expenses of counsel or any other
advisor retained by the Holders and discounts and commissions with respect to
the sale of any Registrable Securities by the Holders. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the Trading Market on which
the Common Stock is then listed for trading, and (B) in compliance with
applicable state securities or Blue Sky laws), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the holders of a
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majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and for one (1) counsel for the Holders who shall be
Gusrae, ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ PLLC, (v) Securities Act liability insurance, if
the Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents and employees of such Holder, each
Person who controls such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorneys' fees) and expenses relating to an Indemnified Party's actions to
enforce the provisions of this SECTION 5) (collectively, "LOSSES"), as incurred,
to the extent arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that (1) such untrue statements or omissions are based solely upon information
regarding such Holder furnished (or in the case of an omission, not furnished)
in writing to the Company by or on behalf of such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved ANNEX A hereto for this purpose), (2) in the case of an occurrence of
an event of the type specified in SECTION 3(C)(II)-(V), the use by such Holder
of an outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in SECTION 6(B), or (3) the
failure of the Holder to deliver a prospectus prior to the confirmation of a
sale, if such requirement is at such time required by law. The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall indemnify and
hold harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses, as incurred, to the extent
arising out of or based upon: (x) the Holder's failure to comply with the
prospectus delivery requirements of the Securities Act or (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus,
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or in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (i) to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished (or in the
case of an omission, not furnished) in writing by or on behalf of such Holder to
the Company specifically for inclusion in the Registration Statement or such
Prospectus or (ii) to the extent that (1) such untrue statements or omissions
are based solely upon information regarding such Holder furnished (or in the
case of an omission, not furnished) in writing to the Company by or on behalf of
such Holder expressly for use therein, or to the extent that such information
relates to such Holder or such Holder's proposed method of distribution of
Registrable Securities, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto, or (2) in the case of an occurrence of an event
of the type specified in SECTION 3(C)(II)-(V), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in SECTION 6(B), or (3) the failure of
the Holder to deliver a Prospectus prior to the confirmation of a sale, if such
requirement is at such time required by law. In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder from the sale of the Registrable Securities
sold by it.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; PROVIDED, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that
such failure shall have materially prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of one
separate counsel for all Indemnified Parties in any matters related on a factual
basis shall be at the expense of the Indemnifying Party). The Indemnifying Party
shall not be liable for any settlement of any such Proceeding affected without
its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending
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Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All reasonable fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Trading Days of written notice thereof to the
Indemnifying Party; PROVIDED, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not entitled to
indemnification hereunder, determined based upon the relative faults of the
parties.
(d) CONTRIBUTION. If a claim for indemnification under SECTION
5(A) or SECTION 5(B) is unavailable to an Indemnified Party (by reason of public
policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in SECTION 5(C), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this SECTION 5(D) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this SECTION 5(D), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
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6. MISCELLANEOUS.
(a) COMPLIANCE. Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
(b) DISCONTINUED DISPOSITION. Each Holder agrees by its
acquisition of such Registrable Securities that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in SECTION
3(C)(III), (IV) AND (V) (a "DISCONTINUE NOTICE"), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration
Statement until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement or until it is advised in
writing (the "ADVICE") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph. The Company
shall not be entitled during any twelve (12) month period to give more than one
(1) Discontinue Notice, and any such Discontinue Notice shall not last more than
five (5) Trading Days.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and each Holder of the then outstanding Registrable Securities.
(d) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (ii) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
delivered and addressed as set forth in the Subscription Agreement.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder.
