EXECUTION COPY
COMMERCIALIZATION AGREEMENT
by and among
P-NEWCO
and
TECHNOLOGY PROPERTIES LIMITED
and
PATRIOT SCIENTIFIC CORPORATION
TABLE OF CONTENTS
Page
ARTICLE I GRANT..........................................................1
ARTICLE II COMMERCIALIZATION..............................................2
ARTICLE III COVENANTS......................................................3
ARTICLE IV PAYMENT........................................................4
ARTICLE V TERM...........................................................5
ARTICLE VI TERMINATION....................................................5
ARTICLE VII REPRESENTATIONS AND WARRANTIES.................................6
ARTICLE VIII GENERAL........................................................7
EXHIBIT A GRANT
SCHEDULE 1 SCHEDULE OF PATENTS
SCHEDULE 2 PROJECT DESCRIPTION
SCHEDULE 3 SCHEDULE OF OUTSTANDING ACTIVITIES/RIGHTS/CLAIMS
COMMERCIALIZATION AGREEMENT
This Commercialization Agreement ("Commercialization Agreement") is
entered into by and among [P-Newco], a Delaware limited liability corporation
("P-Newco"), Patriot Scientific Corporation, a Delaware corporation ("Patriot"),
having its principal place of business at 10989 Via Frontera, San Diego,
California 92127, and Technology Properties Limited Inc., a California
Corporation ("TPL"), having its principal place of business at 21730 Stevens
Creek Boulevard, Ste. 201, Cupertino, California 95014. Capitalized terms used
but not defined herein shall have the meanings given to such terms in that
certain agreement dated as of June 7, 2005 (the "Master Agreement").
WHEREAS, Patriot, TPL and Charles H. Moore ("Moore") collectively hold
all rights with respect to certain microprocessor implementation and
architecture patents set forth on Schedule 1 (the "MSD Patents");
WHEREAS, Moore has transferred complete authority for the management of
Moore's rights to the MSD Patents to TPL;
WHEREAS, Patriot, TPL and Moore have entered into the Master Agreement,
pursuant to which Patriot and TPL are entering into licenses with P-Newco and
T-Newco, respectively, with respect to certain of their rights in the MSD
Patents (collectively, the "Newco Licenses");
WHEREAS, Patriot, TPL, P-Newco and T-Newco have entered into a Merger
Agreement, pursuant to which T-Newco merged with and into P-Newco, with P-Newco
continuing as the surviving entity and holding all of the rights with respect to
the MSD Patents formerly held by P-Newco and T-Newco;
WHEREAS, pursuant to the Master Agreement, P-Newco, Patriot and TPL are
entering into this Commercialization Agreement providing for the
commercialization of P-Newco's interests in the MSD Patents by TPL in return for
the commitment of TPL to diligently pursue the commercialization; and
WHEREAS, concurrently herewith Patriot and TPL are entering into that
certain Limited Liability Company Operating Agreement of P-Newco (the "Operating
Agreement"), governing the rights and obligations of Patriot and TPL with
respect to their membership interests in P-Newco and the distribution of the
proceeds received from the commercialization program contemplated by this
Commercialization Agreement.
NOW THEREFORE, for and in consideration of the mutual covenants herein
contained as well as other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree that:
ARTICLE I
GRANT
1.1 Pursuant to the Master Agreement, P-Newco and TPL shall enter into
the grant attached hereto as Exhibit A (the "Grant").
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ARTICLE II
COMMERCIALIZATION
2.1 TPL shall exert reasonable best efforts to implement the
activities (the "Commercialization") described at Schedule 2 and to conduct the
project described therein ("Project") in accordance with the project description
(the "Project Description") including the Business Plan then in effect.
(a) The first Business Plan is made a part of the Project Description
as Attachment I to Schedule 2, and shall remain in full force and effect until
replaced by agreement of P-Newco and TPL.
(b) TPL shall have no obligation to pursue or fund any effort to
prosecute, maintain, enforce or defend any element of the MSD Patents other than
as specifically provided for in Schedule 2.
