Exhibit 10.13

 

STOCK PURCHASE AGREEMENT

by and among

PATRIOT SCIENTIFIC CORPORATION,

as Parent

PTSC SUB ONE, INC.,
as Buyer

MOSAIC IMMUNOENGINEERING INC.,
as the Company

THE STOCKHOLDERS OF THE COMPANY NAMED HEREIN,
as the Sellers

and

STEVEN KING
as the Sellers’ Representative

Dated as of August 19, 2020

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

 

TABLE OF CONTENTS

 

  Page ARTICLE I PURCHASE OF COMPANY STOCK 2     1.1 Purchase of Company Stock 2
1.2 Purchase Price 2             ARTICLE II CLOSING 2 2.1 Closing 2      
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS 3     3.1
Representations and Warranties of the Company 3 3.2 Representations and
Warranties of the Sellers.: 13 3.3 No Other Representations 14       ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER PARTIES 14     4.1 Organization and
Qualification 14 4.2 Subsidiaries 14 4.3 Authorization 15 4.4 Non-Contravention
15 4.5 No Brokers 15 4.6 Litigation 15 4.7 Investment Intent 15 4.8 SEC
Documents; Financial Statements 16 4.9 Absence of Certain Changes or Events 16
4.10 No Undisclosed Material Liabilities 17 4.11 Ownership and Operations of
Merger Sub 17 4.12 Inapplicability of Takeover Statutes. 17 4.13 No Other
Representations and Warranties 17       ARTICLE V OTHER AGREEMENTS 17     5.1
Access and Information 17 5.2 Conduct of Business 18 5.3 Notification of Certain
Matters 23 5.4 Further Assurances 23 5.5 Confidentiality 23 5.6 Publicity 24 5.7
No Trading 25 5.8 Litigation Support 25       ARTICLE VI CONDITIONS TO CLOSING
25

 

 

 

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    6.1 Conditions to Each Party’s Obligations 25 6.2 Conditions to Obligations
of the Seller Parties 26 6.3 Conditions to Obligations of Buyer Parties 27 6.4
Frustration of Conditions 28       ARTICLE VII TERMINATION 28     7.1
Termination 28 7.2 Effect of Termination 29 7.3 Fees and Expenses 30      
ARTICLE VIII INDEMNIFICATION 30       8.1 Survival 30 8.2 Indemnification by
Company 30 8.3 Indemnification by Buyer Parties 31 8.4 Indemnification
Procedures 31 8.5 Limitations on Indemnification 34 8.6 General Indemnification
Provisions 34 8.7 Timing of Payment; Right to Set-Off 35 8.8 Exclusive Remedy 35
      ARTICLE IX GENERAL PROVISIONS 35     9.1 Expenses 35 9.2 Notices 35 9.3
Severability 36 9.4 Assignment 36 9.5 No Third-Party Beneficiaries 36 9.6
Amendment; Waiver 36 9.7 Entire Agreement 37 9.8 Specific Performance 37 9.9
Governing Law; Jurisdiction; Waiver of Jury Trial 37 9.10 Interpretation 38 9.11
Mutual Drafting 38 9.12 Counterparts 38 9.13 Sellers’ Representative 39 9.14
Conflicts and Privilege 40 9.15 Dispute Resolution 41

 

Exhibits:

A Definitions B Form of Series A Convertible Preferred Certificate of
Designation C Form of Series B Convertible Preferred Certificate of Designation
D Form of Investor Rights Agreement E Form of Voting Agreement

 

 

 

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STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (this “Agreement”), is entered into as of August
19, 2020, among:

 

(i)       Patriot Scientific Corporation, a Delaware corporation (“Parent”),

 

(ii)       PTSC Sub One, Inc., a Delaware corporation (“Buyer” or “Merger Sub”),
and together with Parent, the “Buyer Parties”),

 

(iii)       Mosaic ImmunoEngineering Inc., a Delaware corporation (the
“Company”),

 

(iv)       certain stockholders of the Company set forth on Schedule 3.4 hereto
(collectively, the “Sellers”, and together with the Company, the “Seller
Parties”), and

 

(v)       Steven King, in the capacity of the representative of the Sellers
(“Sellers’ Representative”) in accordance with this Agreement.

 

Each of Parent, Merger Sub, Company, and Seller may be individually referred to
herein as a “Party” and collectively referred to herein as the “Parties.”

 

RECITALS

 

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have determined that the merger of Merger Sub with and into the Company
in the manner contemplated herein (the “Merger”), is desirable and in the best
interests of their respective stockholders and, by resolutions duly adopted,
have approved and adopted this Agreement;

 

WHEREAS, the Company, Parent, and Merger Sub intend to effect the Merger in
accordance with this Agreement and the General Corporation Law of the State of
Delaware (the “DGCL”, where, upon consummation of the Merger, Merger Sub shall
cease to exist and the Company shall become a wholly-owned Subsidiary of Parent;

 

WHEREAS, Sellers own 100% of the issued and outstanding shares of the capital
stock of the Company, as of the date hereof;

 

WHEREAS, prior to the eventual consummation of the Merger, Sellers desire to
sell and convey to Buyer, and Buyer desires to purchase from Sellers, all of the
issued and outstanding shares of common stock of the Company owned by Sellers on
the Closing Date, subject to the terms and conditions set forth herein;

 

WHEREAS, the Parent Board has approved the issuance of shares of Parent’s Series
A Convertible Preferred and the issuance of shares of Parent’s Series B
Convertible Preferred as consideration for the Buyer’s purchase of Sellers’
shares of common stock in the Company on the terms and subject to the conditions
set forth in this Agreement; and

 

WHEREAS, certain capitalized terms used herein are defined in Exhibit A below.

 

 

 

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NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

 

Article I
PURCHASE OF COMPANY STOCK

 

1.1            Purchase of Company Stock. At the Closing, and on the terms and
subject to all of the conditions of this Agreement, Sellers will severally and
not jointly sell, transfer, assign and convey to Buyer, and Buyer will purchase
and accept from Sellers, one hundred percent (100%) of the common stock of the
Company owned by Sellers, comprised of 630,000 shares of common stock (“Class A
Stock”) and 70,000 shares of Class B Stock (“Class B Stock”), whereas the Class
A Stock and the Class B Stock, in aggregate, shall be defined as the “Purchased
Shares”), free and clear of any and all Liens, other than Permitted Liens.

 

1.2            Purchase Price. Upon the terms and subject to the conditions set
forth in this Agreement, the per share consideration to be paid by Buyer for the
Purchased Shares (the “Share Purchase Price”) shall be one (1) share of Parent
Series A Convertible Preferred for each share of Class A Stock and one (1) share
of Parent Series B Convertible Preferred for each share of Class B Stock. In the
aggregate, 630,000 shares of Parent Series A Convertible Preferred and 70,000
shares of Parent Series B Convertible Preferred Stock shall be issued for the
Purchased Shares (the “Purchase Price”). Each share of Parent Series A
Convertible Preferred shall (a) convert into 5,097.053 shares of common stock of
the Parent, (b) possess full voting rights, on an as-converted basis, as the
common stock of the Parent, and (c) have no dividend rate. Each share of Parent
Series B Convertible Preferred shall (a) convert into 5,734.185 shares of common
stock of the Parent, (b) possess full voting rights, on an as-converted basis,
as the common stock of the Parent, (c) include certain anti-dilution
protections, and (d) have no dividend rate. The numbers in this Section 1.2
shall be subject to adjustment for any stock issuance, stock split, stock
dividend, stock combination or other similar transactions, whether by the Parent
or the Company. For the avoidance of doubt, consummation of the transactions
contemplated hereunder shall not give rise to any type of conversion event as
set forth in either the Parent Series A Convertible Preferred or the Parent
Series B Convertible Preferred. Schedule 1.2 sets forth a pro forma
capitalization schedule, as of the Closing (as defined below) after giving
effect to the transactions contemplated hereunder.

 

Article II
CLOSING

 

2.1            Closing. Subject to the satisfaction or waiver of the conditions
set forth in ARTICLE VI, the consummation of the transactions contemplated by
this Agreement (the “Closing”) will take place at the offices of Duane Morris
LLP, 1540 Avenue of the Americas, New York, NY 10032, on the third (3rd)
Business Day after all the Closing conditions to this Agreement have been
satisfied or waived (other than conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions at such time) at 4:00 pm (New York City time) or at such other date,
time or place as Buyer, the Company and the Sellers’ Representative may agree.
By mutual agreement of the parties the Closing may take place by conference call
and facsimile (or other electronic transmission of signature pages) with
exchange of original signatures by overnight mail or guaranteed delivery. The
date on which the Closing actually occurs will be referred to as the “Closing
Date”. The Parties agree that to the extent permitted by applicable Law and
GAAP, the Closing will be deemed effective as of 12:01 a.m. (New York City time)
on the Closing Date.

 

 

 

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Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS

 

3.1            Representations and Warranties of the Company Except as set forth
in the disclosure schedules delivered by the Seller Parties to Buyer on the date
hereof (the “Company Disclosure Schedules”), the Section numbers of which are
numbered to correspond to the Section numbers of this Agreement to which they
refer (unless and to the extent the relevance to other representations and
warranties is reasonably apparent from the face of the disclosed exception
without independent knowledge on the part of the reader regarding the disclosed
exception), the Company, hereby represents and warrants to Buyer, unless
otherwise specified, as of the date of this Agreement and the Closing Date, as
follows:

 

(a)             Organization and Qualification. The Company is a corporation
duly organized, validly existing and, as of the Closing Date, in good standing
under the laws of the State of Delaware and has full power and authority to own,
lease, use and operate the assets owned by it and to conduct its business as and
where it is being conducted by it. The Company is duly licensed or qualified to
do business, and is in good standing as a foreign entity, in all jurisdictions
in which its assets or the operation of its business makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
and in good standing individually or in the aggregate with any such other
failures, would not be expected to be material to the Company; without limiting
the foregoing, the Company is so licensed or qualified and in good standing in
each jurisdiction listed on Schedule 3.1(a). Since the Company’s inception, the
Company has not been known by or used any corporate, fictitious or other name in
the conduct of the Company’s business or in connection with the use or operation
of its assets. Schedule 3.1(a) lists all current directors and officers of the
Company, showing each such Person’s name and position(s). The Company is not in
default in the performance, observance, or fulfillment of any provision of its
Governing Documents, true and correct copies of which have been provided to
Parent and Buyer.

 

(b)            Authorization and Binding Effect; Corporate Documentation. Each
Seller Party has full power and authority to enter into this Agreement and the
Ancillary Documents to which it is, or is required to be, a party and to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of each Seller Party, including requisite board of directors
and stockholder approval of the Company. Each of this Agreement and each
Ancillary Document to which a Seller Party is or is required to be a party has
been duly executed and delivered by each such Seller Party and, assuming the due
execution and delivery by the other parties hereto or thereto, constitutes a
legal, valid and binding obligation of such Seller Party, enforceable against
such Seller Party in accordance with its terms, except as the enforceability
thereof may be limited by the Permitted Exceptions. The copies of the Governing
Documents of the Company, as amended to date, copies of which have heretofore
been delivered to Buyer, are true, complete and correct copies of the Governing
Documents of the Company, as amended through and in effect on the date hereof.
The minute books and records of the proceedings of the Company, copies of which
have been delivered to Buyer, are true, correct and complete in all material
respects.

 

 

 

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(c)             Capitalization. Prior to giving effect to the transactions
contemplated by this Agreement, Sellers are the beneficial and record owner of
700,000 issued and outstanding common stock of the Company, comprised of 630,000
shares of Class A Stock and 70,000 shares of Class B Stock, with each Seller
owning the shares of Class A and Class B Stock in the Company set forth on
Schedule 3.1(c). The Purchased Shares to be delivered by Sellers to Buyer
constitute 100% of the issued and outstanding shares of common stock of the
Company, as calculated on a fully diluted basis. All of the issued and
outstanding shares of common stock of the Company (i) have been duly and validly
issued, (ii) are fully paid and nonassessable and (iii) were not issued in
violation of any preemptive rights or rights of first refusal or first offer.
The Company has not issued any shares of preferred stock. There are no issued or
outstanding options, warrants or other rights to subscribe for or purchase any
equity securities of the Company or securities convertible into or exchangeable
for, or that otherwise confer on the holder any right to acquire any equity
securities of the Company, or preemptive rights or rights of first refusal or
first offer with respect to the equity securities of the Company, nor are there
any Contracts, commitments, understandings, arrangements or restrictions to
which a Seller Party is a party or bound relating to any equity securities of
the Company, whether or not outstanding. There are no outstanding or authorized
stock appreciation rights, phantom stock rights, subscriptions, options,
warrants, puts, calls, claims, commitments or rights of any type relating to the
issuance, sale, or repurchase of any equity securities of the Company, nor are
there any voting trusts, proxies, shareholder agreements or any other agreements
or understandings with respect to the voting of the equity securities of the
Company. All of the equity securities of the Company have been granted, offered,
sold and issued in material compliance with all applicable foreign, state and
federal securities Laws.

 

(d)             Subsidiaries. The Company does not have any Subsidiaries. The
Company does not own or have any rights to acquire, directly or indirectly, any
capital stock or other equity interests of any Person. The Company is not a
participant in any joint venture, partnership or similar arrangement. There are
no outstanding contractual obligations of the Company to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in, any other Person.

 

(e)             Non-Contravention. Except as set forth on Schedule 3.1(e),
neither the execution, delivery and performance of this Agreement or any
Ancillary Documents by any Seller Party, nor the consummation of the
transactions contemplated hereby or thereby, will (a) violate or conflict with,
any provision of the Governing Documents of the Company, (b) violate or conflict
with any applicable Law or Order to which the Company or any Seller, their
respective assets or the Purchased Shares are bound or subject, (c) with or
without giving notice or the lapse of time or both, breach or conflict with,
constitute or create a default under, or give rise to any right of termination,
cancellation or acceleration of any obligation or result in a loss of a material
benefit under, or give rise to any obligation of the Company or any Seller to
make any payment under, or to the increased, additional, accelerated or
guaranteed rights or entitlements of any Person under, any of the terms,
conditions or provisions of any Contract, agreement, or other commitment to
which a Seller or the Company is a party or by which a Seller or the Company,
their respective assets or the Purchased Shares may be bound, (d) result in the
imposition of a Lien (other than a Permitted Lien) on any Purchased Shares or
any assets of the Company or (e) require any filing with, or Permit, consent or
approval of, or the giving of any notice to, any Governmental Authority or other
Person.

 

 

 

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(f)             Financial Statements. (i) Attached to Schedule 3.1(f) as of the
date hereof, are true and correct copies of the unaudited balance sheet and
income statement for the Company as of and for the period of inception (March
30, 2020) through June 30, 2020, and (ii) attached to Schedule 3.7 as of the
Closing Date, the unaudited balance sheet of the Company as of June 30, 2020 and
the related unaudited income statement for the period then ended (such financial
statements described in clauses (i) and (ii), collectively, the “Financial
Statements”). The Financial Statements have been and will be prepared in
accordance with the books and records of the Company, are (and will be) true,
correct and complete in all material respects, and present fairly and accurately
in all material respects the financial condition, results of operations, cash
flows and stockholders equity of the Company as of the respective dates thereof
and for the periods specified therein, and such presentations are and will be in
accordance with Generally Accepted Accounting Principles in all material
respects, subject to normal year-end adjustments and the lack of footnotes and
other presentation items. The Company maintains accurate books and records
reflecting its assets and liabilities and maintains proper and adequate internal
accounting controls for a company of its current stage of development that
provide reasonable assurance that (i) the Company does not maintain any
off-the-book accounts and that the Company’s assets are used only in accordance
with management directives, (ii) transactions are executed with management’s
authorization, (iii) transactions are recorded as necessary to permit
preparation of the financial statements of the Company and to maintain
accountability for its assets, (iv) access to its assets is permitted only in
accordance with management’s authorization, and (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection of accounts, notes and other
receivables on a current and timely basis. All of the books and records of the
Company are complete and accurate in all material respects and have been
maintained in the Ordinary Course of Business consistent with past practice and
in accordance with applicable Laws. The signatures of all Persons appearing on
all documents comprising such books and records are the true signatures of the
Persons purporting to have signed the same, and complete and correct copies of
such books and records have been provided to Buyer.

 

(g)            Absence of Liabilities. The Company does not have any Liabilities
of a nature required to be disclosed on a balance sheet prepared in accordance
with GAAP except (a) Liabilities that are accrued and reflected on the balance
sheet of the Company as of the date hereof, as of June 30, 2020, and as of the
Closing Date, (b) Liabilities that are listed on Schedule 3.1(g), and (c)
obligations to be performed after the date hereof under any Contracts which are
disclosed on Schedule 3.1(g)(i).

 

(h)            Absence of Certain Changes. Except as set forth on Schedule
3.1(h), since Company inception of March 1, 2020, (a) the Company has conducted
its business only in the Ordinary Course of Business, and (b) there has not been
any change in or development with respect to the Company’s business, operations,
condition (financial or otherwise), results of operations, assets or
Liabilities, except for changes and developments which have not had, and are not
likely to have to have, a Material Adverse Effect. Without limiting the
foregoing, except as set forth on Schedule 3.1(h), since March 1, 2020, Company
has not: (i) suffered any loss, damage, destruction or other casualty in excess
of $50,000 in the aggregate, whether or not covered by insurance; (ii) sold,
transferred, leased or otherwise disposed of any material assets (other than in
the Ordinary Course of Business) or permitted or allowed any of its material
assets to be subject to any Lien (other than the Permitted Liens); (iii)
instituted, settled or agreed to settle any Action before any Governmental
Authority; (iv) entered into or terminated any Contract that would be required
to be disclosed on Schedule 3.16 other than in the Ordinary Course of Business;
(v) instituted any increase in the compensation payable to any of its employees
or under any Benefit Plan other than in the Ordinary Course of Business, or
adopted any new Benefit Plans; (vi) made any capital expenditure or commitment
therefore for additions to its property, facilities or equipment outside of the
Ordinary Course of Business; (vii) made any change in any method of its
accounting or accounting practices or any change in its depreciation or
amortization policies or rates theretofore adopted or revalued any of its
assets; or (viii) agreed or committed, whether in writing or otherwise, to take
any action described in this Section 3.1(h).

 

 

 

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(i)             Title to and Sufficiency of Assets. Except as set forth on
Schedule 3.1(i), the Company has good and marketable title to all of its assets,
free and clear of all Liens other than Permitted Liens. The assets of the
Company constitute all of the assets, rights and properties that are used or
held by the Company for use in the operation of the Company’s business and,
taken together, are adequate and sufficient for the operation of the Company’s
business as it is currently conducted and as it is currently proposed to be
conducted. Immediately following the Closing, all of the assets of the Company
will be owned, leased or available for use by the Company on terms and
conditions substantially identical to those under which, immediately prior to
the Closing, the Company owns, leases, uses or holds available for use such
assets.

 

(j)             Real Property. The Company does not own any real property.
Schedule 3.1(j) contains a complete and accurate list of all premises leased or
subleased or otherwise used or occupied by the Company (the “Leased Premises”),
and of all leases, lease guarantees, agreements and documents related thereto,
including all amendments, terminations and modifications thereof (collectively,
the “Leases”), as well as the current annual rent and term under each Lease.
Sellers have provided to Buyer a true and complete copy of each of the Leases,
and in the case of any oral Lease, a written summary of the material terms of
such Lease. The Leases are valid, binding and enforceable in accordance with
their terms (subject to the Permitted Exceptions) and are in full force and
effect. No event has occurred which (whether with or without notice, lapse of
time or both or the happening or occurrence of any other event) would constitute
a default on the part of the Company under any Lease. To the Knowledge of the
Company, no event has occurred which (whether with or without notice, lapse of
time or both or the happening or occurrence of any other event) would constitute
a default by any other party under any Lease, and the Company has not received
written notice or, to the Knowledge of the Company, any other notice of any such
condition. The Company has not waived any material rights under any Lease which
would be in effect at or after the Closing.

 

(k)            Intellectual Property.

 

(i)              Set forth in Schedule 3.1(k) is an accurate and complete list
of

 

(A)           all material foreign and domestic patents, inventions,
disclosures, trademarks, service marks, trade names, internet domain names (and
any registrations or applications for registration for any of the foregoing
trademarks, service marks, trade names and internet domain names) and all
material copyright applications and registrations and all other material
Intellectual Property rights owned or used by the Company, and

 

 

 

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(B)           all material agreements to which the Company is a party which
concern any of its Intellectual Property;

 

(ii)            Except as set forth in Schedule 3.1(k):

 

(A)           The Company owns, free and clear of any Encumbrances, or has
sufficient rights to, its Intellectual Property;

 

(B)           as of the date of this Agreement, no claim of invalidity or
ownership with respect to its Intellectual Property has been received by the
Company from any third party and, to the Knowledge of the Company, no
Intellectual Property is the subject of any pending or threatened Action;

 

(C)           as of the date of this Agreement, no Person has asserted that,
with respect to any Intellectual Property, the Company or any licensee is
infringing or has infringed any domestic or foreign patent, trademark, service
mark, trade name, or copyright or design right, or has misappropriated or
improperly used or disclosed any trade secret, confidential information or
know-how;

 

(D)           all fees, annuities, royalties, honoraria and other payments which
are due from the Company on or before the date of this Agreement for any of its
Intellectual Property or under any agreement related to its Intellectual
Property have been paid or accrued for;

 

(E)            to the Company’s Knowledge, except as limited by the terms of any
license relating thereto, the making, using, selling, manufacturing, marketing,
licensing, reproduction, manufacture, composition of matter, or related to any
part of the Intellectual Property, does not and will not infringe in any
material respect any domestic or foreign patent, trademark, service mark, trade
name, copyright, moral right or other intellectual property right of any third
party, and does not and will not involve the misappropriation or improper use or
disclosure of any trade secrets, confidential information or know-how of any
third party;

 

(F)            to the Knowledge of the Company, no unexpired foreign or domestic
patents or patent applications exist that are adverse to the material interests
of the Company; and

 

(G)           to the Knowledge of the Company, there exists no (A) prior act of
the Company or any third party that would void or invalidate any of the
Company’s Intellectual Property or (B) conduct or use by the Company or any
third party that would void or invalidate any of the Company’s Intellectual
Property.