(f) EXECUTION. By execution of the Subscription Agreement, each
Purchaser agrees to all terms and conditions set forth in this Agreement as if
such Purchaser had executed this Agreement directly.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of New
York without regard to the conflicts of laws principles thereof. The parties
hereto hereby irrevocably agree that any suit or proceeding arising directly
and/or indirectly pursuant to or under this Agreement, shall be brought solely
and exclusively in a federal or state court located in the City, County and
State of New York. By its execution hereof, the parties hereby covenant and
irrevocably submit to the IN PERSONAM jurisdiction of the federal and state
courts located in the City, County and State of New York and agree that any
process in any such action may be served upon any of them personally, or by
certified mail or registered mail upon them or their agent, return receipt
10
requested, with the same full force and effect as if personally served upon them
in New York City. The parties hereto waive any claim that any such jurisdiction
is not a convenient forum for any such suit or proceeding and any defense or
lack of IN PERSONAM jurisdiction with respect thereto. In the event of any such
action or proceeding, the party prevailing therein shall be entitled to payment
from the other party hereto of its reasonable counsel fees and disbursements.
(h) SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(i) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(j) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agrees that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(k) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
IN WITNESS WHEREOF, the undersigned has executed this Registration
Rights Agreement, on behalf of the Company as of the date first written above.
PATRON SYSTEMS, INC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: CEO
▇▇▇▇▇▇▇ & CO. (UK) LTD.
By:
----------------------------------
Name:
Title:
SEE OMNIBUS SIGNATURE PAGE FOR PURCHASERS' SIGNATURES
12
ANNEX A
PLAN OF DISTRIBUTION
The holders of Registrable Securities (the "SELLING STOCKHOLDERS") and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The Selling
Stockholders may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker/dealer solicits purchasers;
o block trades in which the broker/dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker/dealer as principal and resale by the
broker/dealer for its account;
o an exchange distribution in accordance with the Rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker/dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker/dealers engaged by the Selling Stockholders may arrange for
other broker/dealers to participate in sales. Broker/dealers may receive
commissions from the Selling Stockholders (or, if any broker/dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions to exceed
what is customary in the types of transactions involved.
The Selling Stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this
13
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of Selling Stockholders to include the pledgee,
transferee or other successors in interest as Selling Stockholders under this
prospectus.
The Selling Stockholders and any broker/dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker/dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions under the Securities Act. The Selling Stockholders have informed the
Company that it does not have any agreement or understanding, directly or
indirectly, with any person to distribute the Common Stock.
The Company is required to pay all fees and expenses incident to the
registration of the shares. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
14
EXHIBIT A
SELLING STOCKHOLDER QUESTIONNAIRE
Patron Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
I acknowledge that I am a holder of securities of Patron Systems, Inc.
(the "COMPANY"). I understand that I will be named as a selling stockholder in
the prospectus that forms a part of the registration statement on Form SB-2 (or
other applicable form) that the Company will file with the Securities and
Exchange Commission to register under the Securities Act of 1933, as amended,
the securities I expect to sell. The Company will use the information that I
provide in this Questionnaire to ensure the accuracy of the registration
statement and the prospectus.
--------------------------------------------------------------------------------
PLEASE ANSWER EVERY QUESTION.
IF THE ANSWER TO ANY QUESTION IS "NONE" OR "NOT
APPLICABLE," PLEASE SO STATE.
--------------------------------------------------------------------------------
1. NAME. Type or print your name exactly as it should appear in the
Registration Statement.
-----------------------------------------------------------------------
2. CONTACT INFORMATION. Provide the address, telephone number and fax
number where you can be reached during business hours.
ADDRESS:
--------------------------------------------------------------
PHONE:
--------------------------------------------------------------
FAX:
--------------------------------------------------------------
3. RELATIONSHIP WITH THE COMPANY. Describe the nature of any position,
office or other material relationship you have had with the Company
during the past three years.
-----------------------------------------------------------------------
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15
4. ORGANIZATIONAL STRUCTURE. Please indicate or (if applicable) describe
how you are organized.