2.2 By these presents, P-Newco appoints, authorizes, and directs TPL
to take any and all action for the term of this Commercialization Agreement,
with respect to all matters that are related to P-Newco's rights to the MSD
Patents, including without limitation:
(a) entering into settlement and/or license agreements related to the
MSD Patents which meet the Commercialization guidelines set forth in Section II
of Schedule 2;
(b) with the prior written consent of the P-Newco Management
Committee, entering into any settlement and license agreements related to the
MSD Patents which do not meet the guidelines set forth in Section II of Schedule
2;
(c) to sue in the name of TPL, Moore, Patriot and/or P-Newco and to
pursue for the use and benefit of the parties hereto as their respective
interests appear: (i) all remedies of whatsoever kind or nature with respect to
the protection, use, and enforcement of the MSD Patents; (ii) the collection of
all claims for damages, profits, and awards relating to the past, present, or
future use or ownership of the MSD Patents; and (iii) all equitable relief
available in connection therewith; and
(d) to otherwise manage and control by license, sublicense, or other
agreement the practice and/or use of the MSD Patents by third parties.
2.3. TPL may utilize the services of its various licensing personnel
who may be lawyers to implement the Commercialization of the MSD Patents. Such
services shall for no purpose be deemed to be legal services or to give rise to
a lawyer-client relationship between TPL and/or TPL affiliates or
Representatives on the one hand, and P-Newco and/or Patriot or any of their
respective affiliates or Representatives on the other hand. Without limiting the
foregoing, neither TPL nor any TPL Representative shall for any purpose be
deemed to have:
(i) Provided legal services or advice to;
(ii) Undertaken the representation of; or
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(iii) Entered into a lawyer-client relationship with,
P-Newco, Patriot or any of P-Newco's or Patriot's respective affiliates or
Representatives.
ARTICLE III
COVENANTS
3.1 Within sixty (60) days after the close of each calendar quarter
TPL shall deliver to P-Newco: (i) an operating statement reflecting the
Project's financial activity over the past quarter; (ii) a calculation of the
Gross Cash Proceeds (as defined in the Operating Agreement) resulting from the
Project; and (iii) an itemization of all TPL Direct Reimbursable Expenses (as
defined below).
(a) Within thirty (30) days after P-Newco's receipt thereof,
Patriot shall deliver to TPL written notice detailing all objections to such
materials and calculations on an individual item-by-item basis. Any objection
not so noticed shall be deemed to be waived.
(b) Costs related to verifying reported time and expense charges
and/or auditing reports or activities shall be paid in advance by the entity
(either Patriot or TPL) supporting such request for verification or audit.
3.2 As requested by TPL, Patriot and P-Newco shall have a continuing
obligation to exert their respective reasonable best efforts to support the
Project, cooperate with TPL in the execution of its obligations, and to provide
such support in the manner described herein and in the Master Agreement.
3.3 Upon reasonable request, P-Newco and Patriot shall promptly
execute and deliver all documents, instruments, and things necessary or useful
in the conduct of TPL's activities hereunder, and Patriot and P-Newco agree to
cooperate in any litigation with respect to the MSD Patents, including providing
any reasonable assistance in connection with such litigation or joining as a
party thereto, as requested by TPL, provided that neither Patriot nor P-Newco
shall be required to provide financial support except as otherwise provided in
the Commercialization Agreement.
3.4 Patriot and P-Newco shall each avoid and refrain from any and all
activity of any kind or nature which may impede, impair, frustrate or otherwise
interfere with the activities of TPL in the execution the Project, and shall:
(a) Exert their respective reasonable best efforts to impose
the covenants of this Commercialization Agreement, the Master Agreement and the
transactions contemplated hereby and thereby on their respective directors,
officers, employees, consultants, attorneys, agents and other affiliates or
Representatives; and
(b) Be responsible hereunder for each and every failure in the
good and faithful performance of this Commercialization Agreement and
transaction by themselves and/or their respective directors, officers,
employees, consultants, attorneys, agents and other affiliates or
Representatives (other than TPL).