 

 

 

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(iii)          The Company has taken commercially reasonable steps to safeguard
and maintain the secrecy and confidentiality of (i) all of its Intellectual
Property, including without limitation material trade secrets and (ii) to the
extent required by applicable Law, all of its material patent applications and
their related inventions prior to the issuance of a patent registration
contained in its Intellectual Property.

 

(l)              Compliance with Laws. The Company is in compliance with, and
has complied since its inception, in all material respects with all Laws and
Orders applicable to the Company, its assets, employees or business or the
Purchased Shares. The Company has not received any written or, to the Knowledge
of the Company, oral notice of any actual or alleged violation or non-compliance
with applicable Laws.

 

(m)           Permits. The Company owns or possesses all right, title and
interest in all material Permits required to own its assets and conduct its
business as now being conducted. All material Permits of the Company are listed
on Schedule 3.1(m) and are valid and in full force and effect, and the Company
is in compliance in all material respects with the terms and conditions of all
such Permits. No loss, revocation, cancellation, suspension, termination or
expiration of any Permit is pending or, to the Knowledge of the Company,
threatened other than expiration or termination in accordance with the terms
thereof. The Company has not received any written or, to the Knowledge of the
Company, oral notice from any Governmental Authority of any actual or alleged
violation or non-compliance regarding any such Permit.

 

(n)             Litigation

 

Except as described on Schedule 3.1(n), there is no (a) Action of any nature
pending or, to the Knowledge of the Company, threatened, nor, to the Knowledge
of the Company, is there any reasonable basis for any Action to be made, or (b)
Order pending now or rendered by a Governmental Authority since the Company’s
inception, in either case of clauses (a) or (b), by or against the Company, any
of its current or former directors, officers or equity holders (provided, that
any litigation involving the directors, officers or equity holders of the
Company must be related to the Company’s business or assets or the Purchased
Shares), the Company’s business or assets or the Purchased Shares. Since the
Company’s inception, the Company’s current or former officers, senior management
or directors have not been charged with, indicted for, arrested for, or
convicted of any felony or any crime involving fraud.

 

(o)             Contracts. Schedule 3.1(o) lists each Contract to which the
Company is a party or by which it is bound, the breach or absence of which would
result in a Material Adverse Effect on the Company (each, a “Material
Contract”). Each of the Material Contracts is valid and binding on the Company
and in full force and effect and, assuming due execution and delivery by the
other parties thereto, is enforceable in accordance with its terms by the
Company. The Company is not in breach or default under any Material Contract,
nor does any condition exist that, with notice or lapse of time or both, would
constitute a breach or default in any respect thereunder by the Company or that
would result in material liability to the Company. To the Knowledge of the
Company, (a) no other party to any Material Contract is in default thereunder
and (b) no condition exists that with notice or lapse of time or both would
constitute a default in any material respect by any such other party thereunder.
The Company has not received notice of any termination or cancellation of any
Material Contract and to the Company’s Knowledge, no other party to a Material
Contract has plans to terminate or cancel such Material Contract. The Company
has not and, to the Knowledge of the Company, no other party to any Material
Contract has, repudiated any material provision of any Material Contract. The
Company is not disputing and, to the Knowledge of the Company, no other party to
such Material Contract is disputing, any material provision of any Material
Contract. None of the parties to any Material Contract is renegotiating any
material amounts paid or payable to or by the Company under such Material
Contract or any other material term or provision thereof.

 

 

 

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(p)             Tax Matters. Except as set forth on Schedule 3.1(p): (i) the
Company has timely filed all Tax Returns required to have been filed by it; (ii)
all such Tax Returns are accurate and complete in all material respects; (iii)
the Company has paid all Taxes owed by it which were due and payable (whether or
not shown on any Tax Return); (iv) the Company has complied in all material
respects with all applicable Laws relating to Tax; (v) the Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return; (vi) there is no current Action against the Company in writing by a
Governmental Authority in a jurisdiction where the Company does not file Tax
Returns that the Company is or may be subject to taxation by that jurisdiction;
(vii) there are no pending or ongoing audits of the Company’s Tax Returns by a
Governmental Authority of which the Company has received notice thereof; (viii)
the Company has not requested or received any ruling from, or signed any binding
agreement with, any Governmental Authority, with respect to Taxes that would
apply to any Tax periods ending after the Closing Date; (ix) there are no Liens
on any of the assets of the Company that arose in connection with any failure
(or alleged failure) to pay any Tax; (x) no unpaid Tax deficiency has been
asserted in writing against or with respect to the Company by any Governmental
Authority which Tax remains unpaid; (xi) the Company has collected or withheld
all Taxes currently required to be collected or withheld by it, and all such
Taxes have been paid to the appropriate Governmental Authorities or set aside in
appropriate accounts for future payment when due; (xii) the Company has not
granted or is subject to, any waiver of the period of limitations for the
assessment of Tax for any currently open taxable period; (xiii) the Company is
not required to include in income any amount for an adjustment pursuant to
Section 481 of the Code or the Regulations thereunder with respect to a change
in accounting methods made prior to the Closing; (xiv) the Company is not a
party to any Tax allocation or sharing agreement (other than an agreement (such
as a lease) the principal purpose of which is not the sharing or allocation of
Tax); (xv) there is no Contract or Benefit Plan covering any Person that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by the Company by reason of Section 280G or Section
162(m) of the Code, and no arrangement exists pursuant to which the Company or
Buyer will be required to “gross up” or otherwise compensate any Person because
of the imposition of any Tax on a payment to such Person; (xvi) the Company has
not been a beneficiary of or participated in any “reportable transaction” within
the meaning of Regulations Section 1.6011-4(b)(1) that was, is, or to the
Knowledge of the Company will ever be, required to be disclosed under
Regulations Section 1.6011-4; (xvii) no Tax Return filed by or on behalf of the
Company has contained a disclosure statement under Section 6662 of the Code (or
any similar provision of Law), and no Tax Return has been filed by or on behalf
of the Company with respect to which the preparer of such Tax Return advised
consideration of inclusion of such a disclosure, which disclosure was not made;
(xviii) the Company has not taken any action outside of the Ordinary Course of
Business that would have the effect of deferring a measure of Tax from a period
(or portion thereof) ending on or before the Closing Date to a period (or
portion thereof) beginning after the Closing Date; (xix) the Company does not
have a “permanent establishment” in any foreign country, as defined in any
applicable Tax treaty or convention between the United States of America and
such foreign country, or has otherwise taken steps or conducted business
operations that have materially exposed, or will materially expose, it to the
taxing jurisdiction of a foreign country; (xx) the Company is materially in
compliance with the terms and conditions of any applicable Tax exemptions, Tax
agreements or Tax orders of any Taxing Authority to which it may be subject or
which it may have claimed, and the transactions contemplated by this Agreement
will not have any material and adverse effect on such compliance; (xxi) no
written power of attorney which is currently in force has been granted by or
with respect to the Company with respect to any matter relating to Taxes; and
(xxii) no Seller is a “foreign person” for purposes of Section 1445 of the Code.

 

 

 

 9 

 

 

(q)             Environmental Matters. The Company has complied in all respects
with all applicable Environmental Laws, and the Company has not received written
notice or, to the Knowledge of the Company, other notice of any Actions pending
or threatened against the Company or is assets (including the Leased Premises)
relating to applicable Environmental Laws, Environmental Permits or
Environmental Conditions. The Company has not had any environmental audits,
environmental assessments, reports, sampling results, correspondence with
Governmental Authorities or other environmental documents relating to the
Company’s past or current properties, facilities or operation. There are no
Hazardous Materials that are being stored or are otherwise present on, under or
about the Leased Premises, or, to the Knowledge of the Company, any real
property formerly owned, leased or operated by the Company. The Company has not
disposed of, or arranged to dispose of, Hazardous Materials at a disposal
facility in a manner or to a location that has resulted or will result in
liability to the Company under or relating to Environmental Laws. The Company
has not released any Hazardous Materials on, under or about any real property
leased or otherwise used by it, which would require investigation or remediation
pursuant to any Environmental Law or that which otherwise is in violation of any
requirement of any Environmental Law.

 

(r)              Employee Benefit Plans.

 

(i)              Set forth on Schedule 3.1(r)(i) is a true and complete list of
each Benefit Plan. With respect to each Benefit Plan: (i) such Benefit Plan has
been in all material respects operated, administered and enforced in accordance
with its terms and in compliance with, and such Benefit Plan complies with, all
applicable Laws, including ERISA and the Code (including Section 409A thereof),
in all material respects; (ii) no breach of fiduciary duty has occurred; (iii)
no Action is pending, or to the Knowledge of the Company, threatened (other than
routine claims for benefits arising in the ordinary course of administration);
(iv) no prohibited transaction, as defined in Section 406 of ERISA or Section
4975 of the Code, has occurred, excluding transactions effected pursuant to a
statutory or administration exemption; and (v) all contributions and premiums
due through the Closing Date have been made as required under ERISA or have been
fully accrued on the Financial Statements. All Benefit Plans can be terminated
at any time as of or after the Closing Date without resulting in any liability
to the Company, Buyer or any of their respective Affiliates for any additional
contributions, penalties, premiums, fees, fines, excise taxes or any other
charges or liabilities (except for ordinary course termination expenses).

 

 

 

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(ii)            Each Benefit Plan which is intended to be “qualified” within the
meaning of Section 401(a) of the Code (i) has been determined by the IRS to be
so qualified (or is based on a prototype plan which has received a favorable
opinion letter) during the period from its adoption to the date of this
Agreement and (ii) its related trust has been determined to be exempt from
taxation under Section 501(a) of the Code or the Company has requested an
initial favorable IRS determination of qualification and/or exemption within the
period permitted by applicable Law. To the Knowledge of the Company, no fact
exists which could adversely affect the qualified status of such Benefit Plans
or the exempt status of such trusts.

 

(iii)          No Benefit Plan is a “defined benefit plan” (as defined in
Section 414(j) of the Code), a “multiemployer plan” (as defined in Section 3(37)
of ERISA) or a “multiple employer plan” (as described in Section 413(c) of the
Code) or is otherwise subject to Title IV of ERISA or Section 412 of the Code,
and the Company has not incurred any Liability or otherwise has any outstanding
Liability under Title IV of ERISA and, to the Knowledge of the Company, no
condition presently exists that is expected to cause such Liability to be
incurred. The Company does not currently maintain or contribute to, or has ever
maintained or contributed to or in any way directly or indirectly had any
Liability (whether contingent or otherwise) with respect to any “multiemployer
plan,” within the meaning of Section 3(37) or 4001(a)(3) of ERISA. The Company
is not or has not in the past been a member of a “controlled group” for purposes
of Section 414(b), (c), (m) or (o) of the Code, nor does the Company have any
Liability with respect to any collectively-bargained for plans, whether or not
subject to the provisions of ERISA. The Company does not currently maintain or
has ever maintained, or is required currently or has ever been required to
contribute to or otherwise participate in, a multiple employer welfare
arrangement or voluntary employees’ beneficiary association as defined in
Section 501(c)(9) of the Code.

 

(iv)           With respect to each Benefit Plan which is a “welfare plan” (as
described in Section 3(1) of ERISA): (i) no such plan provides medical or death
benefits with respect to any current or former employee of the Company beyond
their termination of employment (other than coverage mandated by Law, which is
paid solely by such employees); and (ii) there are no reserves, assets, surplus
or prepaid premiums under any such plan. Except to the extent required by
Section 4980B of the Code or similar state Law, the Company does not provide
health or welfare benefits to any former or retired employee or is obligated to
provide such benefits to any active employee following such employee’s
retirement or other termination of employment or service.

 

(v)             Each Benefit Plan that is subject to Section 409A of the Code
(each, a “Section 409A Plan”) as of the Closing Date is indicated as such on
Schedule 3.1(r)(v) Each Section 409A Plan has been administered in all material
respects in compliance, and is in documentary compliance, with the applicable
provisions of Section 409A of the Code, the regulations thereunder and other
official guidance issued thereunder. The Company has no obligation to any
employee or other service provider with respect to any Section 409A Plan that
may be subject to any Tax under Section 409A of the Code.

 

(s)             Employees and Labor Matters.

 

(i)              Schedule 3.1(s)(i) sets forth a complete and accurate list of
all employees of the Company as of the date of this Agreement and the Closing
Date showing for each as of that date (i) the employee’s name, employer, job
title or description, location, salary level (including any bonus, commission,
deferred compensation or other remuneration payable (other than any such
arrangements under which payments are at the discretion of the Company)), (ii)
any bonus, commission or other remuneration other than salary paid during the
Company’s fiscal year ending December 31, 2020 and (iii) any wages, salary,
bonus, commission or other compensation due and owing to each employee for the
fiscal year ending December 31, 2020. Except as set forth on Schedule 3.1(s)(i),
no employee is a party to a written employment agreement or contract with the
Company and each is employed “at will”. The Company has paid in full to all
employees all wages, salaries, commission, bonuses and other compensation due,
including overtime compensation, and there are no severance payments which are
or could become payable by the Company to any employees under the terms of any
written or, to the Knowledge of the Company, oral agreement, or commitment or
any Law, custom, trade or practice.

 

 

 

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(ii)            Schedule 3.1(s)(ii) contains a list of all independent
contractors (including consultants) currently engaged by the Company, along with
the position, date of retention and rate of remuneration, most recent increase
(or decrease) in remuneration and amount thereof, for each such Person.

 

(iii)          The Company is not a party to any collective bargaining agreement
or other Contract with any group of employees or any labor organization or other
Representative of any of employees of the Company.

 

(iv)           Except as set forth in Schedule 3.1(s)(iv), to the Knowledge of
The Company, it is in material compliance with applicable Laws and its own
policies respecting employment and employment practices, terms and conditions of
employment, wages and hours, equal opportunity, equal pay, civil rights, labor
relations, immigration, occupational health and safety, and payroll and wage
taxes.

 

(t)              Insurance. The Company has maintained since inception and now
maintains insurance in amounts sufficient for its business, operations and
assets and in such amounts and covering such risks as are usually carried by
companies at the same stage of development, engaged in similar businesses and
owning similar properties in the same general areas in which the Company
operates. Insurance policies meeting the criteria in the preceding sentence are
in full force and effect, and all premiums due theron have been paid
(collectively, the “Company Insurance Policies”). As of the Closing, each of the
Company Insurance Policies will be in full force and effect. None of the Company
Insurance Policies will lapse or terminate as a result of the transactions
contemplated by this Agreement. The Company is in material compliance with the
provisions of the Company Insurance Policies.

 

(u)             Bank Accounts. Schedule 3.1(u) lists the names and locations of
all banks and other financial institutions with which the Company maintains an
account (or at which an account is maintained to which the Company has access as
to which deposits are made on behalf of the Company) (each, a “Bank Account”),
in each case listing the type of Bank Account and the names of all Persons
authorized to draw thereupon or have access thereto and lists the locations of
all safe deposit boxes used by the Company. All cash in such Bank Accounts is
held on demand deposit and is not subject to any restriction or limitation as to
withdrawal.

 

 

 

 12 

 

 

(v)             No Brokers. No Seller or the Company, nor any of their
respective Representatives on their behalf, has employed any broker, finder or
investment banker or incurred any liability for any brokerage fees, commissions,
finders’ fees or similar fees in connection with the transactions contemplated
by this Agreement.

 

(w)           No Untrue Statements. No statement by the Company contained in
this Agreement, any Schedule to this Agreement, any other document or
certificate delivered pursuant to this Agreement contains any untrue statement
of a material fact, or omits to state a material fact necessary in order to make
the statements therein contained not misleading.

 

(x)             Affiliated Transactions. Neither the Company nor any officer or
director of the Company has any direct or indirect interest in any customer,
supplier or competitor of the Company or in any Person from whom or to whom the
Company leases real or personal property.

 

(y)             Board Recommendation. The Board of Directors of the Company, at
a meeting duly called and held, by the unanimous vote of all directors (a)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, are fair to and in the best interest of the Company and
its stockholders, and (b) approved this Agreement in accordance with the
provisions of the DGCL and its Governing Documents.

 

3.2            Representations and Warranties of the Sellers. Each Seller,
severally, and not jointly, hereby represents and warrants to Buyer, unless
otherwise specified, as of the date of this Agreement and the Closing Date, as
follows:

 

(a)             Authorization and Binding Effect. Such Seller has full power and
authority to enter into this Agreement and the Ancillary Documents to which it
is, or is required to be, a party and to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Ancillary
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of such
Seller. Each of this Agreement and each Ancillary Document to which such Seller
is or is required to be a party has been duly executed and delivered by each
such Seller and, assuming the due execution and delivery by the other parties
hereto or thereto, constitutes a legal, valid and binding obligation of such
Seller, enforceable against such Seller in accordance with its terms, except as
the enforceability thereof may be limited by the Permitted Exceptions.

 

(b)             Title to the Purchased Shares. Such Seller owns good, valid and
marketable title to the Purchased Shares, free and clear of any and all Liens
(other than those imposed by applicable securities Laws), and upon delivery of
the Purchased Shares owned by such Seller to Buyer on the Closing Date in
accordance with this Agreement, and upon Buyer’s payment of the Purchase Price
for such Purchased Shares payable at the Closing in accordance with Section 1.2,
the entire legal and beneficial interest in the Purchased Shares and good, valid
and marketable title to the Purchased Shares, free and clear of all Liens (other
than those imposed by applicable securities Laws or those incurred by Buyer),
will pass to Buyer.

 

(c)             Investment Intent. Such Seller is acquiring the Parent Series A
and Series B Convertible Preferred, as applicable, for such Seller’s own account
and not with a view to distribution within the meaning of Section 2(11) of the
Securities Act and the rules and regulations issued pursuant thereto. Such
Seller is an “accredited investor” within the meaning of Rule 501 of the
Securities Act. Such Seller understands that neither the Parent Series A and
Series B Convertible Preferred have been registered under the Securities Act and
cannot be sold unless subsequently registered under the Securities Act or an
exemption from such registration is available.

 

 

 

 13 

 

 

3.3            No Other Representations. Except for the representations and
warranties set forth in this ARTICLE III, as modified by the Company Disclosure
Schedules, the other Ancillary Documents and any certificate delivered pursuant
hereto or thereto, the Seller Parties have not made nor make any representation
or warranty, express or implied, written or oral, with respect to the Company,
Sellers or the transactions contemplated by this Agreement and the other
Ancillary Documents.

 

Article IV
REPRESENTATIONS AND WARRANTIES OF BUYER parties

 

Except as set forth in (i) Annual Report on Form 10-K for the fiscal year ended
May 31, 2019, Quarterly Report on Form 10-Q for the period ended February 29,
2020, (the “Covered Parent SEC Disclosure”) or (ii) the disclosure schedules
delivered by the Buyer Parties to the Seller Parties on the date hereof (the
“Buyer Parties Disclosure Schedules”), the Section numbers of which are numbered
to correspond to the Section numbers of this Agreement to which they refer
(unless and to the extent the relevance to other representations and warranties
is reasonably apparent from the face of the disclosed exception without
independent knowledge on the part of the reader regarding the disclosed
exception) each of the Buyer Parties represents and warrants to the Seller
Parties, as of the date of this Agreement and the Closing Date, as follows:

 

4.1            Organization and Qualification. Each of the Buyer Parties is duly
formed, validly existing and in good standing under the Laws of their
jurisdiction of incorporation and has all of the requisite corporate power,
authority and all necessary government approvals or licenses to own, lease,
operate its properties and to carry on its business as now being conducted. Each
of the Buyer Parties is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification or license is required, except where the failure to be so
qualified or be so licensed would not have or reasonably be expected to have a
Buyer Party Material Adverse Effect.

 

4.2            Subsidiaries. Except as disclosed in Schedule 4.2, each
Subsidiary of Parent is duly organized, validly existing and, as applicable, in
good standing under the Laws of its jurisdiction of formation, and has all of
the requisite corporate, partnership, limited liability company or other
organizational power and authority and all necessary government approvals and
licenses to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to have such approvals or
licenses would not, individually or in the aggregate, constitute a Buyer Party
Material Adverse Effect. Each Subsidiary of Parent is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership, operation or leasing of its properties or the
management of properties for others makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed or in good standing would not, individually or in the aggregate,
constitute a Buyer Party Material Adverse Effect. All outstanding equity
interests in each Subsidiary of Parent have been duly authorized and are validly
issued, fully paid and nonassessable, and are not subject to any preemptive
rights, purchase options, call options, rights of first refusal, subscriptions
or any similar rights and are owned by Parent and are so owned free and clear of
all Liens, except as would not, individually or in the aggregate, constitute a
Buyer Party Material Adverse Effect.

 

 

 

 14 

 

 

4.3           Authorization. Each of Parent and Buyer has full corporate power
and authority to enter into this Agreement and the Ancillary Documents to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Documents to which Buyer is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer. This Agreement and each Ancillary Document to which a Buyer
Party is a party constitutes a legal, valid and binding obligation of each,
enforceable against such Buyer Party in accordance with its terms, except as the
enforceability thereof may be limited by the Permitted Exceptions.