(a) Are you a NATURAL PERSON? |_| Yes |_| No
(IF SO, PLEASE ▇▇▇▇ THE BOX AND SKIP TO QUESTION 5)
(b) Are you a REPORTING COMPANY under the 1934 Act? |_| Yes |_| No
(IF SO, PLEASE ▇▇▇▇ THE BOX AND SKIP TO QUESTION 5)
(c) Are you a MAJORITY-OWNED SUBSIDIARY of a reporting company
under the 1934 Act? |_| Yes |_| No
(IF SO, PLEASE ▇▇▇▇ THE BOX AND SKIP TO QUESTION 5)
(d) Are you a REGISTERED INVESTMENT FUND under the 1940 Act?
|_| Yes |_| No
(IF SO, PLEASE ▇▇▇▇ THE BOX AND SKIP TO QUESTION 5)
If you have answered "no" to all of the foregoing questions, please describe:
(i) the exact legal description of your entity (e.g., corporation, partnership,
limited liability company, etc.); (ii) whether the legal entity so described is
managed by another entity and the exact legal description of such entity (repeat
this step until the last entity described is managed by a person or persons,
each of whom is described in any one of (a) through (d) above), (iii) the names
of each person or persons having voting and investment control over the
Company's securities that the entity owns (e.g., director(s), general
partner(s), managing member(s), etc.).
LEGAL DESCRIPTION OF ENTITY:
----------------------------------------------------
NAME OF ENTITY(IES) MANAGING SUCH ENTITY (IF ANY):
-----------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME OF ENTITY(IES) MANAGING SUCH ENTITY(IES) (IF ANY):
------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NAME(S) OF NATURAL PERSONS HAVING VOTING OR INVESTMENT
CONTROL OVER THE SHARES HELD BY SUCH ENTITY(IES):
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
16
5. OWNERSHIP OF THE COMPANY'S SECURITIES. This question covers your
beneficial ownership of the Company's securities. Please consult the
APPENDIX A to this Questionnaire for information as to the meaning of
"beneficial ownership." State the number of shares of the Company's
common stock that you beneficially owned as of the date this
Questionnaire is signed:
NO. OF SHARES OF STOCK
---------------------------------------
6. ACQUISITION OF SHARES. Please describe below the manner in which you
acquired your shares of Common Stock of the Company including, but not
limited to, the date, the name and address of the seller(s), the
purchase price and pursuant to which documents (the "ACQUISITION
DOCUMENTS"). Please forward such documents used to acquire your shares
as provided below.
7. PLAN OF DISTRIBUTION. I have reviewed the proposed "Plan of
Distribution" attached to this Registration Rights Agreement as ANNEX
A, and agree that the statements contained therein reflect my intended
method(s) of distribution or, to the extent these statements are
inaccurate or incomplete, I have communicated in writing to one of the
parties listed above my signature on page 6 any changes to the proposed
"Plan of Distribution" that are required to make these statements
accurate and complete. |_|
(PLEASE CHECK THE BOX IF YOU HAVE MADE ANY CHANGES TO APPENDIX B)
8. RELIANCE ON RESPONSES. I acknowledge and agree that the Company and its
legal counsel shall be entitled to rely on my responses in this
Questionnaire in all matters pertaining to the registration statement
and the sale of any shares of common stock of the Company pursuant to
the registration statement.
9. NASD. The National Association of Securities Dealers, Inc. ("NASD") may
request, in connection with their review of the Registration Statement
and Prospectus under the Securities Act of 1933, as amended, that the
Company inform them of the names of all persons who purchased
securities from the Company, together with any affiliations with the
NASD of such purchasers. In order to aid the Company in responding to
such request, the undersigned furnishes the following information:
PART A: DETERMINATION OF RESTRICTED PERSON STATUS:
PLEASE CHECK ALL APPROPRIATE CATEGORIES.
The undersigned is:
___(i) a broker-dealer;
___(ii) an officer, director, general partner, associated
person1 or employee of a broker-dealer (other than a
limited business broker-dealer)2;
___(iii) an agent of a broker-dealer (other than a limited
business broker-dealer) that is engaged in the
investment banking or securities business;
------------------
1.A person "associated with" a broker-dealer includes any natural person engaged
in the investment banking or securities business who is directly or indirectly
controlling or controlled by a broker-dealer, any partner, director, officer or
sole proprietor of a broker-dealer.
2.A limited business broker-dealer is any broker-dealer whose authorization to
engage in the securities business is limited solely to the purchase and sale of
investment company/variable contracts securities and direct participation
program securities.