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3.5 With the exception of the agreements and transactions entered into
pursuant to the Project, P-Newco, Patriot and TPL shall not transfer, assign,
license, or otherwise convey any interest in, or grant any security interest
with respect to, any portion of their interest in the MSD Patents during the
term of this Commercialization Agreement without the written consent of all
parties hereto, other than to entities which are owned and controlled by the
transferring Person and who assume and agree to pay and perform all of the
transferor's obligations hereunder.
3.6 Upon the termination of this Commercialization Agreement, Patriot
shall be entitled to receive a copy of third party "DeCaps" (as such term is
commonly understood to mean in the industry) related to the Commercialization
and third party expert analyses thereof; and TPL does hereby consent to the
deliveries thereof by such third party experts. In the event any of the
foregoing are not provided by such third parties, TPL will provide Patriot with
copies of such documents in its possession. In addition, a Patriot
Representative shall be entitled to view such "DeCaps" on a quarterly basis, but
shall not be entitled to make copies thereof. With the exception of TPL's
obligations pursuant to Section 3.1 and this Section 3.6, TPL shall not be
obligated to share any other materials related to the Commercialization,
including without limitation any attorney work product generated during the term
of this Commercialization Agreement or thereafter, which for all intents and
purposes shall be deemed to be privileged, proprietary and exclusive to TPL.
3.7. P-Newco and Patriot shall on a continuing basis provide TPL all
leads, information, and materials which Patriot encounters or discovers which
may relate to the rights to the MSD Patents transferred by Patriot and TPL to
P-Newco pursuant to the Newco Licenses, shall exert their respective reasonable
best efforts to support the Commercialization activities of TPL hereunder, and
shall refrain from all contact with third parties regarding the MSD Patents
except as is specifically approved and/or requested in writing by TPL. The
foregoing shall not affect the exercise of the retained rights of Patriot or TPL
under the Newco Licenses.
ARTICLE IV
PAYMENT
4.1 TPL shall cause all Gross Cash Proceeds generated from the
Commercialization efforts to be paid directly to P-Newco.
4.2 Upon the submission of customary and appropriate invoices and
other supporting documentation, P-Newco shall reimburse TPL for the payment of
all legal and third-party expert fees and other related third-party costs and
expenses, including without limitation those incurred in connection with patent
maintenance and prosecution and third party "DeCaps" and third party expert
analysis relating thereto (the "TPL Direct Reimbursable Expenses") incurred by
TPL in connection with the Project and in conformity with the applicable
Business Plan, as well as all TPL Direct Reimbursable Expenses not in conformity
with the applicable Business Plan, to the extent approved by the P-Newco
Management Committee. All such reimbursement shall be made prior to the due date
indicated on the invoice.
4.3 P-Newco shall make payment to TPL of $ *** no later than three
(3) days prior to the start of each fiscal quarter from the Working Capital Fund
to cover indirect and other expenses related to the Project which do not
constitute TPL Direct Reimbursable Expenses ("TPL Other Project Expenses").
Advances to TPL made pursuant to this Section 4.3 shall be nonaccountable and
nonrecoupable, but shall offset the amounts owed TPL pursuant to Section
6.1(a)(iv)(b) of the Operating Agreement in the manner contemplated by such
Section 6.1(a)(iv)(b). At such time as the Working Capital Fund exceeds
$ *** after the first $ *** has been generated pursuant to the
Commercialization, such quarterly payment shall be increased (but not decreased)
to one-eighth of the amount of the Working Capital Fund.
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4.4 To the extent that P-Newco does not have sufficient funds from the
Working Capital Fund at the time any payment is due pursuant to this Article IV,
TPL shall refrain from enforcing any collection rights against P-Newco for such
payments until the earlier of (a) such time as funds become available in the
Working Capital Fund, or (b) termination of this Commercialization Agreement.