 

4.4           Non-Contravention. Neither the execution and delivery of this
Agreement or any Ancillary Document by a Buyer Party, nor the consummation of
the transactions contemplated hereby or thereby, will violate or conflict with
or (with or without notice or the passage of time or both) constitute a breach
or default under (a) any provision of the Governing Documents of either Parent
or Buyer, (b) any Law or Order to which the Buyer Parties or any of their
business or assets are bound or subject or (c) any Contract or Permit to which
any of the Buyer Parties is a party or by which the Buyer Parties or any of
their properties may be bound or affected, other than, in the cases of clauses
(a) through (c), such violations and conflicts which would not reasonably be
expected to have a Buyer Party Material Adverse Effect.

 

4.5           No Brokers. Neither the Buyer Parties, nor any Representative of
Buyer Parties on their behalf, has employed any broker, finder or investment
banker or incurred any liability for any brokerage fees, commissions, finders’
fees or similar fees in connection with the transactions contemplated by this
Agreement.

 

4.6           Litigation. There is no Action pending or, to the Knowledge of the
Buyer Parties, threatened, nor any Order of any Governmental Authority is
outstanding, against or involving Parent, Buyer, or any of their respective
officers, directors, stockholders, properties, assets or businesses, whether at
law or in equity, before or by any Governmental Authority, which would
reasonably be expected to have a Buyer Party Material Adverse Effect.

 

4.7            Investment Intent. Buyer is acquiring the Purchased Shares for
its own account and not with a view to distribution within the meaning of
Section 2(11) of the Securities Act, and the rules and regulations issued
pursuant thereto. Buyer is an “accredited investor” within the meaning of Rule
501 under the Securities Act. Buyer understands that the Purchased Shares have
not been registered under the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.

 

 

 

 

 15 

 

4.8           SEC Documents; Financial Statements. Parent has made available to
the Seller Parties (by public filing with the SEC or otherwise) a true and
complete copy of each report, schedule, registration statement, other statement
(including proxy statements) and information filed by Parent with the SEC since
January 1, 2017 (the “Parent SEC Documents”), which are all the documents (other
than preliminary material) that Parent was required to file with the SEC since
such date pursuant to the federal securities Laws and the SEC rules and
regulations thereunder. As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act,
the Sarbanes-Oxley Act of 2002 and the Exchange Act, as applicable, and the
rules and regulations of the SEC thereunder applicable to such Parent SEC
Documents, in each case, as in effect at such time, and none of the Parent SEC
Documents contained any untrue statement of a material fact or omitted 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, except to the extent such statements have been modified or
superseded by later Parent SEC Documents filed and publicly available prior to
the date of this Agreement. No Subsidiary of Parent is required (by contract or
applicable Law) to make periodic filings with the SEC. The consolidated
financial statements of Parent (including the notes thereto) included or
incorporated by reference in the Parent SEC Documents (including the audited
consolidated balance sheet of Parent as at May 31, 2019 (the “Parent Balance
Sheet”) and the unaudited consolidated statements of income for the three and
nine months ended January 31, 2020) complied as to form in all material respects
with the applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto, or, in the case of the unaudited statements, as
permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present, in
accordance with applicable requirements of GAAP and the applicable rules and
regulations of the SEC (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material and the absence of
footnotes), in each case, as in effect at such time, the assets, Liabilities and
the consolidated financial position of Parent and its Subsidiaries, taken as a
whole, as of their respective dates and the consolidated results of operations
and cash flows of Parent and its Subsidiaries taken as a whole, for the periods
presented therein. As of the Closing Date, Schedule 1.2 containing the pro forma
capitalization table following Closing is true and correct. Since the enactment
of the Sarbanes-Oxley Act of 2002, Parent has been and is in compliance in all
material respects with the applicable provisions thereof and the rules and
regulations promulgated thereunder.

 

4.9           Absence of Certain Changes or Events. Except as disclosed in
Schedule 4.9 or in any Parent SEC Document filed since the date of the Parent
Balance Sheet, each of Parent and the Parent Subsidiaries have conducted their
business only in the ordinary course and there has not been: (i) a Buyer Party
Material Adverse Effect; (ii) any declaration, setting aside for payment or
payment of any dividend or other distribution; (iii) any amendment of any
material term of any outstanding security of Parent; (iv) any repurchase,
redemption or other acquisition by Parent or any Parent Subsidiary of any
outstanding shares, stock or other securities of, or other ownership interests
in, Parent or any Parent Subsidiary; or (v) any change in any method or practice
of financial accounting by Parent or any consolidated Parent Subsidiary other
than any change after the date of this Agreement permitted by ARTICLE V.

 

 

 

 16 

 

 

4.10         No Undisclosed Material Liabilities. Except as disclosed in the
Parent SEC Documents filed prior to the date hereof, there are no Liabilities of
Parent or any of the Parent Subsidiaries, whether accrued, contingent, absolute
or determined other than: (i) Liabilities reflected on the financial statements
(including the notes thereto), or (ii) Liabilities incurred in the ordinary
course of business consistent with past practice since the date of the Balance
Sheet as would not, individually or in the aggregate, constitute a Buyer Party
Material Adverse Effect.

 

4.11         Ownership and Operations of Merger Sub. Parent is the record owner
of all of the outstanding capital stock of Buyer. Buyer was formed solely for
the purpose of engaging in the transactions contemplated hereunder, has engaged
in no other business activities and has conducted its operations only as
contemplated hereby.

 

4.12         Inapplicability of Takeover Statutes. Parent has taken all
appropriate and necessary actions to exempt Buyer’s purchase of the Purchased
Shares using the capital stock of Parent as consideration, this Agreement, and
the other transactions contemplated thereby from the restrictions of any
applicable provision of a Takeover Statute. No other “control share
acquisition”, “fair price”, “moratorium” or other antitakeover Laws apply to
Buyer’s purchase of the Purchased Shares, this Agreement or the other
transactions contemplated hereby.

 

4.13         No Other Representations and Warranties. Except for the
representations and warranties set forth in this ARTICLE IV, as modified by the
Buyer Parties Disclosure Schedules, the other Ancillary Documents and any
certificate delivered pursuant hereto or thereto, neither Parent, Buyer, nor any
of their respective Representatives has made nor make any representation or
warranty, express or implied, written or oral, with respect to the transactions
contemplated by this Agreement and the other Ancillary Documents, and each of
Buyer and Parent hereby disclaims any other representations and warranties,
whether made orally or in writing, by or on behalf of Buyer or Parent by any
Person. The Buyer Parties acknowledge and agree that each has conducted to its
satisfaction its own independent investigation of the condition, operations and
Liabilities of the Company and, in making its determination to proceed with the
transactions contemplated by this Agreement and the other Ancillary Documents,
the Buyer Parties have relied solely on the results of their own independent
investigation and the express representations and warranties set forth in
ARTICLE III, as modified by the Company Disclosure Schedules, the Ancillary
Documents and any certificate delivered pursuant hereto or thereto.

 

Article V
OTHER AGREEMENTS

 

5.1           Access and Information. During the Interim Period, Sellers and the
Company shall give, and shall direct their Representatives to give, Buyer and
its Representatives, at reasonable times during normal business hours and upon
reasonable intervals and notice, access to all offices and other facilities and
to all employees, properties, Contracts, agreements, commitments, books and
records, financial and operating data and other information, of or pertaining to
the Company, as Buyer or its Representatives may reasonably request regarding
the Company and its respective businesses, assets, Liabilities, financial
condition, prospects, operations, management, employees and other aspects
(including unaudited quarterly financial statements, including a quarterly
balance sheet and income statement, a copy of each material report, schedule and
other document filed with or received by a Governmental Authority pursuant to
the requirements of applicable securities Laws, and independent public
accountants’ work papers (subject to the consent or any other conditions
required by such accountants, if any)) and instruct each of the Company’s
Representatives to reasonably cooperate with Buyer and its Representatives in
their investigation; provided, however, that Buyer and its Representatives shall
conduct any such activities in such a manner as not to unreasonably interfere
with the business or operations of the Company. Buyer shall, and shall cause its
Representatives to, abide by the terms of any reasonable confidentiality
agreement with respect to such access and any information furnished to it or its
Representatives.

 

 

 

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5.2           Conduct of Business 

 

(a)             During the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement in accordance with
Section 7.1 or the Closing (the “Interim Period”), each of (x) the Company on
the one hand, and (y) Parent on the other, shall, and shall cause each of their
respective Subsidiaries, except as expressly contemplated by this Agreement, as
required by applicable Laws, as set forth on Schedule 6.2, or to the extent
consented to by the Parties in writing: (i) to conduct its respective business,
in all material respects, in the Ordinary Course of Business, (ii) to not take
any action except in the Ordinary Course of Business and in compliance in all
material respects with all applicable Laws, (iii) to comply with all Laws
applicable to their respective businesses, assets, directors, officers,
employees, independent contractors, consultants, equity holders, agents,
Representatives and Covered Persons, and (iv) to take all commercially
reasonable measures necessary or appropriate to preserve intact, in all material
respects, their respective business organizations, business, operations,
material assets, material rights, franchises, goodwill and relations with its
customers, vendors, regulators, employees and other persons with which it has
significant business or other relationships, to keep available the services of
their respective managers, directors, officers, employees and consultants, and
to preserve the possession, control and condition of their respective material
assets, all as consistent with past practice.

 

(b)             Without limiting the generality of Section 5.2(a) and except as
contemplated by the terms of this Agreement, as required by applicable Laws or
as set forth on Schedule 5.2, during the Interim Period, each Party shall not:

 

(i)             amend, waive or otherwise change, in any respect, its Governing
Documents;

 

(ii)            authorize for issuance, issue, grant, sell, pledge, dispose of,
subject to any Lien, or propose to issue, grant, sell, pledge or dispose of or
subject to any Lien, any of its equity securities, voting interests or any
options, warrants, commitments, subscriptions or rights of any kind to acquire
or sell any of its equity securities, voting interests or other securities,
including any securities convertible into or exchangeable for any of its shares
or other equity securities or securities of any class and any other equity-based
awards, or engage in any hedging transaction with a third Person with respect to
such securities, or enter into any agreement, understanding or arrangement with
respect to the sale or voting of its capital stock or other securities;

 

 

 

 18 

 

 

(iii)           adjust, split, combine, recapitalize or reclassify any of its
shares, securities, voting interests, or other equity interests or issue any
other securities in respect thereof or pay or set aside any dividend or other
distribution (whether in cash, equity or property or any combination thereof) in
respect of its equity interests, or directly or indirectly redeem, purchase or
otherwise acquire or offer to acquire any of its securities;

 

(iv)           declare, set aside or pay any dividend or distribution payable in
cash, securities or property in respect of capital stock;

 

(v)            incur, create, assume, prepay or otherwise become liable for any
Indebtedness (directly, contingently or otherwise) in excess of $10,000
(individually or in the aggregate);

 

(vi)           make a loan or advance to or investment in any Person (including,
without limitation, any Affiliate, or any of their respective employees,
shareholders, officers, directors, and/or any third party), or guarantee or
endorse any Indebtedness, Liability or obligation of any Person, in any amount;

 

(vii)         (A) increase the wages, salaries, benefits or compensation of its
employees, consultants or independent contractors other than in the Ordinary
Course of Business, consistent with past practice, and in any event not in the
aggregate by more than five percent (5%), (B) make or commit to make any bonus
payment (whether in cash, property or securities) to any employee, independent
contractor or consultant outside of the ordinary course of business, (C)
increase other benefits of employees generally, or enter into, establish,
materially amend or terminate any Benefit Plan with, for or in respect of any
current consultant, officer, manager director or employee, in each case other
than as required by applicable Law, pursuant to the terms of any Benefit Plans
or in the ordinary course of business consistent with past practice or (D) grant
any new awards or benefits to any director, officer, employee, independent
contractor or consultant;

 

(viii)       (A) hire or engage the services of any officer, employee,
independent contractor or consultant, except any such person already engaged or
any new officer, employee, independent contractor or consultant reasonably
necessary to continue to operate the businesses of each of the Company and
Parent in the Ordinary Course of Business, (B) enter into any employment,
severance or other Contract with any officer, employee, independent contractor
or consultant; (C) grant or provide any severance or termination payments or
benefits to any director, officer, employee, independent contractor or
consultant, or (D) discretionarily accelerate the vesting or payment of any
equity or equity-based award held by any director, officer, employee,
independent contractor or consultant;

 

(ix)           make any material changes in work force;

 

(x)            make or rescind any material election relating to Taxes, settle
any claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to Taxes, file any amended Tax Return or claim for
refund, or make any material change in its accounting or Tax policies or
procedures, in each case except as required by applicable Law;

 

 

 

 19 

 

 

(xi)           transfer or exclusively license to any Person any Intellectual
Property owned by or licensed to any Party, or materially amend or modify,
permit to lapse or fail to preserve Intellectual Property that is material to
the business of a Party, or disclose to any Person who has not entered into a
confidentiality agreement any Trade Secrets;

 

(xii)         (A) enter into, amend in any material respect or terminate any
Contract which is material to a Parent or the Company, other than in the
Ordinary Course of Business; or (B) waive or assign any material right under,
any material Contract or enter into any Contract that would be a material
Contract outside of the Ordinary Course of Business;

 

(xiii)       cancel, release or assign any Indebtedness to any Person, or any
claims held by any such Person, except pursuant to contracts or agreements in
force at the date of this Agreement;

 

(xiv)        introduce any material new products or services, any material
marketing campaigns or any material new sales compensation or incentive programs
or arrangements, other than in the Ordinary Course of Business;

 

(xv)         fail to maintain its books, accounts and records in all material
respects in the ordinary course of business consistent with past practice;

 

(xvi)         establish any Subsidiary or alter its business as currently
operated, establish any new line of business or enter into any business other
than the business as currently operated;

 

(xvii)        fail to use commercially reasonable efforts to keep in force
insurance policies or replacement or revised policies providing insurance
coverage with respect to its assets, operations and activities in such amount
and scope of coverage as are currently in effect;

 

(xviii)       revalue any of its material assets or make any change in
accounting methods, principles or practices, except to the extent required to
comply with GAAP (for the avoidance of doubt, this shall not include any
“discontinued operations” or assets “held for sale” of or by the Company);

 

(xix)         waive, release, assign, settle or compromise any claim, action or
proceeding (including any suit, action, claim, proceeding or investigation
relating to this Agreement or the transactions contemplated hereby), other than
waivers, releases, assignments, settlements or compromises that involve only the
payment of monetary damages (and not the imposition of equitable relief on, or
the admission of wrongdoing by, any of the respective Parties or any of their
respective Affiliates) not in excess of $50,000 (individually or in the
aggregate), or otherwise pay, discharge or satisfy any Actions, Liabilities or
obligations, unless such amount has been reserved in such Party’s financial
statements;

 

(xx)          close or materially reduce its activities, or effect any material
change, at any of its facilities;

 

 

 

 20 

 

 

(xxi)         (A) acquire or enter into any agreement to acquire, including by
merger, consolidation, acquisition of stock or assets, or any other form of
business combination, any corporation, partnership, limited liability company,
other business organization or any division thereof, or any material amount of
assets outside the Ordinary Course of Business consistent with past practice or
(B) adopt or implement any equityholder rights plans;

 

(xxii)     make capital expenditures in excess of $10,000 individually for any
project (or set of related projects), or $25,000 in the aggregate;

 

(xxiii)       (A) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
or (B) liquidate, dissolve, merge or consolidate with or into any other Person,
restructure, recapitalize or otherwise reorganize or make other changes in the
capital structure of either Parent or the Company;

 

(xxiv)      voluntarily incur any Liability or obligation (whether absolute,
accrued, contingent or otherwise) in excess of $10,000 individually or $25,000
in the aggregate other than pursuant to the terms of a material Contract or
Benefit Plan;

 

(xxv)        sell, lease, license, transfer, exchange or swap, mortgage pledge,
encumber (including securitizations), or otherwise dispose of any of its
properties, assets or rights or any portion thereof (for the avoidance of doubt,
this limitation shall not apply to any “discontinued operations” or assets “held
for sale” of or by the Company provided that the proceeds of such disposal or
sale remain in the Company);

 

(xxvi)       except as otherwise set forth herein, enter into any agreement,
understanding or arrangement with respect to the voting of equity securities of
a Party;

 

(xxvii)      take any action that would reasonably be expected to significantly
delay or impair the obtaining of any Consents or approvals of any Governmental
Authority to be obtained in connection with this Agreement;

 

(xxviii)     enter into, amend, waive or terminate (other than terminations in
accordance with their terms) any transaction with any Affiliate (other than
compensation and benefits and advancement of expenses, in each case, provided in
the Ordinary Course of Business consistent with past practice) except as
otherwise set forth herein;

 

(xxix)        take any action which would reasonably prevent or conflict with
the consummation of the transactions contemplated by this Agreement; or

 

(xxx)         authorize, agree or otherwise commit to do or take any of the
foregoing actions.

 

(c)             During the Interim Period, notwithstanding any of the foregoing
to the contrary, the Parties agree to work together, at the sole expense of the
Company and subject to the sole direction of the Company and Seller Parties, to
take all necessary action to ensure that, as soon as reasonably practicable, but
no later than the Closing Date, each of the following actions occur:

 

 

 

 21 

 

 

(i)             Take such corporate action as necessary to initiate a corporate
name of Parent change to a name mutually agreed upon prior to the date hereof
between Parent and the Seller Parties;

 

(ii)           Commence the process with the Financial Industry Regulatory
Authority and OTC Markets LLC to change the ticker symbol of Parent in
conformity with such agreed upon name change;

 

(iii)          Take such other actions as reasonably necessary, in consultation
with OTC Markets LLC, for Parent to commence being quoted on the OTC QB
quotation system; and

 

(iv)          To raise such additional capital on behalf of the Parent for
additional working capital and capital expenditures, as the Parties may
reasonably determine. For the avoidance of doubt, any capital raised by the
Parent during the Interim Period shall not impact the number of shares of Parent
Series A Convertible Preferred issued and the conversion ratio set forth set
forth in Section 1.2.

 

5.3            Notification of Certain Matters. During the Interim Period, each
of the Parties shall give prompt notice to the other Parties if such Party or
its Affiliates: (a) fails to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it or its Affiliates hereunder in
any material respect; (b) receives any notice or other communication in writing
from any third party (including any Governmental Authority) alleging (i) that
the Consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement or (ii) any non-compliance with any
Law by such party or its Affiliates; (c) receives any notice or other
communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; (d) discovers any fact or
circumstance that, or becomes aware of the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which, would reasonably be expected to
cause or result in any of the conditions to set forth in ARTICLE VI not being
satisfied or the satisfaction of those conditions being materially delayed; or
(e) becomes aware of the commencement or threat, in writing, of any Action
against such party or any of its Affiliates, or any of their respective
properties or assets, or, to the Knowledge of such party, any officer, director,
partner, member or manager, in his, her or its capacity as such, of such party
or of its Affiliates with respect to the consummation of the transactions
contemplated by this Agreement. No such notice shall constitute an
acknowledgement or admission by the Party providing the notice regarding whether
or not any of the conditions to the Closing have been satisfied or in
determining whether or not any of the representations, warranties or covenants
contained in this Agreement have been breached; provided, however, that if a
Party has the right to, but does not elect to, terminate this Agreement or begin
procedures to terminate this Agreement (including by providing the written
notice required by Section 7.1(d) or 7.1(e), as applicable) within five (5)
Business Days of its receipt of such notice, then such party shall be deemed to
have irrevocably waived any right to terminate this Agreement with respect to
such matter.

 

5.4            Further Assurances. In the event that at any time after the
Closing any further action is reasonably necessary to carry out the purposes of
this Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
Parties reasonably may request, at the sole cost and expense of the requesting
Party (unless otherwise specified herein or unless such requesting Party is
entitled to indemnification therefor under ARTICLE VIII in which case, the costs
and expense will be borne by the Parties as set forth in ARTICLE VIII).

 

 

 

 22 

 

 

5.5            Confidentiality. Each of the Seller Parties and Buyer Parties
will, and will cause their respective Representatives to: (a) treat and hold in
strict confidence any Confidential Information, and will not use for any
purpose, nor directly or indirectly disclose, distribute, publish, disseminate
or otherwise make available to any third party any of the Confidential
Information without the other Party’s prior written consent; (b) in the event
that a Party becomes legally compelled to disclose any Confidential Information,
to provide the other Parties with prompt written notice of such requirement so
that such other Party may seek a protective order or other remedy or waive
compliance with this Section 5.5; (c) in the event that such protective order or
other remedy is not obtained, or such other Party waives compliance with this
Section 5.5, to furnish only that portion of such Confidential Information which
is legally required to be provided as advised in writing by outside counsel and
to exercise their commercially reasonable efforts to obtain assurances that
confidential treatment will be accorded such Confidential Information; and (d)
to promptly furnish to such other Party any and all copies (in whatever form or
medium) of all such Confidential Information and to destroy any and all
additional copies of such Confidential Information and any analyses,
compilations, studies or other documents prepared, in whole or in part, on the
basis thereof; provided, however, that Confidential Information shall not
include any information which, at the time of disclosure by a Party or its
Representatives, is generally available publicly and was not disclosed in breach
of this Agreement by a Party or its Representatives. Notwithstanding anything
else herein, each Party shall be permitted to disclose the transactions
contemplated in this Agreement and the Ancillary Documents to (i) any Person for
whom consent, notice, waiver or approval is required in connection with such
transactions, solely for the purpose of satisfying such consent, notice, waiver
or approval requirement, (ii) their Representatives, (iii) their stockholders,
limited partners and other holders of securities, (iv) the courts, the
Independent Expert or an arbitrator pursuant to Sections 1.5, 8.4 and 9.9, (v)
any Tax Governmental Authority in connection with any tax audit, examinations or
other similar tax Action involving any tax return or tax matter, and (vi) any
Governmental Authority to the extent necessary or advisable in compliance with
Law.