17
___(iv) an immediate family member3 of a person described in
(ii) or (iii) above. Under certain circumstances, if
the undersigned checks this category, he/she/it may
be able to participate in New Issue investments. The
Company may request additional information in order
to determine the eligibility of the undersigned under
this Restricted Person category;
___(v) a finder or any person acting in a fiduciary capacity
to a managing underwriter, including, but not limited
to, attorneys, accountants and financial consultants;
___(vi) a person who has authority to buy or sell securities
for a bank, savings and loan institution, insurance
company, investment company, investment advisor or
collective investment account4 (including a private
investment vehicle such as a hedge fund or an
offshore fund);
___(vii) an immediate family member of a person described in
(v) or (vi) above who materially supports5, or
receives material support from, the undersigned;
___(viii)a person listed or required to be listed in Schedule
A, B or C of a Form BD (other than with respect to a
limited business broker-dealer), except persons whose
listing on Schedule A, B or C is related to a person
identified by an ownership code of less than 10% on
Schedule A;
___(ix) a person that (A) directly or indirectly owns 10% or
more of a public reporting company listed, or
required to be listed, in Schedule A of a Form BD or
(B) directly or indirectly owns 25% or more of a
public reporting company listed, or required to be
listed in Schedule B of a Form BD, in each case (A)
or (B), other than a reporting company that is listed
on a national securities exchange or is traded on the
Nasdaq National Market, or other than with respect to
a limited business broker/dealer;
___(x) an immediate family member of a person described in
(viii) or (ix) above. Under certain circumstances, if
the undersigned places a check next to this category,
he/she/it may be able to participate in New Issue
investments. The Company may request additional
information in order to determine the eligibility of
the undersigned under this Restricted Person
category;
___(xi) any entity (including a corporation, partnership,
limited liability company, trust or other entity) in
which any person or persons listed in (i)-(x) above
has a beneficial interest6; or
___ None of the above categories apply and the
undersigned is eligible to participate in New Issue
securities.
------------------
3.The term "Immediate family" includes the lnvestor's: (i) parents, (ii)
mother-in-law or father-in-law. (iii) husband or wife, (iv) brother or sister,
(v) brother-in-law or sister-in-law, (vi) son-in-law or daughter-in-law, (vii)
children, and (viii) any other person who is supported, directly or indirectly,
to a material extent by an officer, director, general partner, employee, agent
of a broker-dealer or person associated with a broker-dealer.
4.A "collective investment account" is any hedge fund, investment corporation,
or any other collective investment vehicle that is engaged primarily in the
purchase and/or sale of securities. investment clubs (groups of individuals who
pool their money to invest in stock or other securities and who are collectively
responsible for making investment decisions) and family investment vehicles
(legal entities that are beneficially owned solely by immediate family members
(as defined above)) are NOT considered collective investment accounts.
5.The term "material" support" means directly or indirectly providing more than
25% of a person's income in the prior calendar year or living in the same
household with a member of one's Immediate family.
6.The term `beneficial interest" means any economic interest such as the right
to share in gains or losses. The receipt of a management or performance based
fee for operating a collective investment account, or other fee for acting in a
fiduciary capacity, is NOT considered a beneficial interest in the account;
however, if such fee is subsequently invested into the account (as a deferred
fee arrangement or otherwise), it is considered a beneficial interest in that
account.
