WAIVER, CONSENT AND RELEASE AGREEMENT
This WAIVER, CONSENT AND RELEASE AGREEMENT (this "Agreement") is made
and entered into as of June 1, 2005, by and between PATRIOT SCIENTIFIC
CORPORATION, a Delaware corporation, (the "COMPANY"), and SWARTZ PRIVATE EQUITY,
LLC, a Georgia limited liability company (the "Rights Holder").
RECITALS
A. WHEREAS, the Rights Holder holds warrants to purchase shares of the
common stock, $0.0000l par value per share, of the COMPANY (the "Warrants"), as
well as a debenture convertible into shares of the common stock of the COMPANY
(the "Debenture") purchased pursuant to certain Securities Purchase Agreements,
by and between the COMPANY and the RIGHTS HOLDER (collectively, the "Securities
Purchase Agreements").
B. WHEREAS, the COMPANY desires to enter into the transactions
contemplated by that certain Master Agreement dated as of the date hereof, by
and among the COMPANY, Technology Properties Limited, Inc., a California
corporation ("TPL") and Charles H. Moore (such transactions referred to herein
as the "Proposed Transactions").
C. WHEREAS, the Proposed Transactions will result in the creation of an
entity ("NEWCO") which will hold and manage the subject intellectual property of
the COMPANY. As a part of the Proposed Transactions, the COMPANY will receive
stock of NEWCO (the "NEWCO Stock") and will be entitled to receive an income
stream from NEWCO (the "NEWCO Income") as specified in the Master Agreement.
D. WHEREAS, the Securities Purchase Agreements, the Warrants and the
Debenture include provisions which may be implicated by the Proposed
Transactions, and which may give the Rights Holder certain rights with respect
to the Proposed Transactions.
E. WHEREAS, the Proposed Transactions and any and all actions taken
before, as of, or after the date hereof by the COMPANY (and any person acting
for or on behalf of the COMPANY) or NEWCO that are specifically authorized by
the Master Agreement shall be referred to herein as the "Approved Actions."
F. WHEREAS, the COMPANY and the Rights Holder desire to facilitate the
Proposed Transactions by entering into this Agreement.
NOW, THEREFORE, in consideration of the respective promises,
representations, warranties, covenants and conditions contained in this
Agreement, the parties hereby agree as follows:
1. Consent. Effective upon the receipt by the Rights Holder of the consideration
described in Section 7 of this Agreement, the Rights Holder hereby consents to,
approves and ratifies the Proposed Transactions and the Approved Actions, each
subject to Section 9 below.
2. Conveyance of Warrants. Effective upon the receipt by the Rights Holder of
the consideration described in Section 7 of this Agreement, the Rights Holder
hereby sells, transfers and conveys to the COMPANY, free and clear of any and
all liens or other adverse claims thereto, Nine Million (9,000,000) Warrants
described on Exhibit A hereto. The Rights Holder agrees to execute any documents
and take any other action that may be required to effect and memorialize such
transfer of the Warrants to the COMPANY pursuant to this Section 2.
3. Warrant Price Reset. Effective upon receipt by the Rights Holder of the
consideration pursuant to Section 7 of this Agreement, the exercise price of the
Thirteen Million, Three Hundred Seventy Four Thousand, One Hundred Twenty Eight
(13,374,128) Warrants described on Exhibit B hereto will be reset to 0.015
dollars per share.
4. Waiver of Right of First Refusal, Limitation of Sale or Disposition of
Intellectual Property and Redemption Upon Major Transaction. Effective upon the
receipt by the Rights Holder of the consideration described in Section 7 of this
Agreement, the Rights Holder hereby waives any right of first refusal or any
right to limit the sale or disposition of the COMPANY's intellectual property,
including but not limited to those rights set forth in Sections 4(l) and 4(m) of
the Securities Purchase Agreements, and waives its right to redemption upon a
Major Transaction as set forth in Section 4(o) of the Securities Purchase
Agreements, in each case to the extent necessary to allow the Proposed
Transactions and the Approved Actions to occur, or any future transaction in
which the Company may engage, all subject to Section 9 below.
5. Waiver of Redemption Right. Effective upon the receipt by the Rights Holder
of the consideration pursuant to Section 7 of this Agreement, the Rights Holder
waives any right to require any warrant redemption as a consequence of the
Proposed Transactions or any future transaction in which the Company may engage,
subject to Section 9 below.
6. Release of Lien. Effective upon the receipt by the Rights Holder of the
consideration pursuant to Section 7 of this Agreement, the Rights Holder hereby
releases its liens with regard to the COMPANY's intellectual property portfolio,
including without limitation the MSD Patents, and agrees to take any and all
action necessary to cause all UCC financing statements, USPTO filings and other
filings or documents evidencing such lien to be terminated, provided that the
debts underlying such liens shall remain intact.