 

5.6            Publicity.

 

(a)             No Party hereto shall, and each shall cause their respective
Representatives not to, disclose, make or issue, any statement or announcement
concerning this Agreement or the Ancillary Documents or the transactions
contemplated hereby or thereby (including the terms, conditions, status or other
facts with respect thereto) to any third parties (other than its Representatives
who need to know such information in connection with carrying out or
facilitating the transactions contemplated hereby) without the prior written
consent of the other parties (such consent not to be unreasonably withheld,
delayed or conditioned), except (i) in the case of the Company or the Sellers,
as required by applicable Law after conferring with Buyer concerning the timing
and content of such required disclosure, and (ii) in the case of Buyer, as may
be required of Buyer or its Affiliates by applicable Law or securities listing
or trading requirements.

 

 

 

 23 

 

 

(b)             Notwithstanding the foregoing in Section 5.6(a), Buyer and its
Affiliates shall have the right to issue a press release announcing the
execution of this Agreement (the “Signing Press Release”); provided that the
contents of such Signing Press Release shall be subject to the reasonable
approval of the Company. Promptly after the issuance of the Signing Press
Release, Buyer and its Affiliates shall have the right to file a current report
on Form 8-K (the “Signing Filing”) with the Signing Press Release and a
description of this Agreement as required by Federal Securities Laws, which the
Sellers’ Representative may review and comment upon prior to filing (and Buyer
shall consider such comments in good faith). After the Closing (but in any event
within four (4) Business Days thereafter), Buyer and its Affiliates shall have
the right to issue a press release announcing the consummation of the
transactions contemplated by this Agreement (the “Closing Press Release”);
provided that the contents of such Closing Press Release shall be mutually
agreeable to the Parties. Promptly after the issuance of the Closing Press
Release, Buyer and its Affiliates shall have the right to draft and file a
current report on Form 8-K (the “Closing Filing”) with the Closing Press Release
and a description of the Closing as required by Federal Securities Laws for
which the Sellers’ Representative shall be required to provide substantive input
in the drafting thereof.

 

5.7            No Trading. The Company and the Sellers acknowledge and agree
that each is aware, and that the Company’s Affiliates are aware (and to the
Knowledge of the Seller Parties each of their respective Representatives is
aware or, upon receipt of any material nonpublic information of Buyer, will be
advised) of the restrictions imposed by U.S. federal securities laws and the
rules and regulations of the SEC and Nasdaq promulgated thereunder or otherwise
(the “Federal Securities Laws”) and other applicable foreign and domestic Laws
on a Person possessing material nonpublic information about a publicly traded
company. The Company and such Seller hereby agree that, while such Party is in
possession of such material nonpublic information, it shall not purchase or sell
any securities of Parent), communicate such information to any third party, take
any other action with respect to Parent or Buyer in violation of such Laws, or
cause or encourage any third party to do any of the foregoing.

 

5.8            Litigation Support. Following the Closing, in the event that and
for so long as any Party is actively contesting or defending against any third
party or Governmental Authority Action in connection with any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction that existed on or prior to the
Closing Date , each of the other Parties will (i) reasonably cooperate with the
contesting or defending party and its counsel in the contest or defense, (ii)
make available its personnel at reasonable times during normal business hours
and upon reasonable notice and (iii) provide (A) such testimony and (B) access
to its non-privileged books and records as may be reasonably requested in
connection with the contest or defense, at the sole cost and expense of the
contesting or defending party (unless such contesting or defending party is
entitled to indemnification therefor under ARTICLE VIII in which case, the costs
and expense will be borne by the parties as set forth in ARTICLE VIII).

 

Article VI
CONDITIONS TO CLOSING

 

 

 

 24 

 

 

6.1            Conditions to Each Party’s Obligations. The obligations of each
party to consummate the transactions described herein shall be subject to the
satisfaction or written waiver (where permissible) by the Sellers and Buyer of
the following conditions:

 

(a)             Requisite Regulatory Approvals. All Consents and filings
required to be obtained from or made with any Governmental Authority in order to
consummate the transactions contemplated by this Agreement shall have been
obtained or made.

 

(b)             No Law or Order. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any Law (whether temporary, preliminary
or permanent) or Order that is then in effect and which has the effect of making
the transactions or agreements contemplated by this Agreement illegal or which
otherwise prevents or prohibits consummation of the transactions contemplated by
this Agreement.

 

(c)             Parent Series A Convertible Preferred Certificate of
Designations. The Company and the Parent shall have agreed upon the form of the
Parent Series A Convertible Preferred Certificate of Designations, pursuant to
which Parent shall issue Parent Series A Convertible Preferred as consideration
for Buyer’s purchase of the Company’s Class A Stock. The Parent Series A
Convertible Preferred Certificate of Designations shall be attached hereto as
Exhibit B and filed with the Delaware Secretary of State prior to the Closing
Date.

 

(d)             Parent Series B Convertible Preferred Certificate of
Designations. The Company and the Parent shall have agreed upon the form of the
Parent Series B Convertible Preferred Certificate of Designations, pursuant to
which Parent shall issue Parent Series B Convertible Preferred as consideration
for Buyer’s purchase of the Company’s Class B Stock. The Parent Series B
Convertible Preferred Certificate of Designations shall be attached hereto as
Exhibit C and filed with the Delaware Secretary of State prior to the Closing
Date.

 

6.2            Conditions to Obligations of the Seller Parties. In addition to
the conditions specified in Section 6.1, the obligations of the Seller Parties
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction or written waiver (by the Company) of the following conditions:

 

(a)             Representations and Warranties. All of the representations and
warranties of the Buyer Parties set forth in this Agreement and in any
certificate delivered by Buyer pursuant hereto, shall be true and correct on and
as of the date of this Agreement and on and as of the Closing Date as if made on
the Closing Date, except for (i) those representations and warranties that
address matters only as of a particular date (which representations and
warranties shall have been accurate as of such date), and (ii) any failures to
be true and correct that (without giving effect to any qualifications or
limitations as to materiality or Material Adverse Effect), individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on, or with respect to, the Buyer Parties.

 

(b)             Agreements and Covenants. Buyer Parties shall have performed in
all material respects all of the Buyer Parties’ obligations and complied in all
material respects with all of the Buyer Parties’ agreements and covenants under
this Agreement to be performed or complied with by it on or prior to the Closing
Date.

 

 

 

 25 

 

 

(c)             Closing Deliveries by Buyer Parties. At or prior to the Closing,
Buyer Parties’ will deliver or cause to be delivered to Seller Parties the
following, each in form and substance reasonably acceptable to the Seller
Parties:

 

(i)              a certificate, dated the Closing Date, signed by an executive
officer of the Parent in such capacity, certifying as to the satisfaction of the
conditions specified in Sections 6.2(a) and 6.2(b);

 

(ii)            a certificate from its secretary or other executive officer of
Parent certifying as to, and attaching, (A) copies of Buyer’s Organizational
Documents as in effect as of the Closing Date, (B) the resolutions of Parent’s
board of directors authorizing the execution, delivery and performance of this
Agreement and each of the Ancillary Documents to which it is a party or by which
it is bound, and the consummation of the transactions contemplated hereby and
thereby, and (C) the incumbency of officers authorized to execute this Agreement
or any Ancillary Document to which a Buyer Party is or is required to be a party
or otherwise bound;

 

(iii)          resignations effective no later than 14 days following the
Closing of the officers of Parent and Merger Sub in their capacities as
officers, as requested by Seller;

 

(iv)           a good standing certificate for the Parent certified as of a date
no later than thirty (30) days prior to the Closing Date from the proper state
official in its jurisdiction of organization and each other jurisdiction set
forth on Schedule 3.1;

 

(v)             a duly executed Investor Rights Agreement, a form of which is
attached hereto as Exhibit D; and

 

(vi)           a duly executed Voting Agreement, a form of which is attached
hereto as Exhibit E.

 

6.3            Conditions to Obligations of Buyer Parties. In addition to the
conditions specified in Section 6.1, the obligations of the Buyer Parties to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction or written waiver (by Parent) of the following conditions:

 

(a)             Representations and Warranties. All of the representations and
warranties of the Seller Parties set forth in this Agreement and in any
certificate delivered by the Sellers or the Company shall be true and correct on
and as of the date of this Agreement and on and as of the Closing Date as if
made on the Closing Date, except for (i) those representations and warranties
that address matters only as of a particular date (which representations and
warranties shall have been accurate as of such date), and (ii) any failures to
be true and correct that (without giving effect to any qualifications or
limitations as to materiality or Material Adverse Effect), individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on, or with respect to, the Company or any Seller.

 

(b)             June 30, 2020 Financial Statements. Parent shall have received
the financial statements described in section 3.7 above and had the opportunity
to discuss same with the Sellers’ Representative and the Company internal
accounting staff and consultants.

 

 

 

 26 

 

 

(c)             Closing Form 8-K. The Company along with their legal and
accounting representatives shall have prepared the closing form 8-K and provided
the final draft to the Parent for review and approval. The Sellers’
Representative acknowledges that this requirement is founded on the need for the
Parent management to get comfort relative to the new business of the Company
including the formal plan of operation and the source of financing for those
operations on a going forward basis as disclosed to the general public through
the SEC website. The Parent shall have a reasonable period of time not exceeding
five Business Days to review the form of 8-K, ask questions, and provide its
approval which shall not be unreasonably withheld.

 

(d)             Agreements and Covenants. The Company and each Seller shall have
performed in all material respects all of their respective obligations and
complied in all material respects with all of their respective agreements and
covenants under this Agreement to be performed or complied with by any of them
on or prior to the Closing Date.

 

(e)             No Material Adverse Effect. No Material Adverse Effect shall
have occurred with respect to the Company since the date of this Agreement.

 

(f)              Closing Deliveries by Seller Parties. At or prior to the
Closing, the Seller Parties will deliver or cause to be delivered to the Buyer
Parties the following, each in form and substance reasonably acceptable to the
Buyer Parties:

 

(i)              a certificate, dated the Closing Date, signed by an executive
officer of the Company in such capacity, certifying as to the satisfaction of
the conditions specified in Sections 6.3(a) and 6.3(d) solely by the Company;

 

(ii)            a certificate from the Company’s secretary or other executive
officer certifying as to, and attaching, (A) copies of the Company’s
Organizational Documents as in effect as of the Closing Date, (B) the
resolutions of Company’s stockholders and the Company’s board of directors
authorizing the execution, delivery and performance of this Agreement and each
of the Ancillary Documents to which it is a party or by which it is bound, and
the consummation of the transactions contemplated hereby and thereby, and (C)
the incumbency of officers authorized to execute this Agreement or any Ancillary
Document to which the Company is or is required to be a party or otherwise
bound;

 

(iii)          Stock powers duly executed in blank and in a form reasonably
acceptable to Buyer necessary to transfer the Purchased Shares to Buyer on the
books and records of the Company;

 

(iv)           the required notices, consents, Permits, waivers authorizations,
orders and other approvals listed in Schedule 6.3(d)(iv), and all such notices,
consents, Permits, waivers, authorizations, orders and other approvals will be
in full force and effect and not be subject to the satisfaction of any condition
that has not been satisfied or waived; and

 

(v)             a good standing certificate for the Company certified as of a
date no later than thirty (30) days prior to the Closing Date from the proper
state official in its jurisdiction of organization and each other jurisdiction
set forth on Schedule 3.1.

 

 

 

 27 

 

 

6.4            Frustration of Conditions. Notwithstanding anything contained
herein to the contrary, no Party may rely on the failure of any condition set
forth in this ARTICLE VI to be satisfied if such failure was caused by the
failure of such Party or its Affiliates (or with respect to any Seller or any
Company) failure to comply with or perform any of its covenants or obligations
set forth in this Agreement.

 

Article VII
TERMINATION

 

7.1            Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing as follows:

 

(a)             by mutual written consent of Buyer and the Sellers’
Representative;

 

(b)             by written notice by Buyer or the Sellers’ Representative if any
of the conditions to the Closing set forth in ARTICLE VI have not been satisfied
or waived by September 30, 2020 (the “Outside Date”); provided, however, the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to a party if the breach or violation by such party or its Affiliates
of any representation, warranty, covenant or obligation under this Agreement was
the cause of, or resulted in, the failure of the Closing to occur on or before
the Outside Date;

 

(c)             by written notice by either Buyer or the Sellers’ Representative
if a Governmental Authority of competent jurisdiction shall have issued an Order
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement, and such Order or
other action has become final and non-appealable; provided, however, that the
right to terminate this Agreement pursuant to this Section 7.1(c) shall not be
available to a party if the failure by such party or its Affiliates to comply
with any provision of this Agreement has been a substantial cause of, or
substantially resulted in, such action by such Governmental Authority;

 

(d)            by written notice by Sellers’ Representative, if (i) there has
been a material breach by any of the Buyer Parties of any of their respective
representations, warranties, covenants or agreements contained in this
Agreement, or if any representation or warranty of any of Buyer Party shall have
become materially untrue or materially inaccurate in any case which would result
in a failure of a condition set forth in Section 6.2 to be satisfied (treating
the Closing Date for such purposes as the date of this Agreement or, if later,
the date of such breach), and (ii) the breach is incapable of being cured or is
not cured within the earlier of (A) twenty (20) days after written notice of
such breach or is provided by the Sellers’ Representative or (B) the Outside
Date; provided that the Sellers’ Representative shall not have the right to
terminate this Agreement pursuant to this Section 7.1(d) if at such time any
Seller or the Company is in material breach of this Agreement; or

 

(e)             by written notice by Buyer, if (i) there has been a material
breach by any Seller or the Company of any of their respective representations,
warranties, covenants or agreements contained in this Agreement, or if any
representation or warranty of such parties shall have become untrue or
inaccurate, in any case which would result in a failure of a condition set forth
in Section 6.3(a) to be satisfied (treating the Closing Date for such purposes
as the date of this Agreement or, if later, the date of such breach), and (ii)
the breach is incapable of being cured or is not cured within the earlier of (A)
twenty (20) days after written notice of such breach or inaccuracy is provided
by Buyer or (B) the Outside Date; provided that Buyer shall not have the right
to terminate this Agreement pursuant to this Section 7.1(e) if at such time
Buyer is in material breach of this Agreement;

 

 

 

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(f)              by written notice by Buyer if there shall have been a Material
Adverse Effect on the Company following the date of this Agreement; or

 

(g)             by written notice of Sellers’ Representative if there shall have
been a Material Adverse Effect on the Parent following the date of this
Agreement.

 

7.2            Effect of Termination. This Agreement may only be terminated in
the circumstances described in Section 7.1 and pursuant to a written notice
delivered by the applicable party to the other applicable parties, which sets
forth the basis for such termination, including the provision of Section 7.1
under which such termination is made. In the event of the valid termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void, and there shall be no Liability on the part of any party or any of their
respective Representatives, and all rights and obligations of each party shall
cease, except: (i) Sections 5.5 (Confidentiality), 5.6 (Publicity), 5.7 (No
Trading), 7.3 (Fees and Expenses), ARTICLE IX and this Section 7.2 shall survive
the termination of this Agreement, and (ii) nothing herein shall relieve any
party from Liability for any willful breach of any representation, warranty,
covenant or obligation under this Agreement or any Fraud claim against such
party, in either case, prior to termination of this Agreement. Without limiting
the foregoing, and except as provided in Section 7.3 and this Section 7.2, and
subject to the right to seek injunctions, specific performance or other
equitable relief in accordance with Section 9.8, the Parties’ sole right prior
to the Closing with respect to any breach of any representation, warranty,
covenant or other agreement contained in this Agreement by another party or with
respect to the transactions contemplated by this Agreement shall be the right,
if applicable, to terminate this Agreement pursuant to Section 7.1.

 

7.3            Fees and Expenses. In the case of a termination in accordance
with Section 7.1, or if the Closing does not occur for any other reason, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses. As used
in this Agreement, “Expenses” shall include all out-of-pocket expenses
(including all fees and expenses of counsel, accountants, investment bankers,
financial advisors, financing sources, experts and consultants to a party hereto
or any of its Affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution or
performance of this Agreement or any Ancillary Document related hereto and all
other matters related to the consummation of this Agreement.

 

Article VIII
INDEMNIFICATION

 

8.1            Survival. All representations and warranties of the Company, the
Seller Parties, and the Buyer Parties contained in this Agreement and any
Ancillary Agreement (including all schedules and exhibits hereto and all
certificates, documents, instruments and undertakings furnished pursuant to this
Agreement) shall survive the Closing through and until 11:59 p.m. Pacific time
on the six-month anniversary of the Closing Date. For purposes of this
Agreement, the “Survival Date” with respect to any representation or warranty
shall mean the date when such representation or warranty shall survive in
accordance with this Section 8.1. If written notice of a claim for breach of any
representation or warranty has been given on or before the applicable Survival
Date for such representation or warranty, then the relevant representations and
warranties shall survive as to such claim, until the claim has been finally
resolved. All pre-Closing covenants, obligations and agreements of the parties
contained in this Agreement (including all schedules and exhibits hereto and all
certificates, documents, instruments and undertakings furnished pursuant to this
Agreement) shall expire and be of no further force or effect as of the Closing.
All other covenants, obligations and agreements that are to be performed after
the Closing shall survive the Closing and continue until fully performed in
accordance with their terms or, if no such term is expressly contemplated, the
date which is the expiration of all applicable statute of limitations related to
the underlying subject matter of such covenants, obligations and agreements. For
avoidance of doubt, the Parties agree that for matters, disputes, and claims
governed by Delaware law under this Agreement and the Ancillary Documents such
documents shall not give effect to Section 8106(c) of the Delaware code.

 

 

 

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8.2            Indemnification by Company. Except as otherwise limited by this
ARTICLE VIII, the Company shall indemnify, defend and hold harmless Parent,
Buyer and their Representatives and any assignee or successor thereof
(collectively, the “Buyer Indemnified Parties”) from and against, and pay or
reimburse the Buyer Indemnified Parties for, any and all losses, Actions,
Orders, liabilities, damages (including consequential damages), Taxes, interest,
penalties, Liens, amounts paid in settlement, costs and expenses (including
reasonable expenses of investigation and court costs and reasonable attorneys’
fees and expenses) (any of the foregoing, a “Loss”) suffered or incurred by, or
imposed upon, any Buyer Indemnified Party arising in whole or in part out of or
resulting directly or indirectly from: (a) any inaccuracy in or breach of any
representation or warranty made by a Seller Party in this Agreement (including
all schedules and exhibits hereto) or any of the certificates and instruments to
be executed or delivered by the Company in connection with or pursuant to this
Agreement; (b) any non-fulfillment or breach of any unwaived covenant,
obligation or agreement made by or on behalf of a Seller Party contained in this
Agreement (including all schedules and exhibits hereto) or any of the
certificates and instruments to be executed or delivered by the Company in
connection with or pursuant to this Agreement; or (c) any Action by Person(s)
who were holders of equity securities of the Company, including stock options,
warrants, convertible debt or other convertible securities or other rights to
acquire equity securities of the Company, prior to the Closing arising out of
the sale, purchase, termination, cancellation, expiration, redemption or
conversion of any such securities.

 

8.3            Indemnification by Buyer Parties. Except as otherwise limited by
this ARTICLE VIII, Buyer Parties shall indemnify, defend and hold harmless each
Seller and its Representatives and any assignee or successor thereof
(collectively, the “Seller Indemnified Parties”) from and against, and pay or
reimburse the Seller Indemnified Parties for, any and all Losses, suffered or
incurred by, or imposed upon, any Seller Indemnified Party arising in whole or
in part out of or resulting directly or indirectly from: (a) any inaccuracy in
or breach of any representation or warranty made by Buyer or Parent in this
Agreement (including all schedules and exhibits hereto) or any of the
certificates and instruments to be executed or delivered by Buyer or Parent
hereto in connection with or pursuant to this Agreement; or (b) any
non-fulfillment or breach of any unwaived covenant, obligation or agreement made
by or on behalf of Buyer or Parent, contained in this Agreement (including all
schedules and exhibits hereto) or any of the certificates and instruments to be
executed or delivered by Buyer or Parent hereto in connection with or pursuant
to this Agreement.

 

 

 

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8.4            Indemnification Procedures.

 

(a)             For the purposes of this Agreement, (i) the term “Indemnitee”
shall refer to the Person or Persons indemnified, or entitled, or claiming to be
entitled, to be indemnified, pursuant to the provisions of Section 8.2 or 8.3,
as the case may be, and (ii) the term “Indemnitor” shall refer to the Person
having the actual or alleged obligation to indemnify pursuant to such
provisions. Notwithstanding anything to the contrary contained in this
Agreement, the Sellers’ Representative will have the sole and exclusive right to
act on behalf of the Seller Indemnified Parties with respect to any
indemnification claims made pursuant to this ARTICLE VIII, including bringing
and settling any claims hereunder and receiving any notices on behalf of the
Seller Indemnified Parties.