ARTICLE V
TERM
5.1 This Commercialization Agreement shall continue for the useful
life of the MSD Patents, which shall be deemed to be the greater of the period
of time during which any of the MSD Patents is either (i) susceptible to legal
protection, or (ii) reasonably perceived to have commercial value.
5.2 In the event that facts or events are discovered or occur which
materially reduce TPL's evaluation of the useful life or commercial value of the
MSD Patents, or the viability of the Project, TPL may reduce the term of this
Commercialization Agreement accordingly by providing P-Newco with ninety (90)
days written notice, provided that TPL shall not reduce the term of this
Commercialization Agreement to less than six (6) months.
5.3 After the expiration of the term provided for above, neither party
shall have any further obligation hereunder other than the administration of all
outstanding transactions as under Article VI below, and the obligations of
confidentiality undertaken by the parties.
ARTICLE VI
TERMINATION
6.1 TPL may terminate this Commercialization Agreement upon the
failure of Patriot or P-Newco to substantially perform any of their material
obligations to be performed hereunder, including without limitation the payment
obligations pursuant to Article IV of this Commercialization Agreement.
6.2 P-Newco may terminate this Commercialization Agreement if:
(a) TPL has failed to close transactions in accordance with
the Performance Milestones set forth in Section IV of Schedule 2, and
(i) there has been no material breach by Patriot or P-Newco
of this Commercialization Agreement, the Master Agreement, the Newco Licenses or
the Operating Agreement; and
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(ii) there has been no event or occurrence which negatively
and materially impacts the viability or value of the MSD Patents; and
(iii) the failure of TPL is not reasonably attributable to
the conduct of P-Newco, Patriot and/or their respective affiliates or
Representatives (other than TPL); or
(b) TPL enters into a liquidation under Chapter 7 of the
United States Bankruptcy Code; or
(c) TPL enters into a reorganization under Chapter 11 of the
United States Bankruptcy Code, and TPL ceases to be a debtor in possession
during the pendency of such bankruptcy proceeding.
Each of the events referred to in Sections 6.1 and 6.2 shall be
referred to as a "Termination Event". In no event shall the conduct of Moore be
deemed to constitute a Termination Event.
6.3 Upon termination pursuant to this Article VI:
(a) All rights to the MSD Patents arising under the Grant or
this Commercialization Agreement shall be transferred to P-Newco subject to all
outstanding rights under licenses, agreements, or awards theretofore made and
entered into by or with TPL prior to such expiration or termination which, for
all purposes, shall continue and be administered by TPL under TPL's then current
reasonable hourly fee schedule as if this Commercialization Agreement were still
in full force and effect.
(b) All amounts due to TPL with respect to TPL Direct Project
Expenses and TPL Other Project Expenses shall be paid from Gross Cash Proceeds
as such funds are received.
(c) At the option of Patriot, TPL, or P-Newco, all of the rights
and privileges of whatsoever kind or nature granted by it shall immediately and
without further action whatsoever revert in their entirety to each of Patriot,
TPL, or P-Newco, as the case may be, and all licenses granting such rights and
privileges shall be deemed to be for all purposes cancelled.
(d) In the event of a termination by P-Newco or Patriot, all
claims for loss and/or damages shall be deemed to be liquidated and discharged
with respect to each party upon its completion of the dissolution, distributions
and the documentation and transfers contemplated by Article 8 of the Operating
Agreement, provided, however, that claims based on conduct which is intentional,
willful, or grossly negligent shall survive.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 P-Newco and Patriot acknowledge, represent, and warrant to TPL
that:
(a) TPL and its Representatives have prepared this
Commercialization Agreement at the request of P-Newco and Patriot and such
preparation by TPL shall not be used as basis for construing the terms hereof
against TPL or otherwise;
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(b) Neither TPL nor its Representatives have for any purpose
undertaken the representation of or entered into a lawyer/client relationship
with Patriot or P-Newco or any of their Representatives;
(c) P-Newco and Patriot release, acquit, and agree to hold TPL
and its Representatives harmless with respect to all claims of whatsoever kind
or nature by or on behalf of P-Newco and Patriot and related to the preparation,
execution, and delivery of this Commercialization Agreement; and,
(d) P-Newco and Patriot have sought and received the advice of
independent counsel and are in no way relying on any advice or representations
of TPL or its Representatives.