7. Payment to Rights Holder. In consideration of the covenants, promises, and
agreements set forth in this Agreement, the Rights Holder shall be paid $896,346
pursuant to the Escrow Agreement upon the closing of the Proposed Transactions.
The Rights Holder hereby acknowledges that such consideration constitutes good,
valid and sufficient consideration in exchange for the covenants, promises, and
agreements of the Rights Holder set forth in this Agreement..
8. Amendment of Securities Purchase Agreements. Effective as of the receipt of
consideration pursuant to Section 7 of this Agreement, the Securities Purchase
Agreements shall be amended to remove Sections 4(1), 4(m) and 4(o) in their
entirety, and such sections shall be of no further force or effect, all subject
to Section 9 below. The COMPANY and the Rights Holder hereby acknowledge and
agree that this Agreement meets all of the requirements for amendment of the
Securities Purchase Agreements provided in Section 8(e) thereof.
2
9. Redemption. Notwithstanding anything to the contrary herein, in the
event that any one or more of the following occur (each, a "Redemption
Trigger"), the Rights Holder, at its option, may require the COMPANY to effect a
Warrant Redemption (as defined below) of any or all (at the Rights Holders'
option) of the Rights Holders' Warrants (as defined below):
A. The COMPANY merges into or is bought out by another company,
or becomes a private company that does not have publicly traded common
stock, or sells all or substantially all of the COMPANY's assets, or
B. Common stock of the COMPANY is tendered, purchased or exchanged
pursuant to a tender offer, purchase offer or exchange offer, or
C. There is a Change of Control (as defined below) of the COMPANY's
board of directors, and one or more of the following occurs:
(1) COMPANY sells, conveys, disposes of, spins off or assigns
any or all of its NEWCO Stock, or any or all of its rights to
receive the NEWCO Income, to any third party, in each case
without the Right Holder's written consent.
(2) The COMPANY issues or sells, or agrees to issue or sell
Variable Equity Securities (as defined below), for cash in
private capital raising transactions or any securities of the
Company pursuant to an equity line structure or format without
obtaining the prior written approval of the Rights Holder, with
the exception of any such agreements, transactions or equity
lines existing as of the date hereof. For purposes hereof, the
following shall be collectively referred to herein as, the
"Variable Equity Securities": any debt or equity securities (or
securities pursuant to an equity line structure or similar
structure) which are convertible into, exercisable or
exchangeable for, or carry the right to receive additional
shares of Common Stock either (i) at any conversion, exercise or
exchange rate or other price that is based upon and/or varies
with the trading prices of or quotations for Common Stock at any
time after the initial issuance of such debt or equity security,
or (ii) with a fixed conversion, exercise or exchange price that
greater than a thirty percent (30%) discount to the then
prevailing market or is subject to being reset at some future
date at any time after the initial issuance of such debt or
equity security due to a change in the market price of the
Company's Common Stock since date of initial issuance.
If a Redemption Trigger has occurred and the Rights Holder elects a
redemption, then any of the Rights Holders' Warrants selected by the Rights
Holder for such redemption shall be redeemed ("Warrant Redemption") by the
Company as of the record date for such Redemption Trigger at a price per share
(that is, per share of common stock represented by the warrants) for each Rights
Holder Warrant equal to the "Redemption Price," which shall be defined as the
greater of (A) $0.50 per share, less the Exercise Price per share in effect for
that Rights Holder Warrant on the trading day immediately preceding the record
date of the Redemption Trigger (each subject to adjustment to account for any
forward or reverse stock splits), or (B) the applicable Warrant Redemption
Market Value (as defined below). For purposes hereof, the "Warrant Redemption
Market Value" shall equal the aggregate of the highest Warrant Market Values (as
defined below) for all of the Right Holders' Warrants being so redeemed
calculated on any date during the thirty (30) business day period ending on the
record date for the Redemption Trigger.
3
For purposes hereof,
"Change in Control" shall mean any change in the makeup of the
COMPANY's board of directors such that the remaining board members from the
following group do not constitute a majority of the board: Gloria Felcyn, David
Pohl, Helmet Faulk, Lowell Giffhorn and Carlton Johnson, Jr.
"Rights Holders' Warrants" shall mean all warrants to purchase common
stock that have been issued from the Company to the Rights Holder for any reason
at any time in the past up through the date hereof.
"Warrant Market Value" shall equal 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.
"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 or other market on
which the Common Stock is so traded.