 

(b)             In the case of any claim for indemnification under this
Agreement arising from a claim of a third party (including any Governmental
Authority), an Indemnitee must give prompt written notice and, subject to the
following sentence, in no case later than thirty (30) days after the
Indemnitee’s receipt of notice of such claim, to the Indemnitor of any claim of
which such Indemnitee has knowledge and as to which it may request
indemnification hereunder. The failure to give such notice will not, however,
relieve an Indemnitor of its indemnification obligations except to the extent
that the Indemnitor is actually harmed thereby. The Indemnitor will have the
right to defend and to direct the defense against any such claim in its name and
at its expense, and with counsel selected by the Indemnitor unless: (i) the
Indemnitor fails to acknowledge fully its obligations to the Indemnitee within
fifteen (15) days after receiving notice of such third party claim or contests,
in whole or in part, its indemnification obligations therefor; (ii) if the
Indemnitor is Buyer, the applicable third party claimant is a Governmental
Authority or a then-current material customer of Buyer, the Company or any of
their respective Affiliates; (iii) if the Indemnitor is Buyer, an adverse
judgment with respect to the claim will establish a precedent materially adverse
to the continuing business interests of Buyer, the Company or their respective
Affiliates; (iv) outside counsel to the Indemnitee has informed Indemnitee that
there is a conflict of interest between the Indemnitee and the Indemnitor in the
conduct of such defense; (v) the applicable third party alleges claims of fraud,
willful misconduct or intentional misrepresentation; or (vi) such claim is
criminal in nature, could reasonably be expected to lead to criminal
proceedings, or seeks an injunction or other equitable relief against the
Indemnitee. If the Indemnitor elects, and is entitled, to compromise or defend
such claim, it will within fifteen (15) days (or sooner, if the nature of the
claim so requires) notify the Indemnitee of its intent to do so, and the
Indemnitee will, at the request and expense of the Indemnitor, cooperate in the
defense of such claim. If the Indemnitor elects not to, or is not entitled under
this Section 8.4(b) to, compromise or defend such claim, fails to notify the
Indemnitee of its election as herein provided or refuses to acknowledge or
contests its obligation to indemnify under this Agreement, the Indemnitee may
pay, compromise or defend such claim. Notwithstanding anything to the contrary
contained herein, the Indemnitor will have no indemnification obligations with
respect to any such claim which has been or will be settled by the Indemnitee
without the prior written consent of the Indemnitor (which consent will not be
unreasonably withheld, delayed or conditioned); provided, however, that
notwithstanding the foregoing, the Indemnitee will not be required to refrain
from paying any claim which has matured by a court judgment or decree, unless an
appeal is duly taken therefrom and exercise thereof has been stayed, nor will it
be required to refrain from paying any claim where the delay in paying such
claim would result in the foreclosure of a Lien upon any of the property or
assets then held by the Indemnitee or where any delay in payment would cause the
Indemnitee material economic loss. The Indemnitor’s right to direct the defense
will include the right to compromise or enter into an agreement settling any
claim by a third party; provided that no such compromise or settlement will
obligate the Indemnitee to agree to any settlement that that requires the taking
or restriction of any action (including the payment of money and competition
restrictions) by the Indemnitee (other than the delivery of a release for such
claim and customary confidentiality obligations), except with the prior written
consent of the Indemnitee (such consent to be withheld, conditioned or delayed
only for a good faith reason). Notwithstanding the Indemnitor’s right to
compromise or settle in accordance with the immediately preceding sentence, the
Indemnitor may not settle or compromise any claim over the objection of the
Indemnitee; provided, however, that consent by the Indemnitee to settlement or
compromise will not be unreasonably withheld, delayed or conditioned and the
Indemnitor shall not be responsible for any additional Losses above the
compromise or settlement amount to the extent the Indemnitee withholds its
consent. The Indemnitee will have the right to participate in the defense of any
claim with a counsel selected by it subject to the Indemnitor’s right to direct
the defense. The fees and disbursements of such counsel will be at the expense
of the Indemnitee; provided, however, that, in the case of any claim which seeks
injunctive or other equitable relief against the Indemnitee, the fees and
disbursements of such counsel will be at the expense of the Indemnitor.

 

 

 

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(c)             In order to be valid, any indemnification claim that does not
arise from a third-party claim must be asserted in good faith by a written
notice to the Indemnitor setting forth: (i) that Indemnitee has directly or
indirectly incurred, paid, sustained, reserved or accrued, or reasonably
anticipates that it may directly or indirectly incur, pay, sustain, reserve or
accrue, Losses, (ii) with reasonable specificity the amount claimed and (iii)
the underlying facts, in reasonable detail, supporting such claim to the extent
then known by the Indemnitee, including the basis for such anticipated liability
and the nature of the breach to which such Losses are related (including the
clause of ARTICLE VIII giving rise to the indemnity obligation). The Indemnitor
will have a period of thirty (30) days after receipt of such notice within which
to accept or dispute such claim by providing written notice to the Indemnitee.
If the Indemnitor does not respond within thirty (30) days, the Indemnitor will
be deemed to have accepted responsibility for the Losses set forth in such
notice and will have no further right to contest the validity of such notice. If
the Indemnitor responds in such thirty (30) day period and rejects such claim in
whole or in part, the Indemnitee will be free to pursue such remedies as may be
available to it under this Agreement (subject to Section 9.15), any other
Ancillary Document or applicable Law.

 

8.5           Limitations on Indemnification. No Indemnitor shall be liable for
an indemnification claim made under Section 8.2 or 8.3, as the case may be: (w)
for which a claim for indemnification is not asserted hereunder on or before the
applicable Survival Date; (x) to the extent Losses, in the aggregate, incurred
by the Buyer Indemnified Parties or by the Seller Indemnified Parties, as
applicable, exceed an amount equal to One Hundred Thousand Dollars ($100,000)
(the “Indemnification Cap”); and (y) unless and until the actual Losses of the
Buyer Indemnified Parties, collectively, or the Seller Indemnified Parties,
collectively, as applicable, exceed an aggregate amount equal to Fifty Thousand
Dollars ($50,000) (the “Basket”), in which case the applicable Indemnitor(s)
shall be obligated to the Indemnitee(s) for the amount of all Losses of the
Indemnitee(s) in excess of the Basket; provided, however, that the Basket and
the Indemnification Cap shall not apply to (i) indemnification claims to the
extent amounts are actually paid under insurance maintained by the Indemnitor
(or any of its Affiliates) and (ii) indemnification claims based in whole or in
part upon Fraud. Losses shall not include any exemplary or punitive damages,
except in each case to the extent actually awarded to a third-party who is not a
party to this Agreement or an Affiliate of a party to this Agreement. Indemnitee
shall take commercially reasonable efforts to mitigate any of its Losses
promptly upon becoming aware of any event that would reasonably be expected to,
or does, give rise to Losses that are indemnifiable hereunder, in each case, to
the same extent as it would if such Losses were not subject to indemnification
hereunder. Any Losses for which an Indemnitee is entitled to indemnification
under this ARTICLE VIII shall be determined without duplication of recovery by
reason of the state of facts giving rise to such Losses constituting a breach of
more than one representation, warranty, covenant, agreement or otherwise. In
addition, notwithstanding anything to the contrary in this Agreement, the
Sellers shall not be liable for (i) any Taxes of the Company incurred after the
Closing or (ii) any Taxes resulting from an election made under Code Section 338
or under any comparable provisions of any other state, local or foreign laws
with respect to the purchase of the Purchased Shares pursuant to this Agreement.

 

 

 

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8.6            General Indemnification Provisions. The amount of any Losses
suffered or incurred by any Indemnitee shall be reduced by the amount of any
insurance proceeds or other cash receipts paid to the Indemnitee or any
Affiliate thereof as a reimbursement with respect to such Losses (and no right
of subrogation shall accrue to any insurer hereunder, except to the extent that
such waiver of subrogation would prejudice any applicable insurance coverage),
including any indemnification received by the Indemnitee or such Affiliate from
an unrelated party with respect to such Losses, net of the costs of collection
and any related anticipated future increases in insurance premiums resulting
from such Loss or insurance payment. Notwithstanding anything in this Agreement
to the contrary, for purposes of application of the indemnification provisions
of this ARTICLE VIII, the amount of any Loss arising from the breach of any
representation, warranty, covenant, obligation or agreement contained in this
Agreement shall be the entire amount of any Loss actually incurred by the
respective Indemnitee as a result of such breach and not just that portion of
the Loss that exceeds the relevant level of materiality, if any. The Buyer
Indemnified Parties will not make any claim against the Sellers in respect of
any representation, warranty, covenant or any other obligation of the Company to
Buyer hereunder or under any Ancillary Document to which the Company is a party,
and may solely seek action against the Company.

 

8.7           Timing of Payment; Right to Set-Off. Any indemnification
obligation of an Indemnitor under this ARTICLE VIII will be paid within three
(3) Business Days after the determination of such obligation in accordance with
Section 8.4.

 

8.8           Exclusive Remedy. Except with respect to Actions arising out of or
relating to Fraud, each of the parties hereto expressly acknowledges and agrees
that the indemnification provisions set forth in this ARTICLE VIII shall be the
sole and exclusive remedy of the Parties with respect to any breaches of the
representations, warranties, covenants, or agreements set forth in this
Agreement or any of the certificates and instruments to be executed or delivered
in connection with or pursuant to this Agreement. Nothing in this Section 8.8
shall limit any Person’s right to seek and obtain any equitable relief to which
any Person shall be entitled or to seek any remedy on account of any party’s
Fraud.

 

 

 

 33 

 

 

Article IX
GENERAL PROVISIONS

 

9.1           Expenses. Subject to the provisions of Section 7.3, Parent will
bear all expenses incurred in connection with this Agreement upon the Closing
and only if the Closing occurs.

 

9.2           Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (i) when received if given in person or by courier or a courier
service, (ii) on the date of transmission if sent by facsimile or email (with
affirmative confirmation of receipt, not to be withheld) or (iii) three (3)
Business Days after being deposited in the U.S. mail, certified or registered
mail, postage prepaid:

 

If to the Sellers’ Representative, any Seller or,
prior to the Closing, the Company, to:

 

Steven King

Mosaic ImmunoEngineering Inc.
1537 South Novato Blvd #5,

Novato CA 94947

 

Email: sking@mosaicie.com

 

with copies (which will not constitute notice) to:

 

Duane Morris LLP
1540 Broadway
New York, New York 10036
Attention: Dean Colucci
Telephone No.: (973) 424-2020

 

Email: dmcolucci@duanemorris.com

 

If to Buyer to:

 

PTSC Sub One Inc.
P.O. Box 3208
Cummings, GA 30028
Attention: Carlton Johnson
Telephone No.: (760) 795-8517

 

If to Parent to:

 

Patriot Scientific Corporation

P.O. Box 3208
Cummings, GA 30028
Attention: Carlton Johnson
Telephone No.: (760) 795-8517

 

 

 

 34 

 

 

with copies (which will not constitute notice) to:

 

Law Office of Otto E. Sorensen

Attention: Otto E. Sorensen

501 West Broadway, Suite 1310

San Diego, CA 92101

Telephone No.: (619) 889-7077

 

or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.

 

9.3            Severability. In case any one or more of the provisions contained
in this Agreement should be held invalid, illegal or unenforceable in any
respect, the validity, legality, and enforceability of the remaining provisions
will not in any way be affected or impaired. Any illegal or unenforceable term
will be deemed to be void and of no force and effect only to the minimum extent
necessary to bring such term within the provisions of applicable Law and such
term, as so modified, and the balance of this Agreement will then be fully
enforceable. The parties will substitute for any invalid, illegal or
unenforceable provision a suitable and equitable provision that carries out, so
far as may be valid, legal and enforceable, the intent and purpose of such
invalid, illegal or unenforceable provision.

 

9.4           Assignment. This Agreement may not be assigned by any party
without the prior written consent of the other parties hereto, and any attempted
assignment in violation of this Section 9.4 will be null and void ab initio.

 

9.5           No Third-Party Beneficiaries. Except for the indemnification
rights of the Buyer Indemnified Parties and the Seller Indemnified Parties set
forth herein, this Agreement is for the sole benefit of the parties hereto and
their successors and permitted assigns and nothing herein expressed or implied
shall give or be construed to give to any Person, other than the parties hereto
and such successors and permitted assigns, any legal or equitable rights
hereunder.

 

9.6           Amendment; Waiver. This Agreement may not be amended or modified
except by an instrument in writing signed by each of the parties hereto.
Notwithstanding anything to the contrary contained herein: (a) the failure of
any party at any time to require performance by the other of any provision of
this Agreement will not affect such party’s right thereafter to enforce the
same; (b) no waiver by any party of any default by any other party will be valid
unless in writing and acknowledged by an authorized representative of the
non-defaulting party, and no such waiver will be taken or held to be a waiver by
such party of any other preceding or subsequent default; and (c) no extension of
time granted by any party for the performance of any obligation or act by any
other party will be deemed to be an extension of time for the performance of any
other obligation or act hereunder.

 

9.7           Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto, which are hereby incorporated herein by reference and deemed
part of this Agreement), together with the Ancillary Documents constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and undertakings, both written and
oral, with respect to the subject matter hereof.

 

 

 

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9.8           Specific Performance. Each party acknowledges that the rights of
each party to consummate the transactions contemplated hereby are unique,
recognizes and affirms that in the event of a breach of this Agreement by any
party, money damages may be inadequate and the non-breaching Parties may have
not adequate remedy at law, and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed by an
applicable party in accordance with their specific terms or were otherwise
breached. Accordingly, each of Parent, Buyer, the Company and the Sellers’
Representative shall be entitled to seek an injunction or restraining order to
prevent breaches of this Agreement and to seek to enforce specifically the terms
and provisions hereof, without the requirement to post any bond or other
security or to prove that money damages would be inadequate, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.

 

9.9           Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Delaware (without giving effect to its choice of law principles). Subject to the
provisions and limitations set forth in Sections 8.8 and 9.15, for purposes of
any Action arising out of or in connection with this Agreement, the Ancillary
Documents or any transaction contemplated hereby or thereby, each of the parties
hereto (a) irrevocably submits to the exclusive jurisdiction and venue of any
state or federal court located within County of Orange, State of California, (b)
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party’s respective address set forth in Section 9.2
shall be effective service of process for any Action with respect to any matters
to which it has submitted to jurisdiction in this Section 9.9, and (c) waives
and covenants not to assert or plead, by way of motion, as a defense or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of such court, that the Action is brought in an inconvenient
forum, that the venue of the Action is improper or that this Agreement or the
Ancillary Document, as applicable, or the subject matter hereof or thereof may
not be enforced in or by such court, and hereby agrees not to challenge such
jurisdiction or venue by reason of any offsets or counterclaims in any such
Action. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
THE RIGHT ANY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT AND ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
ANY PARTY IN CONNECTION WITH SUCH AGREEMENTS. FOR THE AVOIDANCE OF DOUBT, IT IS
THE INTENT OF THE PARTIES THAT ALL DISPUTES (AS DEFINED BELOW) SHALL BE RESOLVED
PURSUANT TO THE PROVISIONS OF SECTION 9.16.

 

9.10         Interpretation. The table of contents and the headings and
subheadings of this Agreement are for reference and convenience purposes only
and in no way modify, interpret or construe the meaning of specific provisions
of the Agreement. In this Agreement, unless the context otherwise requires: (i)
whenever required by the context, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa; (ii)
reference to any Person includes such Person’s successors and assigns but, if
applicable, only if such successors and assigns are permitted by this Agreement,
and reference to a Person in a particular capacity excludes such Person in any
other capacity; (iii) any accounting term used and not otherwise defined in this
Agreement or any Ancillary Document has the meaning assigned to such term in
accordance with GAAP; (iv) “including” (and with correlative meaning “include”)
means including without limiting the generality of any description preceding or
succeeding such term and shall be deemed in each case to be followed by the
words “without limitation”; (v) the words “herein,” “hereto,” and “hereby” and
other words of similar import in this Agreement shall be deemed in each case to
refer to this Agreement as a whole and not to any particular Section or other
subdivision of this Agreement; (vi) the word “if” and other words of similar
import when used herein shall be deemed in each case to be followed by the
phrase “and only if”; (vii) the term “or” means “and/or”; (viii) reference to
any status includes any rules and regulations promulgated thereunder; (ix) any
agreement, instrument, insurance policy, Law or Order defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument, insurance policy, Law or Order as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes, regulations,
rules or orders) by succession of comparable successor statutes, regulations,
rules or orders and references to all attachments thereto and instruments
incorporated therein; and (x) except as otherwise indicated, all references in
this Agreement to the words “Section,” “Schedule” and “Exhibit” are intended to
refer to Sections, Schedules and Exhibits to this Agreement.

 

 

 

 36 

 

 

9.11         Mutual Drafting. The Parties acknowledge and agree that: (a) this
Agreement and the Ancillary Documents are the result of negotiations between the
parties and will not be deemed or construed as having been drafted by any one
party, (b) each party and its counsel have reviewed and negotiated the terms and
provisions of this Agreement (including any, Exhibits and Schedules attached
hereto) and the Ancillary Documents and have contributed to their revision, (c)
the rule of construction to the effect that any ambiguities are resolved against
the drafting party will not be employed in the interpretation of this Agreement
or the Ancillary Documents and (d) neither the drafting history nor the
negotiating history of this Agreement or the Ancillary Documents may be used or
referred to in connection with the construction or interpretation thereof.

 

9.12         Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. A photocopy, faxed,
scanned and/or emailed copy of this Agreement or any Ancillary Document or any
signature page to this Agreement or any Ancillary Document, shall have the same
validity and enforceability as an originally signed copy.

 

9.13         Sellers’ Representative.

 

(a)             By the execution and delivery of this Agreement, each Seller
hereby irrevocably constitutes and appoints Steven King (in such capacity, the
“Sellers’ Representative”) as the true and lawful agent and attorney-in-fact of
such Seller with full powers of substitution to act in the name, place and stead
of thereof with respect to the performance on behalf of such Seller under the
terms and provisions of this Agreement and the Ancillary Documents, as the same
may be from time to time amended, and to do or refrain from doing all such
further acts and things, and to execute all such documents on behalf of such
Seller, if any, as the Sellers’ Representative will deem necessary or
appropriate in connection with any of the transactions contemplated under this
Agreement or any of the Ancillary Documents, including: (i) agree upon or
compromise any matter related to the calculation of any adjustments to the
Purchase Price; (ii) direct the distribution of the Purchase Price among
Sellers; (iii) act for Sellers with respect to all indemnification matters
referred to in this Agreement, including the right to compromise on behalf of
Sellers any indemnification claim made by or against Sellers, if any; (iv) act
for Sellers with respect to all post-Closing matters; (v) terminate, amend or
waive any provision of this Agreement; provided, that any such action, if
material to the rights and obligations of Sellers in the reasonable judgment of
the Sellers’ Representative, will be taken in the same manner with respect to
all Sellers unless otherwise agreed by each Seller who is subject to any
disparate treatment of a potentially adverse nature; (vi) employ and obtain the
advice of legal counsel, accountants and other professional advisors as the
Sellers’ Representative, in his or her sole discretion, deems necessary or
advisable in the performance of his or her duties as the Sellers’ Representative
and to rely on their advice and counsel; (vii) incur and pay expenses, including
fees of brokers, attorneys and accountants incurred pursuant to the transactions
contemplated hereby, and any other fees and expenses allocable or in any way
relating to such transaction or any indemnification claim, whether incurred
prior or subsequent to Closing; (viii) receive all or any portion of the
Purchase Price and to distribute the same to Sellers according to this
Agreement; (ix) sign any releases or other documents with respect to and dispute
or remedy arising under this Agreement or the Ancillary Documents; and (x) do or
refrain from doing any further act or deed on behalf of Sellers which the
Sellers’ Representative deems necessary or appropriate in his or her sole
discretion relating to the subject matter of this Agreement as fully and
completely as any Seller could do if personally present and acting. The Sellers’
Representative hereby accepts his or her appointment and authorization as the
Sellers’ Representative under this Agreement.

 

 

 

 37 

 

 

(b)            The appointment of the Sellers’ Representative will be deemed
coupled with an interest and will be irrevocable, and any other Person,
including Buyer, the Company and any other Buyer Indemnified Parties may
conclusively and absolutely rely, without inquiry, upon any actions of the
Sellers’ Representative as the acts of Sellers hereunder or any Ancillary
Document to which it they are a party. Each Buyer Indemnified Party shall be
entitled to rely conclusively on the instructions and decisions of the Sellers’
Representative as to (i) the settlement of any claims for indemnification by a
Buyer Indemnified Party pursuant to ARTICLE VIII hereof, (ii) any payment
instructions provided by the Sellers’ Representative or (iii) any other actions
required or permitted to be taken by the Sellers’ Representative hereunder, and
no Seller Indemnified Party shall have any cause of action against any Buyer
Indemnified Party for any action taken by a Buyer Indemnified Party in reliance
upon the instructions or decisions of the Sellers’ Representative. No Buyer
Indemnified Party shall have any liability to Sellers for any allocation or
distribution among Sellers by the Sellers’ Representative of payments made to or
at the direction of the Sellers’ Representative.

 

(c)            The Sellers’ Representative will act for Sellers on all of the
matters set forth in this Agreement in the manner the Sellers’ Representative
believes to be in the best interest of Sellers, but the Sellers’ Representative
will not be responsible to Sellers for any loss or damage that any Seller may
suffer by reason of the performance by the Sellers’ Representative of such
Sellers’ Representative’s duties under this Agreement, other than loss or damage
arising from fraud, gross negligence or willful misconduct in the performance of
the Sellers’ Representative’s duties under this Agreement. Sellers do hereby
severally and not jointly agree to indemnify and hold the Sellers’
Representative harmless from and against any and all Losses reasonably incurred
or suffered as a result of the performance of the Sellers’ Representative’s
duties under this Agreement, except for any such liability arising out of the
fraud, gross negligence or willful misconduct of the Sellers’ Representative.
The Sellers’ Representative will be entitled to the payment from the Sellers of
all his or her expenses incurred as the Sellers’ Representative. No bond shall
be required of the Sellers’ Representative.