7.2 Patriot and TPL each represent and warrant to one another that:
(a) It is the sole owner of all right, title and interest in and
to its portion of the MSD Patents, excepting only the rights reflected at the
Schedule of Outstanding Activities/Rights/Claims attached as Schedule 3; and
(b) There are no outstanding agreements, rights or interests
which are inconsistent with the provisions of this Commercialization Agreement
or which could give rise to such rights or interests.
7.3 P-Newco represents and warrants to TPL that:
(a) It is the sole owner, and for the term of this
Commercialization Agreement will remain the sole owner, of all right, title, and
interest in and to those certain rights to the MSD Patents transferred by
Patriot and TPL to P-Newco pursuant to the P-Newco License and T-Newco License;
and
(b) There are no outstanding agreements, rights or interests
which are inconsistent with the provisions of this Commercialization Agreement
or which could give rise to such rights or interests.
ARTICLE VIII
GENERAL
8.1 In no event shall any right, duty or privilege arising hereunder
be assigned by either party to an entity which it does not own and control
without the prior written consent of the other parties. Any attempted or
purported assignment without such consent shall be voidable at the option of the
non-consenting party.
8.2 Any covenant requiring a party to perform or provide an act or
service shall be construed to impose upon such party the burden of the cost
thereof unless otherwise provided for herein.
8.3 Section titles are intended only to aid and assist the reader and
are not intended to be descriptive of the contents of the section or to be used
for construction or interpretation.
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8.4 The failure of any provision of this Commercialization Agreement
by virtue of its being construed as invalid or otherwise unenforceable shall
render the entire Commercialization Agreement cancelable at the option of the
party asserting the enforceability of the said provision.
8.5 All notices shall be in writing and effective upon delivery or
upon posting by certified mail, return receipt requested, addressed as follows
(or such other address as may be hereafter designated):
If to Patriot:
Patriot Scientific Corporation
10989 Via Frontera
San Diego, CA 92127
Attn: President
Fax: (858) 674-5005
with a copy to:
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, CA 92101
Attn: Otto E. Sorensen, Esq.
Fax: (619) 232-8311
If to TPL:
Technology Properties Limited
21730 Stevens Creek Blvd., Suite 201A
Cupertino, CA 95014
Attn: Daniel E. Leckrone, Chairman
Fax: (408) 296-6637
with a copy to:
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, California 90071
Attn: Andrew E. Bogen, Esq.
Fax: (213) 229-6159
If to P-Newco:
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8.6 This Commercialization Agreement together with its exhibits and
attachments, the Stipulated Final Judgment, the Master Agreement, the Newco
Licenses, the Operating Agreement and the Escrow Agreement contains the entire
agreement between the parties and supersedes any and all other agreements
between them relating to the subject matter hereof.
8.7 With the exception of the Grant attached hereto as Exhibit A and
the obligation to share certain materials pursuant to Section 3.6, this
Commercialization Agreement shall create no rights or licenses to any
intellectual property between or among the parties, nor shall it create any
obligation to share technology, trade secrets, know-how, show-how and other
proprietary developments and discoveries conceived or reduced to practice during
the course of the Project.
8.8 Any provision of this Commercialization Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by all parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seal
as of the date of the execution hereof by the last signatory hereto.
PATRIOT SCIENTIFIC CORPORATION,
a Delaware corporation
------------------------------------
By:
Its:
TECHNOLOGY PROPERTIES LIMITED,
a California corporation
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By: Daniel E. Leckrone
Its: Chairman
P-NEWCO, a Delaware limited
liability company
------------------------------------
By:
Its: Patriot Appointee
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By:
Its: TPL Appointee