10. Representations and Warranties of Rights Holder. In order to induce
the COMPANY to enter into this Agreement, the Rights Holder represents and
warrants to the COMPANY as follows:
10.1 Full Knowledge. The Rights Holder acknowledges and agrees that it
is fully aware of all of the terms and conditions of the Proposed
Transactions, and that its representatives have had an opportunity to
discuss such terms and conditions with COMPANY representatives, and to
ask any questions the Rights Holder has deemed necessary.
10.2 Compliance with Law. The execution, delivery and performance by
the Rights Holder of this Agreement and the consummation of the
transactions contemplated hereby, will not cause the Rights Holder to
violate or contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government, or (iii) any order, writ,
judgment, injunction, decree, determination or award, to which he is
subject.
10.3 Authorization. When executed and delivered by the Rights Holder,
this Agreement will constitute a valid and legally binding obligation
of the Rights Holder enforceable in accordance with its terms, except
as may be limited by (i) judicial principles respecting election of
remedies or limiting the availability of specific performance,
injunctive relief and other equitable remedies, (ii) judicial
principles with respect to provisions contrary to public policy, and
(iii) bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, generally relating to
creditors' rights.
4
11. Representations and Warranties of COMPANY. In order to induce the Rights
Holder to enter into this Agreement, COMPANY represents and warrants to the
Rights Holder as follows:
11.1 Compliance with Law. The execution, delivery and performance by
COMPANY of this Agreement and the consummation of the transactions
contemplated hereby, will not cause COMPANY to violate or contravene
(i) any provision of law, (ii) any rule or regulation of any agency or
government, or (iii) any order, writ, judgment, injunction, decree,
determination or award, to which it is subject.
11.2 Authorization. When executed and delivered by COMPANY, this
Agreement will constitute a valid and legally binding obligation of
COMPANY enforceable in accordance with its terms, except as may be
limited by (i) judicial principles respecting election of remedies or
limiting the availability of specific performance, injunctive relief
and other equitable remedies, (ii) judicial principles with respect to
provisions contrary to public policy, and (iii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in
effect, generally relating to creditors' rights.
12. Taxes. Each party shall be responsible for all taxes incurred by it
as a result of any transaction contemplated by this Agreement.
13. Cooperation. COMPANY and Rights Holder acknowledge that it may be
necessary to execute documents other than those specifically referred to herein
in order to consummate the transactions contemplated herein. COMPANY and Rights
Holder agree to cooperate with each other by executing such other documents and
taking such other action as may be reasonably necessary to complete the
transactions in accordance with the intent of the parties as evidenced in this
Agreement.
14. General Provisions.
14.1 Survival of Representations and Warranties. All representations
and warranties of the parties made in, pursuant to or in connection
with this Agreement shall survive the execution and delivery of this
Agreement.
14.2 Entire Agreement. With reference to the subject matter hereof,
this Agreement is the complete and exclusive statement of all terms of
the agreement between the parties and supersedes and cancels all prior
and contemporaneous negotiations, agreements and representations, and
constitutes the entire agreement between the parties. There are no
representations, inducements, promises or agreements, oral or
otherwise, with reference to the subject matter hereof, other than as
expressly set forth herein. No modification, alteration, amendment or
waiver of any provision hereof shall be effective unless in writing and
signed by both parties.
5
14.3 Successors Bound; Limited Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permissible assigns, except that neither
party shall, without prior written consent of the other, delegate,
assign, transfer, encumber or otherwise dispose of any of its rights,
duties or interests under this Agreement or any part thereof.
14.4 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do
not constitute a part of this Agreement.
14.5 Governing Law. It is the intention of the parties that the laws of
California, including such jurisdiction's principles of conflict of
law, shall govern the validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the
parties, as such laws are applied to agreements between California
residents entered into and to be performed entirely within California.
14.6 Forum; Expenses. In the event that any cause of action, lawsuit or
other proceeding is brought by any party of this Agreement because of
an alleged dispute, breach or misrepresentation in connection with or
arising under this Agreement, any court of competent jurisdiction in
San Diego County shall be the sole and exclusive forum for such cause
of action, lawsuit or proceeding, and the prevailing party in any such
action, lawsuit or proceeding shall be entitled to recover, in addition
to any remedy at law or equity available to any prevailing party, all
reasonable costs and expenses incurred or sustained by such prevailing
party in connection with such action, lawsuit or proceeding, including,
without limitation, attorneys' fees and court costs.
14.7 Counterparts. This Agreement may be executed in two or more
counterparts and by the different parties hereto in separate
counterparts with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first written above.
PATRIOT SCIENTIFIC CORPORATION SWARTZ PRIVATE EQUITY, LLC
By: /s/ DAVID H. POHL By: /s/ ERIC S. SWARTZ
------------------------- -----------------------------
Eric S. Swartz, Manager
Name: David H. Pohl
----------------------
Title: Director
---------------------
6