 

 

 

 38 

 

 

(d)             If the Sellers’ Representative shall die, become disabled,
resign or otherwise be unable to fulfill his or her responsibilities as agent of
Sellers, then Sellers shall, within ten (10) days after such death or
disability, appoint a successor agent and, promptly thereafter (but in any event
within two (2) Business Days after such appointment), shall notify Buyer in
writing of the identity of such successor. Any such successor shall be appointed
by the written consent of Sellers, and any successor so appointed shall become
the “Sellers’ Representative” for purposes of this Agreement. A vacancy in the
position of Sellers’ Representative may be filled by the vote of Sellers holding
a majority in interest of the Escrow Accounts.

 

(e)             All notices or other communications required to be made or
delivered by Buyer to a Seller pursuant to this Agreement shall be made to the
Sellers’ Representative for the benefit of such Seller, and any notices so made
shall discharge in full all notice requirements of Buyer to such Seller with
respect thereto. All notices or other communications required to be made or
delivered by a Seller shall be made by the Sellers’ Representative (except for a
notice under Section 9.13(d) of the replacement of the Sellers’ Representative).

 

(f)              After the Closing, Buyer shall afford the Sellers’
Representative and its Representatives reasonable access (electronically to the
greatest extent possible) during business hours and with prior notice to the
Buyer, during the period from the date of receipt of a written notice for
indemnity until all claims related to such notice are resolved to the books,
records and working papers of Buyer and its Affiliates related to such indemnity
claim, each of their respective personnel and any other information of Buyer or
its Affiliates that the Sellers’ Representative reasonably requests relating to
the such indemnity claims, and Buyer and its Affiliates shall cooperate with the
Sellers’ Representative and its Representatives in connection therewith.

 

9.14         Conflicts and Privilege. It is acknowledged by each of the parties
hereto that the Sellers’ Representative has retained Duane Morris LLP (“DM”) to
act as its counsel in connection with the transactions contemplated hereby.
Buyer hereby agrees that in the event of a dispute under this Agreement, the
Ancillary Documents and the documents and instruments contemplated hereby and
thereby related to the transactions contemplated hereby or thereby that arises
after the Closing between Buyer Indemnified Parties, on the one hand, and the
Sellers’ Representative and Sellers, on the other hand, DM may represent the
Sellers’ Representative and/or Sellers in such dispute even though the interests
of the Sellers’ Representative and/or Sellers may be directly adverse to the
Buyer Indemnified Parties, and even though DM may have represented the Company
in a matter substantially related to such dispute; provided, however, this
sentence shall not apply if and to the extent (a) DM is then representing the
Buyer Indemnified Parties and (b) such representation of such member of the
Buyer Indemnified Parties would require DM to either refrain from representing
the Sellers’ Representative and/or Sellers or obtain the informed consent of the
Sellers’ Representative and/or Sellers and the applicable member of the Buyer
Indemnified Parties under applicable Laws or applicable ethical standards
governing attorney conduct. Buyer further agrees that, as to all communications
among DM, the Company, the Sellers’ Representative and/or any Seller that relate
in any way to the transactions contemplated hereby or a similar transaction
prior to the Closing (the “Protected Communications”), the attorney-client
privilege and the expectation of client confidence with respect to the Protected
Communications (the “Associated Rights”) belong to the Sellers’ Representative
and Sellers and may be controlled by the Sellers’ Representative and Sellers and
shall not pass to or be claimed by Buyer, the Company (after Closing) or any of
their Subsidiaries; provided, however, the parties hereto expressly agree that
the Protected Communications and Associated Rights shall not include any
communications at or prior to the Closing among DM, the Company, the Sellers’
Representative and/or any Seller: (i) relating to (A) the pre-Closing operation
by the Company of its business other than the negotiation of the transactions
contemplated hereby or a similar transaction prior to the Closing or (B) Fraud
(whether related to the negotiation of the transactions contemplated hereby or a
similar transaction prior to the Closing or otherwise); or (ii) with respect to
which the attorney-client privilege could not validly be asserted by the Company
prior to the Closing. Notwithstanding the foregoing, (x) in the event that a
dispute arises between Buyer Indemnified Parties, on the one hand, and a third
party other than the Sellers’ Representative or a Seller, on the other hand,
Buyer Indemnified Parties may assert the attorney-client privilege to prevent
disclosure of confidential communications to such third party; provided,
however, that Buyer Indemnified Parties may not waive such privilege without the
prior written consent of the Sellers’ Representative and (y) if Buyer is legally
required by order of a Governmental Authority to access or obtain a copy of all
or a portion of the Protected Communications, Buyer shall be entitled to access
or obtain a copy of and disclose the Protected Communications to the extent
necessary to comply with any such order.

 

 

 

 39 

 

 

9.15         Dispute Resolution. Any and all Actions, complaints, disputes,
controversies and claims (other than applications for a temporary restraining
order, preliminary injunction, permanent injunction or other equitable relief or
application for enforcement of a resolution under this Section 9.15) arising out
of, related to, or in connection with this Agreement or the transactions
contemplated hereby (a “Dispute”) shall be governed by this Section 9.15. A
party must, in the first instance, provide written notice of any Disputes to the
other parties subject to such Dispute, which notice must provide a reasonably
detailed description of the matters subject to the Dispute. The parties involved
in such Dispute shall seek to resolve the Dispute on an amicable basis within
ten (10) Business Days of the notice of such Dispute being received by such
other parties subject to such Dispute; the “Resolution Period”); provided, that
if any Dispute would reasonably be expected to have become moot or otherwise
irrelevant if not decided within sixty (60) days after the occurrence of such
Dispute, then there shall be no Resolution Period with respect to such Dispute.
Any Dispute that is not resolved during the Resolution Period may immediately be
referred to and finally resolved by arbitration pursuant to the then-existing
Expedited Procedures of the Commercial Arbitration Rules (the “AAA Procedures”)
of the American Arbitration Association (the “AAA”). Any party involved in such
Dispute may submit the Dispute to the AAA to commence the proceedings after the
Resolution Period. To the extent that the AAA Procedures and this Agreement are
in conflict, the terms of this Agreement shall control. The arbitration shall be
conducted by one arbitrator nominated by the AAA promptly (but in any event
within five (5) Business

 

 

 

 40 

 

 

Days) after the submission of the Dispute to the AAA and reasonably acceptable
to each party subject to the Dispute, which arbitrator shall be a commercial
lawyer with substantial experience arbitrating disputes under acquisition
agreements. The arbitrator shall accept his or her appointment and begin the
arbitration process promptly (but in any event within five (5) Business Days)
after his or her nomination and acceptance by the parties subject to the
Dispute. The proceedings shall be streamlined and efficient. The arbitrator
shall decide the Dispute in accordance with the substantive law of the State of
Delaware. Time is of the essence. Each party shall submit a proposal for
resolution of the Dispute to the arbitrator within twenty (20) days after
confirmation of the appointment of the arbitrator. The arbitrator shall have the
power to order any party to do, or to refrain from doing, anything consistent
with this Agreement, the Ancillary Documents and applicable Law, including to
perform its contractual obligation(s); provided, that the arbitrator shall be
limited to ordering pursuant to the foregoing power (and, for the avoidance of
doubt, shall order) the relevant party (or parties, as applicable) to comply
with only one or the other of the proposals. The arbitrator’s award shall be in
writing and shall include a reasonable explanation of the arbitrator’s reason(s)
for selecting one or the other proposal. The seat of arbitration shall be in
county of Orange, California, and the language of the arbitration shall be
English.

 

[Remainder of Page Intentionally Left Blank; Signatures Appear on Following
Page]

 

 

 

 

 

 

 

 

 

 

 

 

 

 41 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Buyer:       PTSC SUB ONE, INC.       By:  /s/ Carlton Johnson   Name: Carlton
Johnson   Title: Interim Chief Executive Officer and Interim Chief Financial
Officer

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 42 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Parent:       PATRIOT SCIENTIFIC CORPORATION       By:  /s/ Carlton Johnson  
Name: Carlton Johnson   Title: Interim Chief Executive Officer and Interim Chief
Financial Officer

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 43 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  The Company:       MOSAIC IMMUNOENGINEERING INC.       By:  /s/ Steven King  
Name: Steven King   Title: President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 44 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers’ Representative:       By:  /s/ Steven King   Name: Steven King    

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 45 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers:       By:  /s/ Steven King   Name: Steven King    

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 46 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  PAUL LYTLE       /s/ Paul Lytle   Paul Lytle

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 47 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers:       NICOLE STEINMETZ, PH.D.       /s/ Nicole Steinmetz   Nicole
Steinmetz, Ph.D.

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 48 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers:       JONATHAN POKORSKI, PH.D.       /s/ Jonathan Pokorski   Jonathan
Pokorski, Ph.D.

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 

 49 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers:       STEVEN FIERING, PH.D.       /s/ Steven Fiering   Steven
Fiering, Ph.D.

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 50 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers:       ROBERT GARNICK, PH.D.       /s/ Robert Garnick   Robert
Garnick, Ph.D.

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 51 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first written above.

 

  Sellers:       CASE WESTERN RESERVE UNIVERSITY       /s/ Michael Haag  
Michael Haag, Executive Director Technology Management               /s/ Michael
l Lee   Michael Lee, Treasurer

 

 

 

 

 

 

 

 

 

 

[Signature page of Stock Purchase Agreement]

 

 

 52 

 

 

Exhibit A

 

Definitions

 

Certain Defined Terms. As used in the Agreement, the following terms shall have
the following meanings:

 

“Action” means any notice of noncompliance or violation, or any claim, demand,
charge, action, suit, litigation, audit, settlement, complaint, stipulation,
assessment or arbitration, or any request (including any request for
information), inquiry, hearing, proceeding or investigation, by or before any
Governmental Authority.

 

“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations under the
Exchange Act.

 

“Ancillary Documents” means each agreement, instrument or document attached
hereto as an Exhibit, and the other agreements, certificates and instruments to
be executed or delivered by any of the parties hereto in connection with or
pursuant to this Agreement.

 

“Benefit Plan” means any deferred compensation, executive compensation,
incentive compensation, equity purchase or other equity-based compensation plan,
employment or consulting, severance or termination pay, holiday, vacation or
other bonus plan or practice, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit sharing, pension, or
retirement plan, program, agreement, commitment or arrangement, and each other
employee benefit plan, program, agreement or arrangement, including each
“employee benefit plan” as such term is defined under Section 3(3) of ERISA,
maintained or contributed to or required to be contributed to by the Company for
the benefit of any employee or terminated employee of the Company, or with
respect to which the Company has any liability, whether direct or indirect,
actual or contingent, whether formal or informal, and whether legally binding or
not.

 

“Business Day” means any day that is not a Saturday, Sunday or any other day on
which banks are required or authorized by Law to be closed in New York or
California.

 

“Buyer Common Stock” means the common stock of the Buyer, $0.00001 par value.

 

“Code” means the Internal Revenue Code of 1986 and any successor statute
thereto, as amended. Reference to a specific section of the Code shall include
such section, any valid regulation promulgated thereunder, and any comparable
provision of any future legislation amending, supplementing or superseding such
section.

 

“Confidential Information” means any information concerning the business and
affairs of a Party that is not generally available to the public, including
know-how, trade secrets, customer lists, details of customer or consultant
contracts, pricing policies, operational methods and marketing plans or
strategies, and any information disclosed to the Party by third parties to the
extent that the Party has an obligation of confidentiality in connection
therewith.

 

“Contract” means any contract, agreement, binding arrangement, commitment or
understanding, bond, note, indenture, mortgage, debt instrument, license (or any
other contract, agreement or binding arrangement concerning Intellectual
Property), franchise, lease or other instrument or obligation of any kind,
written or oral (including any amendments or other modifications thereto).

 

“Disclosure Schedules” means the disclosure schedules to this Agreement dated as
of the date hereof and forming a part of this Agreement, including the Company
Disclosure Schedules and the Buyer Disclosure Schedules.

 

 

 

 A-1 

 

 

“Environmental Condition” means any contamination or damage to the environment
caused by or relating to the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaching, pumping, pouring,
emptying, discharging, injection, escaping, disposal, dumping or threatened
release of Hazardous Materials by any Person. With respect to claims by
employees or other third parties, Environmental Condition also includes the
exposure of Persons to amounts of Hazardous Materials.

 

“Environmental Laws” means all Laws relating to pollution or protection of the
environment, natural resources and health, safety and fire prevention, including
those relating to emissions, discharges, releases or threatened releases of
Hazardous Material into the environment (including ambient air, surface water,
groundwater or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Material.

 

“Environmental Permits” means all permits, approvals, agreements, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.

 

“ERISA” means the Employee Retirement Income Security Act of 1974 and any
successor statute thereto, as amended. Reference to a specific section of ERISA
shall include such section, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation amending, supplementing or
superseding such section.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Fraud” means common law fraud, including the element of scienter, or an
intentional misrepresentation with respect to the representations and warranties
contained in this Agreement or an Ancillary Agreement. For avoidance of doubt,
“Fraud” shall not include any type of constructive or equitable fraud.

 

“GAAP” means United States generally accepted accounting principles applied on a
consistent basis.

 

“Governing Documents” means, with respect to any entity, its certificate of
incorporation, certificate of formation or similar charter document and its
bylaws, operating agreement or similar governing document.

 

“Governmental Authority” means any federal, state, local, foreign or other
governmental, quasi-governmental or administrative body, instrumentality,
department or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission, or other similar dispute-resolving panel or body.
The term “Governmental Authority” includes any Person acting on behalf of a
Governmental Authority.

 

“Hazardous Material” means (a) all substances, materials, chemicals, compounds,
pollutants or wastes regulated by, under or pursuant to any Environmental Laws,
including the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 42 U.S.C. §§ 9601 et seq., the Clean Water Act, 33 U.S.C. §§1251 et seq.,
the Clean Air Act, 42 U.S.C. §§ 7401 et seq., the Toxic Substances Control Act,
15 U.S.C. §§ 2601 et seq., the Emergency Planning and Community Right-to-Know
Act of 1986, Title III of Public Law 99-499, the Safe Drinking Water Act, and
any and all foreign (whether national, provincial or local), state or local
counterparts thereto or other similar foreign (whether national, provincial or
local), state or local laws and orders, including any and all rules and
regulations promulgated thereunder, or any common law theory based on nuisance,
negligence, product liability, trespass, ultrahazardous activity or strict
liability; and (b) asbestos, petroleum, any fraction or product of crude oil or
petroleum, radioactive materials and polychlorinated biphenyls.

 

 

 

 A-2 

 

 

“Indebtedness” means, without duplication, (a) the outstanding principal of, and
accrued and unpaid interest on, all bank or other third party indebtedness for
borrowed money of the a Person, including indebtedness under any bank credit
agreement and any other related agreements and all obligations evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable, (b) all obligations of a Person for the
reimbursement of any obligor on any line or letter of credit, banker’s
acceptance, guarantee or similar credit transaction, in each case, that has been
drawn or claimed against, (c) all obligations of a Person issued or assumed for
deferred purchase price payments (other than trade payables in the Ordinary
Course of Business), (d) all obligations of a Person under leases required to be
capitalized in accordance with GAAP, (e) all interest rate and currency swaps,
caps, collars and similar agreements or hedging devices under which payments are
obligated to be made by a Person, whether periodically or upon the happening of
a contingency, (f) all obligations of a Person secured by a Lien (other than a
Permitted Lien) on any asset of such Person or any Affiliate, whether or not
such obligation is assumed by such Person, (g) any premiums, prepayment fees or
other penalties, fees, costs or expenses associated with payment of any
Indebtedness and (h) all obligation described in clauses (a) through (g) above
of any other Person which is directly or indirectly guaranteed by such Person or
which such Person has agreed (contingently or otherwise) to purchase or
otherwise acquire or in respect of which it has otherwise assured a creditor
against loss; provided, however, notwithstanding the foregoing, Indebtedness
shall not include any item included in the calculation of (i) Net Working
Capital and (ii) Transaction Expenses.

 

“Independent Expert” means a Person independent with respect to the Parties
(i.e., no prior material business relationship with any party for the prior two
(2) years) or otherwise does not promptly accept its engagement, another
mutually acceptable independent (i.e., no prior material business relationship
with any party for the prior two (2) years) accounting firm recognized
nationally (which appointment will be made no later than ten (10) days after the
Dispute Resolution Notice Date); provided, that if the Independent Expert does
not accept its appointment or if Buyer and the Sellers’ Representative cannot
agree on the Independent Expert, in either case within twenty (20) days after
the Dispute Resolution Notice Date, either Buyer or the Sellers’ Representative
may require, by written notice to the other, that the Independent Expert be
selected by the Orange County Office of the American Arbitration Association in
accordance with the procedures of the American Arbitration Association. The
Parties agree that the Independent Expert will be deemed to be independent even
though a party or its Affiliates may, in the future, designate the Independent
Expert to resolve disputes of the types described in Section 1.5.

 

“Intellectual Property” means rights in all of the following as they exist in
any jurisdiction throughout the world: (a) Patents; (b) Trademarks; (c)
Copyrights; (d) Trade Secrets; (e) all domain name and domain name
registrations, web sites and web pages and related rights, registrations, items
and documentation related thereto; (f) Software; and (g) rights of publicity and
privacy, and moral rights.

 

“IRS” means the U.S. Internal Revenue Service or any successor entity.

 

“Knowledge” means: (i) with respect to the Seller Parties, the actual present
knowledge of a particular matter by any Seller or any executive officer or
director of the Company, and the knowledge that any such Person would reasonably
be expected to have if diligently performing their duties on behalf of the
Company; (ii) with respect to any Seller shall mean the actual present knowledge
of a particular matter by such Seller; and (iii) with respect to Buyer Parties,
the actual present knowledge of a particular matter by any of the directors or
executive officers of Parent, without independent inquiry.

 

“Law” means any federal, state, local, municipal, foreign or other law, statute,
legislation, principle of common law, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, directive, requirement,
writ, injunction, settlement, Permit or Order that is or has been issued,
enacted, adopted, passed, approved, promulgated, made, implemented or otherwise
put into effect by or under the authority of any Governmental Authority.

 

“Legacy Business” means the Parent’s licensing of patented microprocessor
technologies as described in Item 1. Description of Business contained in the
Parent’s annual report on Form 10-K for fiscal year ended May 31, 2019, as filed
with the SEC, and all related, copyrights, trademarks, and trade names currently
in use in connection with the Legacy Business.

 

“Liabilities” means any and all debts, liabilities and obligations of any nature
whatsoever, whether accrued or fixed, absolute or contingent, mature or
unmatured or determined or determinable, including those arising under any Law,
Action, Order or Contract.

 

 

 

 A-3 

 

 

“Lien” means any interest (including any security interest), pledge, mortgage,
lien, encumbrance, charge, claim or other right of third parties, including any
spousal interests (community or otherwise), whether created by law or in equity,
including any such restriction on the use, voting, transfer, receipt of income
or other exercise of any attributes of ownership.

 

“Material Adverse Effect” means, with respect to any Party, any event, fact,
condition, change, circumstance, occurrence or effect, which, either
individually or in the aggregate with all other events, facts, conditions,
changes, circumstances, occurrences or effects, (a) has had, or would reasonably
be expected to have, a material adverse effect on the business, properties,
assets, liabilities, condition (financial or otherwise), operations or results
of operations of such Party or (b) does or would reasonably be expected to
materially impair or delay the ability of such Party to perform their respective
obligations under this Agreement and the Ancillary Documents or to consummate
the transactions contemplated hereby and thereby; provided, however, that with
respect to the Company or Parent, a Material Adverse Effect will not include any
adverse effect or change resulting from any change, circumstance or effect
relating to (A) the economy in general, (B) securities markets, regulatory or
political conditions in the United States (including terrorism or the escalation
of any war, whether declared or undeclared or other hostilities), (C) changes in
applicable Laws or GAAP or the application or interpretation thereof, (D) the
industries in which the Company or Parent primarily operate and not specifically
relating to the Company or Parent, (E) a natural disaster or the worsening
thereof, and (F) the public announcement, pendency or completion of the
transactions contemplated hereby (provided, that in the cases of clauses (A)
through (E), the Company or Parent is not disproportionately affected by such
event as compared to other similar companies and businesses in similar
industries and geographic regions as the Company or Parent).

 

“Order” means any order, writ, rule, judgment, injunction, decree, stipulation,
determination or award that is or has been made, entered, rendered or otherwise
put into effect by, with or under the authority of any Governmental Authority.

 

“OFAC” means the Office of Foreign Assets Control of the U.S. Treasury
Department.

 

“Ordinary Course of Business” means, with respect to a Person, an action taken
by such Person if (a) such action is recurring in nature, is consistent with the
past practices of the Person and is taken in the ordinary course of the normal
day-to-day operations of the Person; (b) such action is not required to be
authorized by the equity holders of such Person, the board of directors (or
equivalent) of such Person or any committee of the board of directors (or
equivalent) of such Person and does not require any other special authorization
of any nature; and (c) such action is taken in accordance with sound and prudent
business practice. Unless the context or language herein requires otherwise,
each reference to Ordinary Course of Business will be deemed to be a reference
to Ordinary Course of Business of the Company.

 

“Parent Series A Convertible Preferred” means that certain convertible preferred
stock to be issued by the Parent in exchange for the Class A Stock having the
rights, interests, and obligations set forth in the Form of Series A Convertible
Preferred Certificate of Designations attached hereto as Exhibit B.

 

“Parent Series B Convertible Preferred” means that certain convertible preferred
stock to be issued by the Parent in exchange for the Class B Stock having the
rights, interests, and obligations set forth in the Form of Series B Convertible
Preferred Certificate of Designations attached hereto as Exhibit B.

 

“Patents” means all patents, patent applications and the inventions, designs and
improvements described and claimed therein, patentable inventions, and other
patent rights (including any divisionals, continuations, continuations-in-part,
substitutions, or reissues thereof, whether or not patents are issued on any
such applications and whether or not any such applications are amended,
modified, withdrawn, or refiled).