18
PART B: DETERMINATION OF EXEMPTED ENTITY STATUS:
The undersigned is:
___(i) a publicly-traded entity (other than a broker-dealer
or an affiliate of a broker-dealer, where such
broker-dealer is authorized to engage in the public
offering of New Issues either as a selling group
member or underwriter) that is listed on a national
securities exchange or traded on the Nasdaq National
Market or is a foreign issuer whose securities meet
the quantitative designation criteria for listing on
a national securities exchange or trading on the
Nasdaq National Market;
___(ii) an investment company registered under the Investment
Company Act of 1940, as amended;
___(iii) a corporation, partnership, limited liability
company, trust or any other entity (including a
private investment vehicle such as a hedge fund or an
offshore fund, or a broker-dealer organized as an
investment partnership) and
(A) the beneficial interests of Restricted
Persons do not exceed in the aggregate 10% of such
entity; or
(B) such entity limits participation by
Restricted Persons to not more than 10% of the
profits and losses of New Issues;
___(iv) an investment company organized under the laws of a
foreign jurisdiction and
(A) the investment company is listed on a
foreign exchange or authorized for sale to the public
by a foreign regulatory authority; and
(B) no person owning more than 5% of the shares
of the investment company is a Restricted Person;
___(v) (A) an employee benefits plan under the U.S. Employee
Retirement Income Security Act of 1974, as amended,
that is qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the
"CODE") and such plan is not sponsored solely by a
broker-dealer, (B) a state or municipal government
benefits plan that is subject to state and/or
municipal regulation or (C) a church plan under
Section 414(e) of the Code;
___(vi) a tax exempt charitable organization under Section
501(c)(3) of the Code;
___(vii) a common trust fund or similar fund as described in
Section 3(a)(12)(A)(iii) of the Securities Exchange
Act of 1934, as amended, and the Company
(A) has investments from 1,000 or more accounts,
AND
(B) does not limit beneficial interests in the
Company principally to trust accounts of Restricted
Persons; or
___(viii)an insurance company general, separate or investment
account, and
(A) the account is funded by premiums from 1,000
or more policyholders, or, if a general account, the
insurance company has 1,000 or more policyholders,
AND
(B) the insurance company does not limit the
policyholders whose premiums are used to fund the
account principally to Restricted Persons, or, if a
general account, the insurance company does not limit
its policyholders principally to Restricted Persons.
19
Please acknowledge that your answers to the foregoing questions are
true and correct to the best of your information and belief by signing and
dating this Questionnaire where indicated below. Please return the completed
executed questionnaire VIA FAX to _____________________
_________________________________ AS SOON AS POSSIBLE.
If at any time you discover that your answer to any question was
inaccurate, or if any event occurring after your completion hereof would require
a change in your answer to any questions, please immediately contact
__________________________________.
Date: , 200
---------------------- -- ---------------------------------------
(PRINT NAME OF SELLING STOCKHOLDER)
By:
--------------------------------
(SIGNATURE)
Name:
--------------------------------
(PRINT NAME)
Title:
--------------------------------
20
APPENDIX A
1. DEFINITION OF "BENEFICIAL OWNERSHIP"
(a) A "Beneficial Owner" of a security includes any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares:
(1) Voting power which includes the power to vote, or to
direct the voting of, such security; and/or
(2) Investment power which includes the power to dispose,
or direct the disposition of, such security.
Please note that EITHER voting power OR investment power, OR
both, is sufficient for you to be considered the beneficial
owner of shares.
(b) Any person who, directly or indirectly, creates or uses a
trust, proxy, power of attorney, pooling arrangement or any
other contract, arrangement or device with the purpose or
effect of divesting such person of beneficial ownership of a
security or preventing the vesting of such beneficial
ownership as part of a plan or scheme to evade the reporting
requirements of the federal securities acts shall be deemed to
be the beneficial owner of such security.
(c) Notwithstanding the provisions of paragraph (a), a person is
deemed to be the "beneficial owner" of a security, if that
person has the right to acquire beneficial ownership of such
security within 60 days, including but not limited to any
right to acquire: (A) through the exercise of any option,
warrant or right; (B) through the conversion of a security;
(C) pursuant to the power to revoke a trust, discretionary
account or similar arrangement; or (D) pursuant to the
automatic termination of a trust, discretionary account or
similar arrangement; provided, however, any person who
acquires a security or power specified in paragraphs (A), (B)
or (C) above, with the purpose or effect of changing or
influencing the control of the issuer, or in connection with
or as a participant in any transaction having such purpose or
effect, immediately upon such acquisition shall be deemed to
be the beneficial owner of the securities which may be
acquired through the exercise or conversion of such security
or power.
21