 

“Permit” means any federal, state, local, foreign or other third-party permit,
grant, easement, consent, approval, authorization, exemption, license,
franchise, concession, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating, registration or
qualification that is or has been issued, granted, given or otherwise made
available by or under the authority of any Governmental Authority or other
Person.

 

“Permitted Exceptions” means bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors’ rights generally
and general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).

 

 

 

 A-4 

 

 

“Permitted Liens” means any (a) statutory Liens of landlords, carriers,
warehousemen, mechanics and materialmen and other similar Liens imposed by Law
in the Ordinary Course of Business for sums not yet due and payable; (b) Liens
for current taxes not yet due and payable or Taxes being contested in good faith
by any appropriate proceeding for which adequate reserves have been established;
(c) deposits or pledges made in connection with, or to secure payment of,
workers’ compensation, unemployment insurance or similar programs mandated by
applicable Law; (d) Liens with respect to any Indebtedness, only to the extent
such liens described in this clause (d) are released in connection with and
prior to the Closing; and (e) licenses entered into in the Ordinary Course of
Business.

 

“Person” shall include any individual, trust, firm, corporation, limited
liability company, partnership, Governmental Authority or other entity or
association, whether acting in an individual, fiduciary or any other capacity.

 

“Personal Property” means all of the machinery, equipment, tools, vehicles,
furniture, leasehold improvements, office equipment, plant, spare parts, and
other tangible personal property which are owned, used or leased by the Company
and used or useful, or intended for use, in the conduct or operations of the
Company’s business.

 

“Representative” means, as to any Person, such Person’s Affiliates and its and
their managers, directors, officers, employees, agents and advisors (including
financial advisors, counsel and accountants).

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Software” means all computer software, including all source code, object code,
and documentation related thereto and all software modules, assemblers, applets,
compilers, flow charts or diagrams, tools and databases.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership,
association or other business entity of which (i) if a corporation, a majority
of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interests
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons will be deemed to have a majority ownership
interest in a partnership, association or other business entity if such Person
or Persons will be allocated a majority of partnership, association or other
business entity gains or losses or is or will control the managing director,
managing member, general partner or other managing Person of such partnership,
association or other business entity.

 

“Tax” means any federal, state, local or foreign income, gross receipts,
license, payroll, parking, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, natural resources, customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
payroll, unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated
tax, or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, including such item for which
Liability arises from the application of Treasury Regulation 1.1502-6, as a
transferee or successor-in-interest, by contract or otherwise, and any Liability
assumed or arising as a result of being, having been, or ceasing to be a member
of any Affiliated Group (as defined in Section 1504(a) of the Code) (or being
included or required to be included in any Tax Return relating thereto) or as a
result of any Tax indemnity, Tax sharing, Tax allocation or similar Contract.

 

“Tax Return” means any return, report, information return, schedule,
certificate, statement or other document (including any related or supporting
information) filed or required to be filed with a Taxing Authority in connection
with any Tax, or, where none is required to be filed with a Taxing Authority,
the statement or other document issued by a Taxing Authority in connection with
any Tax.

 

 

 

 A-5 

 

 

“Taxing Authority” means any Governmental Authority responsible for the
imposition or collection of any Tax.

 

“Trademarks” means all trademarks, service marks, trade dress, trade names,
brand names, Internet domain names, designs, logos, or corporate/company names
(including, in each case, the goodwill associated therewith), whether registered
or unregistered, and all registrations and applications for registration and
renewal thereof.

 

“Trade Secrets” means any trade secrets, confidential business information,
concepts, ideas, designs, research or development information, processes,
procedures, techniques, technical information, specifications, operating and
maintenance manuals, engineering drawings, methods, know-how, data, mask works,
discoveries, inventions, modifications, extensions, improvements, and other
proprietary rights (whether or not patentable or subject to copyright,
trademark, or trade secret protection).

 

 

 

 

 

 

 

 A-6 

 

 

Other Defined Terms. The following capitalized terms, as used in the Agreement,
have the respective meanings given to them in the Section as set forth below
adjacent to such terms:

 

Term Section   Term Section AAA 9.16   Indemnitee 8.4(a) AAA Procedures 9.16  
Indemnitor 8.4(a) Agreement Preamble   Interim Period 5.2(a) Bank Account 3.22  
Leased Premises 3.11 Basket 8.5   Leases 3.11 Buyer Preamble   Legacy Purchase
Price 6.1(d) Buyer Parties Disclosure Schedules ARTICLE IV   Loss 9.2 Buyer
Indemnified Parties 8.2   Merger Recitals Closing Date 2.1   Noncompliance
Period 2.5 Closing Press Release 5.6(b)   DM 9.15 Company Preamble   Outside
Date 7.1(b) Company Disclosure Schedules ARTICLE III   Parent Preamble Covered
Parent SEC Disclosure ARTICLE IV   Parent Balance Sheet 4.8 DGCL Recitals  
Parent SEC Documents 4.8 Dispute 9.16   Parent Series A and B Convertible
Preferred Recitals Expenses 8.3   Parent Stockholder Approval 4.11 Federal
Securities Laws 5.7   Party, Parties Preamble Financial Statements 3.7  
Protected Communications 9.15 Indemnification Cap 8.5   Purchase Price 1.2      
Purchased Shares 1.1       Related Person 4.23       Resolution Period 9.16    
  Section 409A Plan 3.19(e)       Seller Indemnified Parties 8.3       Seller
Parties Preamble       Sellers’ Representative 9.14       Sellers Preamble      
Signing Press Release 5.6(b)       Survival Date 8.1                            
                               

 

 

 

 A-7 

 

 

Exhibit B

Form of Series A Convertible Preferred Certificate of Designations

 

 

CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND LIMITATIONS OF THE
SERIES A CONVERTIBLE VOTING PREFERRED STOCK
OF
PATRIOT SCIENTIFIC CORPORATION

_________________

 

Patriot Scientific Corporation, a Delaware corporation, (the “Corporation”) DOES
HEREBY CERTIFY:

 

The Amended and Restated Certificate of Incorporation of the Corporation (the
“Charter”) confers upon the Board of Directors of the Corporation (the “Board of
Directors”) the authority to provide for the issuance of shares of preferred
stock in series and to establish the number of shares to be included in each
such series and to fix the powers, designations, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof. On August 18, 2020, the Board of Directors duly adopted the following
resolution creating a series of preferred stock designated as the Series A
Convertible Voting Preferred Stock (the “Series A Preferred Stock”), comprised
initially of 630,000 shares and such resolution has not been modified and is in
full force and effect on the date hereof: RESOLVED: that, pursuant to the
authority vested in the Board of Directors in accordance with the provisions of
the Charter, a series of the class of authorized preferred stock, par value
$0.00001 per share, of the Corporation is hereby created and that the
designation and number of shares thereof and the powers, preferences and rights
of the shares of such series, and the qualifications, limitations and
restrictions thereof are as follows:

 

1.                  Series A Designation, Amount and Par Value. The series of
Preferred Stock shall be designated as the Corporation’s Series A Convertible
Voting Preferred Stock, and the number of shares so designated shall be 630,000.
Each share of Series A Preferred Stock shall have a par value of $0.00001 and a
stated value equal to $6.50 per share (as adjusted for any stock split, stock
dividend, stock combination or other similar transactions with respect to the
Series A Preferred Stock, the “Stated Value”).

 

2.                  Definitions. In addition to the terms defined elsewhere in
this Certificate of Designation, the following terms have the meanings
indicated:

 

“Bankruptcy Event” means any of the following events: (a) the Corporation or any
Significant Subsidiary (as such term is defined in Rule 1.02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Corporation or any Significant Subsidiary thereof; (b) there is commenced
against the Corporation or any Significant Subsidiary thereof any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Corporation or any Significant Subsidiary thereof is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Corporation or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within 60 days; (e) the
Corporation or any Significant Subsidiary thereof makes a general assignment for
the benefit of creditors; (f) the Corporation or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) the Corporation or any
Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

 

 

 

 

 B-1 

 

 

“Business Day” means any day other than Saturday, Sunday and any day on which
banks are required or authorized by law to be closed in the State of Delaware.

 

“Change of Control Event” means the occurrence after the Original Issue Date (as
defined below), excluding a Liquidation Event, of any of (i) an acquisition
after the date hereof by an individual or legal entity or “group” (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the
Corporation, by contract or otherwise) of in excess of 35% of the voting
securities of the Corporation, or (ii) the Corporation merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Corporation and, after giving effect to such transaction, the
stockholders of the Corporation immediately prior to such transaction own less
than 65% of the aggregate voting power of the Corporation or the successor
entity of such transaction, or (iii) the Corporation sells or transfers its
assets, as an entirety or substantially as an entirety, to another Person and
the stockholders of the Corporation immediately prior to such transaction own
less than 65% of the aggregate voting power of the acquiring entity immediately
after the transaction, or (iv) a replacement at one time or within a one-year
period of more than one-half of the members of the Corporation’s board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), or (v) the
execution by the Corporation of an agreement to which the Corporation is a party
or by which it is bound, providing for any of the events set forth above in
(i) through (iv).

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Corporation, $0.00001 par value per
share.

 

“Eligible Market” means any of (i) the New York Stock Exchange, (ii) the NYSE
American, (iii) The NASDAQ Global Market, The NASDAQ Capital Market or The
NASDAQ Global Select Market (each in clause (iii), a “NASDAQ Stock Market) or
(iv) OTC Markets Pink or OTCQB.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Holder” means any holder of Series A Preferred Stock.

 

“Junior Securities” means (i) the Common Stock, and (ii) all equity or equity
equivalent securities issued by the Corporation after the Original Issue Date
that do not rank senior to or pari passu with the Series A Preferred Stock.

 

 

 

 

 

 B-2 

 

 

“Original Issue Date” means the date of the first issuance of any shares of the
Series A Preferred Stock, regardless of the number of transfers of any
particular shares of Series A Preferred Stock and regardless of the number of
certificates that may be issued to evidence such Series A Preferred Stock.

 

“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture or other non-corporate business
enterprise, limited liability company, joint stock company, trust, organization,
business, labor union or government (or an agency or subdivision thereof) or any
court or other federal, state, local or other governmental authority or other
entity of any kind.

 

“Series A Preferred Stock” means the Corporation’s Series A Convertible Voting
Preferred Stock authorized pursuant to the Series A Preferred Stock Designation.

 

“Series A Preferred Stock Designation” means this Certificate of Designation for
the Corporation’s Series A Convertible Voting Preferred Stock, as adopted by the
by the affirmative vote of the Board of Directors on August 18, 2020.

 

“Trading Day” shall mean, if a security is listed or admitted to trading, or
quoted, on an Eligible Market, their successors or another national securities
exchange or national securities market, a full day on which the NASDAQ Stock
Market or such other national securities exchange or national securities market
on which the security is traded is open for business and on which trades may be
made thereon.

 

3.                  Voting Rights. Holders of the Series A Preferred Stock shall
have the following voting rights:

 

(a)       Those voting rights required by applicable law; and

 

(b)       The right to vote together with the holders of the Common Stock, as a
single class, upon all matters submitted to holders of Common Stock for a
vote. Each share of Series A Preferred Stock will carry a number of votes equal
to the number of shares of Common Stock issuable based on the then applicable
Conversion Number; provided, however, that so long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not, without the prior
approval of the Holders of at least a majority of the then issued and
outstanding shares of Series A Preferred Stock, voting as a separate class:
(a) authorize or increase the authorized number of shares of Series A Preferred
Stock or any shares of capital stock of the Corporation having any right,
preference or priority ranking senior to or pari passu with Series A Preferred
Stock, (b) authorize, adopt or approve any amendment to the Certificate of
Incorporation or Bylaws of the Corporation or this Certificate of Designation
that would increase or decrease the par value or the Stated Value of the shares
of the Series A Preferred Stock, alter or change the powers, preferences or
rights of the shares of Series A Preferred Stock or alter or change the powers,
preferences or rights of any other capital stock of the Corporation if after
such alteration or change such capital stock would be senior to or pari passu
with Series A Preferred Stock, (c) amend, alter or repeal the Certificate of
Incorporation or the Bylaws of the Corporation or this Certificate of
Designation so as to affect adversely the shares of Series A Preferred Stock, or
(d) authorize or issue any security convertible into, exchangeable for or
evidencing the right to purchase or otherwise receive any shares of any class or
classes of capital stock of the Corporation having any right, preference or
priority ranking senior to or pari passu with Series A Preferred Stock.

 

 

 

 

 B-3 

 

 

4.                  Dividends.

 

(a) The Series A Preferred Stock will not be entitled to dividends unless the
Corporation pays cash dividends or dividends in other property to holders of
outstanding shares of Common Stock, in which event, each outstanding share of
the Series A Preferred Stock will be entitled to receive dividends of cash or
property in an amount or value equal to the Conversion Number multiplied by the
amount paid in respect of one share of Common Stock. Any dividend payable to the
Series A Preferred Stock will have the same record and payment date and terms as
the dividend payable on the Common Stock.

 

(b) Notwithstanding any other provision of this Certificate of Designation, the
Corporation shall not pay any dividends on, or make any distributions with
respect to, in cash or in kind or otherwise, its Common Stock or any other
Junior Securities when accrued and unpaid dividends are owed to the Holders.

 

5.                  Registration of Series A Preferred Stock. The Corporation
shall register shares of the Series A Preferred Stock, upon records to be
maintained by the Corporation for that purpose (the “Series A Preferred Stock
Register”), in the name of the record Holders thereof from time to time. The
Corporation may deem and treat the registered Holder of shares of Series A
Preferred Stock as the absolute owner thereof for the purpose of any conversion
or redemption thereof or any distribution to such Holder, and for all other
purposes, absent actual written notice to the contrary from the registered
Holder. The shares of Series A Preferred Stock shall be uncertificated.

 

6.                  Registration of Transfers. The Corporation shall register
the transfer of any shares of Series A Preferred Stock in the Series A Preferred
Stock Register, upon receipt of an instrument of transfer acceptable to the
Corporation from the Holder of such shares.

 

7.                  Liquidation.

 

(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary (a “Liquidation Event”), which
shall be deemed to include (i) a Bankruptcy Event, (ii) the acquisition of the
Corporation by another Person or affiliated group of Persons by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation, issuance of new securities or
transfer of issued and outstanding securities) where less than a majority of the
voting power of the acquiring or surviving Person or group immediately following
such acquisition is held by Persons who were stockholders of the Corporation
immediately prior to such acquisition, or (iii) a sale or other disposition of
all or substantially all of the assets of the Corporation, as determined by the
Board of Directors, the Holders of Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of Junior Securities by reason
of their ownership thereof, an amount per share in cash equal to the greater of
(x)  the Stated Value for each share of Series A Preferred Stock then held by
them, plus all accrued and unpaid dividends on such Series A Preferred Stock as
of the date of such event, or (y) the amount payable per share of Common Stock
which such Holder of Series A Preferred Stock would have received if such Holder
had converted to Common Stock immediately prior to the Liquidation Event all of
the shares of Series A Preferred Stock then held by such Holder together with
all accrued but unpaid dividends on such Series A Preferred Stock as of the date
of such event (the “Series A Stock Liquidation Preference”). If, upon the
occurrence of a Liquidation Event, the funds thus distributed among the Holders
of the Series A Preferred Stock shall be insufficient to permit the payment to
such Holders of the full Series A Stock Liquidation Preference, then the entire
assets and funds of the Corporation legally available for distribution
(including after giving effect to the terms of Section 20(c)(iii)) shall be
distributed ratably among the Holders of the Series A Preferred Stock in
proportion to the aggregate Series A Stock Liquidation Preference that would
otherwise be payable to each of such Holders.

 

 

 

 

 B-4 

 

 

(b) In the event of a Liquidation Event, following completion of the
distributions required by the first sentence of paragraph (a) of this Section 7,
if assets or surplus funds remain in the Corporation, the holders of the Junior
Securities shall share in all remaining assets of the Corporation, in accordance
with the General Corporation Law of Delaware and the Certificate of
Incorporation.

 

(c) The Corporation shall give each Holder written notice of any Liquidation
Event no less than 30 days prior to the occurrence thereof. Notwithstanding any
provision of this Section 7 to the contrary, at any time during the 30-day
period following delivery of such written notice, any Holder shall have the
right to issue a Notice of Conversion as set forth in Section 8(a)(i). In such
case, the Corporation shall follow the procedures for conversion set forth under
Section 8(a)(i).

 

(d) Notwithstanding any of the foregoing contained in this Section 7, if any
Liquidation Event can also be construed as a Fundamental Transaction hereunder
as set forth in Section 14, then to the extent that the Holders shall receive
greater consideration as a Fundamental Transaction, then the provisions of
Section 14 shall apply.

 

(e) For the avoidance of doubt, in no circumstances shall any event occurring
on, or in connection with, the Original Issue Date be construed as a Liquidation
Event for purposes of the Series A Preferred Stock and this Certificate of
Designation.

 

8.                  Conversion.

 

(a) Optional Conversion.

 

(i)                 At any time and from time to time after the earlier of (A)
the approval by the stockholders of the Corporation of an amended and restated
certificate of incorporation of the Corporation which provides for a sufficient
number of shares of Common Stock authorized and available for issuance upon
conversion of the shares of Series A Preferred Stock or (B) an event occurring
in accordance with the terms set forth in Section 7(c) (either (A) or (B), the
“Conversion Period”)all or any portion of the Series A Preferred Stock held by
any Holder may be converted into shares of duly authorized, validly issued,
fully-paid and non-assessable share of Common Stock (each an “Underlying Share”)
at a rate of 5,097.053 shares of Common Stock per share of Series A Preferred
Stock to be converted by such Holder, as adjusted pursuant to Section 8(c). The
number of Underlying Shares into which each share of Series A Preferred Stock is
convertible, as adjusted from time to time in accordance with this Section 8, is
referred to herein as the “Conversion Number.” A Holder may convert Series A
Preferred Stock into Common Stock pursuant to this paragraph at any time, and
from time to time by delivering to the Corporation during the Conversion Period
(i) a written notice of the election to convert executed by the Holder (the
“Notice of Conversion”), specifying the number of shares of Series A Preferred
Stock to be converted, the name in which the shares of the Common Stock
deliverable upon conversion shall be registered, and the address of the named
person, and (ii) the original certificate(s), if any, evidencing the Series A
Preferred Stock being converted. The “Conversion Date,” or the date on which an
optional conversion shall be deemed effective, shall be defined as the first
Trading Day on which the Corporation has received each of (i) if applicable, the
original certificates (if any) representing the shares of the Series A Preferred
Stock being converted, duly endorsed, and (ii) the accompanying Conversion
Notice.

 

 

 

 B-5 

 

 

(b) Mandatory Conversion.

 

(i)           At such time as the Corporation files an amendment (“Amendment”)
to its Certificate of Incorporation with the Secretary of State of Delaware
effecting either a (i) reverse stock split or (ii) an increase in the
Corporation’s authorized Common Stock, so that, in either event, the Corporation
has a sufficient number of authorized and unissued shares of Common Stock so as
to permit the conversion of all outstanding shares of the Series A Preferred
Stock into Common Stock, then upon the filing and acceptance of the Amendment,
whether by amendment or restatement, and the effectiveness of any registration
statement registering the resale of the Underlying Shares, all the outstanding
shares of Series A Preferred Stock will immediately and automatically convert
into shares of Common Stock without any notice or action required on the part of
the Corporation or the Holder (“Mandatory Conversion”). At the consummation of
the Mandatory Conversion, the holders of Series A Preferred Stock will be
entitled to receive Common Stock at the then applicable Conversion Number.

 

(ii)          The Corporation agrees that it shall in good faith, promptly, take
any and all such corporate action as may, in the opinion of its counsel, be
necessary to effect the Amendment and the filing of a registration statement
registering the resale of such shares and to expeditiously effect the conversion
of all outstanding shares of the Series A Preferred Stock to shares of Common
Stock, including, without limitation, use its reasonable best efforts to obtain
the requisite stockholder approval of any necessary amendment to the Certificate
of Incorporation to achieve the foregoing.

 

(c) Adjustments to Conversion Number.  Stock Splits and Combinations. If the
outstanding shares of Common Stock are split into a greater number of shares,
the Conversion Number will be proportionately increased. If the outstanding
shares of Common Stock are combined into a smaller number of shares, the
Conversion Number then in effect immediately before such combination will be
proportionately decreased. These adjustments will be effective at the close of
business on the date the split or combination becomes effective.

 

(i)           Dividends and Other Distributions in Shares of Common Stock. If
the Corporation declares or makes a dividend or other distribution payable in
shares of Common Stock, or any other securities convertible into Common Stock,
to holders of Common Stock, then the Conversion Number will be increased,
effective at the close of business on the date of issuance of the shares of
Common Stock paid as a dividend or distribution as calculated on as converted
basis taking into account any securities issued which are convertible into
Common Stock (the “Measurement Date”), to a number determined by multiplying
such Conversion Number by a fraction:

 

 

 

 B-6 

 

 

(A)             the numerator of which will be sum of (x) the number of shares
of Common Stock outstanding immediately prior to the Measurement Date, as
calculated on a fully-diluted basis, plus (y) the number of shares of Common
Stock issued in payment of such dividend or distribution as calculated on as
converted basis taking into account any securities issued which are convertible
into Common Stock, and

 

(B)              the denominator of which will be the number of shares of Common
Stock outstanding, on a fully diluted basis, immediately prior to the
Measurement Date.

 

(ii)               Rules of Calculation; Treasury Stock. The number of shares of
Common Stock outstanding will be calculated on the basis of the number of issued
and outstanding shares of Common Stock on the applicable date, not including
shares held in the treasury of the Corporation. The Corporation shall not pay
any dividend on or make any distribution to shares of Common Stock held in
treasury.

 

(iii)             Waiver. Notwithstanding the foregoing, the Conversion Number
will not be increased if the Corporation receives, prior to the Measurement
Date, written notice from the Holders representing at least a majority of the
then outstanding shares of Series A Preferred Stock, voting together as a
separate class, that no adjustment is to be made as the result of a dividend or
other distribution on shares of Common Stock. This waiver will be limited in
scope and will not be valid for any dividend or other distribution on shares of
Common Stock not specifically provided for in such notice.

 

9.                  Mechanics of Conversion.

 

(a)               Delivery of Certificate(s) Upon Conversion(a). Upon conversion
of any share of Series A Preferred Stock, the Corporation shall promptly (but in
no event later than three Trading Days after the Conversion Date or Mandatory
Conversion Date, as applicable (the “Share Delivery Date”) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate a certificate or certificates
for the Underlying Shares issuable upon such conversion. The Corporation shall,
upon request of the Holder, deliver any certificate or certificates required to
be delivered by the Corporation under this Section electronically through the
Depositary Trust Company or another established clearing corporation performing
similar functions. The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become the holder of record
of such Underlying Shares as of the Conversion Date. Upon surrender of a
certificate representing the shares of Series A Preferred Stock to be converted
following one or more partial conversions, the Corporation shall promptly
deliver to the Holder a new certificate representing the remaining shares of
Series A Preferred Stock. If the shares of Series A Preferred Stock are not
certificated, the holder must deliver evidence of ownership satisfactory to the
Corporation and its transfer agent. If in the case of any Notice of Conversion
such certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Corporation at any time on
or before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Corporation shall immediately return the
certificates representing the shares of Series A Preferred Stock tendered for
conversion. The Common Stock issuable upon the Mandatory Conversion shall be
issued with a restrictive legend indicating that it was issued in a transaction
which is exempt from registration under the Securities Act of 1933, as amended
(“Securities Act”), and that it cannot be transferred unless it is so
registered, or an exemption from registration is available, in the opinion of
counsel to the Corporation.

 

 

 

 

 

 

 B-7 

 

 

(b)               Transfer Tax Matters. Unless the shares of Common Stock
deliverable upon conversion are to be issued in the same name as the name in
which the shares of Series A Preferred Stock to be converted are registered, the
Holder must also deliver to the transfer agent an instrument of transfer, in
form satisfactory to the Corporation, duly executed by the Holder or the
Holder’s duly authorized attorney, together with an amount sufficient to pay any
transfer or similar tax in connection with the issuance and delivery of such
shares of Common Stock in such name (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid).

 

10.              Redemption Rights. The Series A Preferred Stock does not have
any redemption rights.

 

11.              Reservation of Common Stock. The Corporation shall at all times
during the Conversion Period reserve and keep available for issuance upon the
conversion of shares of Series A Preferred Stock, such number of its authorized
but unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding shares of Series A Preferred Stock
(including any shares of Series A Preferred Stock paid by the Corporation as in
kind dividends on the Series A Preferred Stock), and shall take all action to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
A Preferred Stock; provided, that the Holders approve any such action that
requires a vote of the Holders in accordance with Section 3. The Corporation
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable.

 

12.              Charges, Taxes and Expenses. The issuance of certificates for
shares of Series A Preferred Stock and for Underlying Shares issued upon
conversion of (or otherwise in respect of) the Series A Preferred Stock shall be
made without charge to the Holders for any issue or transfer tax, transfer agent
fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Corporation;
provided, however, that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the registration of
any certificates for Common Stock or Series A Preferred Stock in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring the Series A
Preferred Stock or receiving Underlying Shares in respect of the Series A
Preferred Stock.

  

13.              Replacement Certificates. If any certificate evidencing Series
A Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed,
the Corporation shall issue or cause to be issued in exchange and substitution
for and upon cancellation thereof, or in lieu of and substitution for such
certificate, a new certificate, but only upon receipt of evidence reasonably
satisfactory to the Corporation of such loss, theft or destruction and customary
and reasonable indemnity, if requested. Applicants for a new certificate under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Corporation or
its transfer agent may prescribe.

 

 

 

 

 B-8 

 

 

14.              Fundamental Transactions. If, at any time while any shares of
Series A Preferred Stock are outstanding, (i) the Corporation effects any merger
of the Corporation into, or consolidation of the Corporation with, another
Person, (ii) the Corporation effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) a Change in Control
Event occurs, (iv) a Liquidation Event occurs under which Section 7(d) is
applicable, or (v) the Corporation effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then, upon any subsequent
conversion of Series A Preferred Stock, each Holder shall have the right to
receive, for each Underlying Share that would have been issuable upon such
conversion absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the record holder of such Underlying Shares (the
“Alternate Consideration”). The foregoing provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of the shares of
Series A Preferred Stock outstanding as of the date of such transaction, and
shall similarly apply to successive mergers, consolidations, sales,
reclassifications or share exchanges.

 

15.              No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock, whether
voluntary or mandatory. Instead, the Corporation shall pay the cash value of any
fractional share to each Holder that would otherwise be entitled to a fractional
share.

 

16.              Notice of Corporate Events. If the Corporation (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including, without limitation, any granting of
rights or warrants to subscribe for or purchase any capital stock of the
Corporation or any subsidiary, or (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Liquidation
Event, Fundamental Transaction or Change of Control, then the Corporation shall
deliver to each Holder a notice which shall specify (1) the record date for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such Liquidation Event, Fundamental
Transaction or Change of Control is expected to become effective, and (3) the
date, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
any such Liquidation Event or Fundamental Transaction.

 

17.              Negative Covenants. So long as any shares of Series A Preferred
Stock are outstanding, the Corporation will not, and will not permit any of its
Subsidiaries to, directly or indirectly, without the prior written consent of
the Holders of a majority of the Series A Preferred Stock then outstanding: (i)
amend its Certificate of Incorporation, bylaws or other charter documents so as
to materially and adversely affect any rights of any Holder; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock or Common Stock Equivalents
pursuant to key employee equity incentive awards; (iii) enter into any agreement
with respect to the foregoing; or (iv) pay cash dividends or distributions on
any equity securities of the Corporation other than pursuant to the terms of the
Corporation’s outstanding Series A Convertible Voting Preferred Stock. For
purposes of this Section 17, the following terms shall have the meanings set
forth below:

 

 

 

 B-9 

 

 

“Common Stock Equivalents” means any securities of the Corporation or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

18.              Notices. Any and all notices or other communications or
deliveries hereunder (including without limitation any Conversion Notice) shall
be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section prior to 5:00 p.m. (Eastern
time) on a Business Day, (ii) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Business Day
or later than 5:00 p.m. (Eastern time) on any Business Day, (iii) the Business
Day following the date of transmittal, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be:
(i) if to the Corporation, to Duane Morris LLP, One Riverfront Plaza, 1037
Raymond Blvd., Suite 1800, Newark, NJ 07102 Attn: Dean M. Colucci, or (ii) if to
a Holder, to the address or facsimile number appearing on the Corporation’s
Preferred Stock Register or such other address or facsimile number as such
Holder may provide to the Corporation in accordance with this Section.

 

19.              Miscellaneous.

 

(a) The headings herein are for convenience only, do not constitute a part of
this Certificate of Designation and shall not be deemed to limit or affect any
of the provisions hereof.

 

(b) No provision of this Certificate of Designation may be amended, except in a
written instrument signed by the Corporation and Holders of at least a majority
of the shares of Series A Preferred Stock then outstanding.

 

(c) The Series A Preferred Stock (i) is senior to all other equity interests in
the Corporation outstanding as of the Original Issue Date in right of payment,
whether with respect to dividends or upon liquidation or dissolution, or
otherwise, other than the outstanding Series A Preferred Stock, and (ii) unless
otherwise approved in accordance with this Certificate of Designation, will be
senior to all other equity or equity equivalent securities issued by the
Corporation after the Original Issue Date, other than Series A Preferred Stock
issued after the Original Issue Date in accordance with this Series A Preferred
Stock Certificate of Designation.

 

(d) Any of the rights of the Holders of Series A Preferred Stock set forth
herein may be waived by the affirmative vote of Holders of a majority of the
shares of Series A Preferred Stock then outstanding. No waiver of any default
with respect to any provision, condition or requirement of this Certificate of
Designation shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

[Signature Page Follows.]

 

 

 B-10 

 

 

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation
for the Series A Preferred Stock to be executed by its duly authorized officer
on August 19, 2020.

 

 

 

  PATRIOT SCIENTIFIC CORPORATION           By:        Name: Carlton Johnson
Title: Interim Chief Executive Officer and Interim Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 B-11 

 

 

Exhibit C

Form of Series B Convertible Preferred Certificate of Designations

 

 

CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND LIMITATIONS OF THE
SERIES B CONVERTIBLE VOTING PREFERRED STOCK
OF
PATRIOT SCIENTIFIC CORPORATION

_________________

 

Patriot Scientific Corporation, a Delaware corporation, (the “Corporation”) DOES
HEREBY CERTIFY:

 

The Amended and Restated Certificate of Incorporation of the Corporation (the
“Charter”) confers upon the Board of Directors of the Corporation (the “Board of
Directors”) the authority to provide for the issuance of shares of preferred
stock in series and to establish the number of shares to be included in each
such series and to fix the powers, designations, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof. On August 18, 2020, the Board of Directors duly adopted the following
resolution creating a series of preferred stock designated as the Series B
Convertible Voting Preferred Stock (the “Series B Preferred Stock”), comprised
initially of 70,000 shares and such resolution has not been modified and is in
full force and effect on the date hereof: RESOLVED: that, pursuant to the
authority vested in the Board of Directors in accordance with the provisions of
the Charter, a series of the class of authorized preferred stock, par value
$0.00001 per share, of the Corporation is hereby created and that the
designation and number of shares thereof and the powers, preferences and rights
of the shares of such series, and the qualifications, limitations and
restrictions thereof are as follows::

 

1.                  Series B Designation, Amount and Par Value. The series of
Preferred Stock shall be designated as the Corporation’s Series B Convertible
Voting Preferred Stock, and the number of shares so designated shall be 70,000.
Each share of Series B Preferred Stock shall have a par value of $0.00001 and a
stated value equal to $6.50 per share (as adjusted for any stock split, stock
dividend, stock combination or other similar transactions with respect to the
Series B Preferred Stock, the “Stated Value”).

 

2.                  Definitions. In addition to the terms defined elsewhere in
this Certificate of Designation, the following terms have the meanings
indicated:

 

“Anti-Dilution Threshold” equals ONE MILLION DOLLARS ($1,000,000).

 

“Bankruptcy Event” means any of the following events: (a) the Corporation or any
Significant Subsidiary (as such term is defined in Rule 1.02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Corporation or any Significant Subsidiary thereof; (b) there is commenced
against the Corporation or any Significant Subsidiary thereof any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Corporation or any Significant Subsidiary thereof is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Corporation or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial
part of its property that is not discharged or stayed within 60 days; (e) the
Corporation or any Significant Subsidiary thereof makes a general assignment for
the benefit of creditors; (f) the Corporation or any Significant Subsidiary
thereof calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) the Corporation or any
Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

 

 

 

 C-1 

 

 

“Business Day” means any day other than Saturday, Sunday and any day on which
banks are required or authorized by law to be closed in the State of Delaware.

 

“Change of Control Event” means the occurrence after the Original Issue Date (as
defined below), excluding a Liquidation Event, of any of (i) an acquisition
after the date hereof by an individual or legal entity or “group” (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the
Corporation, by contract or otherwise) of in excess of 35% of the voting
securities of the Corporation, or (ii) the Corporation merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Corporation and, after giving effect to such transaction, the
stockholders of the Corporation immediately prior to such transaction own less
than 65% of the aggregate voting power of the Corporation or the successor
entity of such transaction, or (iii) the Corporation sells or transfers its
assets, as an entirety or substantially as an entirety, to another Person and
the stockholders of the Corporation immediately prior to such transaction own
less than 65% of the aggregate voting power of the acquiring entity immediately
after the transaction, or (iv) a replacement at one time or within a one-year
period of more than one-half of the members of the Corporation’s board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (or by those individuals
who are serving as members of the board of directors on any date whose
nomination to the board of directors was approved by a majority of the members
of the board of directors who are members on the date hereof), or (v) the
execution by the Corporation of an agreement to which the Corporation is a party
or by which it is bound, providing for any of the events set forth above in
(i) through (iv).

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Corporation, $0.00001 par value per
share.

 

“Eligible Market” means any of (i) the New York Stock Exchange, (ii) the NYSE
American, (iii) The NASDAQ Global Market, The NASDAQ Capital Market or The
NASDAQ Global Select Market (each in clause (iii), a “NASDAQ Stock Market) or
(iv) OTC Markets Pink or OTCQB.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“Holder” means any holder of Series B Preferred Stock.

 

“Junior Securities” means (i) the Common Stock, and (ii) all equity or equity
equivalent securities issued by the Corporation after the Original Issue Date
that do not rank senior to or pari passu with the Series B Preferred Stock.

 

“Net Working Capital” means the net working capital of the Corporation on the
Original Issue Date. On such date of determination, subject to the next sentence
in this definition, Net Working Capital shall be calculated as the positive
difference (if any) of current assets less current liabilities, all as
determined under generally accepted accounting principles as then in effect in
the United States). Notwithstanding the foregoing, Net Working Capital shall
exclude any restricted cash and any corresponding current liability. The
Corporation shall provide the Holders with such back-up materials as the Holders
may reasonably request (such as the general ledger entries of the Corporation)
to validate the Net Working Capital calculation. The Holders shall have ten (10)
calendar days from receipt of such information to object to the Net Working
Capital calculation. If the Holders disagree with such calculation, the Holders
and the Corporation shall appoint a mutually agreed upon accounting firm to
calculate Net Working Capital as of the Original Issue Date. Such calculation by
the accounting firm shall then be binding on all parties for purposes of the
Series B Preferred Stock.

 

“Original Issue Date” means the date of the first issuance of any shares of the
Series B Preferred Stock, regardless of the number of transfers of any
particular shares of Series B Preferred Stock and regardless of the number of
certificates that may be issued to evidence such Series B Preferred Stock.

 

“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture or other non-corporate business
enterprise, limited liability company, joint stock company, trust, organization,
business, labor union or government (or an agency or subdivision thereof) or any
court or other federal, state, local or other governmental authority or other
entity of any kind.

 

 

 

 C-2 

 

 

“Qualifying Capital Raise” means the receipt by the Corporation of gross
proceeds, in immediately available funds, of not less than an amount equal to
the Anti-Dilution Threshold through the combination of (a) the Corporation’s
issuance and sale of equity and/or hybrid securities (which are convertible into
equity) and (b) Net Working Capital. For the avoidance of doubt, the conversion
of either the Series B Preferred Stock or the Series A Preferred Stock shall
neither be construed as, nor considered in the calculation of, a Qualifying
Capital Raise

 

“Series B Preferred Stock” means the Corporation’s Series B Convertible Voting
Preferred Stock authorized pursuant to the Series B Preferred Stock Designation.

 

“Series B Preferred Stock Designation” means this Certificate of Designation for
the Corporation’s Series B Convertible Voting Preferred Stock, as adopted by the
by the affirmative vote of the Board of Directors on August 18, 2020.

 

“Trading Day” shall mean, if a security is listed or admitted to trading, or
quoted, on an Eligible Market, their successors or another national securities
exchange or national securities market, a full day on which the NASDAQ Stock
Market or such other national securities exchange or national securities market
on which the security is traded is open for business and on which trades may be
made thereon.

 

“Triggering Event” happens upon the occurrence of a Qualifying Capital Raise has
occurred.

 

3.                  Voting Rights. Holders of the Series B Preferred Stock shall
have the following voting rights:

 

(a)       Those voting rights required by applicable law; and

 

(b)       The right to vote together with the holders of the Common Stock, as a
single class, upon all matters submitted to holders of Common Stock for a vote.
Each share of Series B Preferred Stock will carry a number of votes equal to the
number of shares of Common Stock issuable based on the then applicable
Conversion Number; provided, however, that so long as shares of Series B
Preferred Stock are outstanding, the Corporation shall not, without the prior
approval of the Holders of at least a majority of the then issued and
outstanding shares of Series B Preferred Stock, voting as a separate class:
(a) authorize or increase the authorized number of shares of Series B Preferred
Stock or any shares of capital stock of the Corporation having any right,
preference or priority ranking senior to or pari passu with Series B Preferred
Stock, (b) authorize, adopt or approve any amendment to the Certificate of
Incorporation or Bylaws of the Corporation or this Certificate of Designation
that would increase or decrease the par value or the Stated Value of the shares
of the Series B Preferred Stock, alter or change the powers, preferences or
rights of the shares of Series B Preferred Stock or alter or change the powers,
preferences or rights of any other capital stock of the Corporation if after
such alteration or change such capital stock would be senior to or pari passu
with Series B Preferred Stock, (c) amend, alter or repeal the Certificate of
Incorporation or the Bylaws of the Corporation or this Certificate of
Designation so as to affect adversely the shares of Series B Preferred Stock, or
(d) authorize or issue any security convertible into, exchangeable for or
evidencing the right to purchase or otherwise receive any shares of any class or
classes of capital stock of the Corporation having any right, preference or
priority ranking senior to or pari passu with Series B Preferred Stock.

 

4.                  Dividends.

 

(a) The Series B Preferred Stock will not be entitled to dividends unless the
Corporation pays cash dividends or dividends in other property to holders of
outstanding shares of Common Stock, in which event, each outstanding share of
the Series B Preferred Stock will be entitled to receive dividends of cash or
property in an amount or value equal to the Conversion Number multiplied by the
amount paid in respect of one share of Common Stock. Any dividend payable to the
Series B Preferred Stock will have the same record and payment date and terms as
the dividend payable on the Common Stock.

 

(b) Notwithstanding any other provision of this Certificate of Designation, the
Corporation shall not pay any dividends on, or make any distributions with
respect to, in cash or in kind or otherwise, its Common Stock or any other
Junior Securities when accrued and unpaid dividends are owed to the Holders.

 

 

 

 C-3 

 

 

5.                  Registration of Series B Preferred Stock. The Corporation
shall register shares of the Series B Preferred Stock, upon records to be
maintained by the Corporation for that purpose (the “Series B Preferred Stock
Register”), in the name of the record Holders thereof from time to time. The
Corporation may deem and treat the registered Holder of shares of Series B
Preferred Stock as the absolute owner thereof for the purpose of any conversion
or redemption thereof or any distribution to such Holder, and for all other
purposes, absent actual written notice to the contrary from the registered
Holder. The shares of Series B Preferred Stock shall be uncertificated.

 

6.                  Registration of Transfers. The Corporation shall register
the transfer of any shares of Series B Preferred Stock in the Series B Preferred
Stock Register, upon receipt of an instrument of transfer acceptable to the
Corporation from the Holder of such shares.

 

7.                  Liquidation.

 

(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary (a “Liquidation Event”), which
shall be deemed to include (i) a Bankruptcy Event, (ii) the acquisition of the
Corporation by another Person or affiliated group of Persons by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger, consolidation, issuance of new securities or
transfer of issued and outstanding securities) where less than a majority of the
voting power of the acquiring or surviving Person or group immediately following
such acquisition is held by Persons who were stockholders of the Corporation
immediately prior to such acquisition, or (iii) a sale or other disposition of
all or substantially all of the assets of the Corporation, as determined by the
Board of Directors, the Holders of Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of Junior Securities by reason
of their ownership thereof, an amount per share in cash equal to the greater of
(x) the Stated Value for each share of Series B Preferred Stock then held by
them, plus all accrued and unpaid dividends on such Series B Preferred Stock as
of the date of such event, or (y) the amount payable per share of Common Stock
which such Holder of Series B Preferred Stock would have received if such Holder
had converted to Common Stock immediately prior to the Liquidation Event all of
the shares of Series B Preferred Stock then held by such Holder together with
all accrued but unpaid dividends on such Series B Preferred Stock as of the date
of such event (the “Series B Stock Liquidation Preference”). If, upon the
occurrence of a Liquidation Event, the funds thus distributed among the Holders
of the Series B Preferred Stock shall be insufficient to permit the payment to
such Holders of the full Series B Stock Liquidation Preference, then the entire
assets and funds of the Corporation legally available for distribution
(including after giving effect to the terms of Section 20(c)(iii)) shall be
distributed ratably among the Holders of the Series B Preferred Stock in
proportion to the aggregate Series B Stock Liquidation Preference that would
otherwise be payable to each of such Holders.

 

(b) In the event of a Liquidation Event, following completion of the
distributions required by the first sentence of paragraph (a) of this Section 7,
if assets or surplus funds remain in the Corporation, the holders of the Junior
Securities shall share in all remaining assets of the Corporation, in accordance
with the General Corporation Law of Delaware and the Certificate of
Incorporation.

 

(c) The Corporation shall give each Holder written notice of any Liquidation
Event no less than 30 days prior to the occurrence thereof. Notwithstanding any
provision of this Section 7 to the contrary, at any time during the 30-day
period following delivery of such written notice, any Holder shall have the
right to issue a Notice of Conversion as set forth in Section 8(a)(i). In such
case, the Corporation shall follow the procedures for conversion set forth under
Section 8(a)(i).

 

(d) Notwithstanding any of the foregoing contained in this Section 7, if any
Liquidation Event can also be construed as a Fundamental Transaction hereunder
as set forth in Section 14, then to the extent that the Holders shall receive
greater consideration as a Fundamental Transaction, then the provisions of
Section 14 shall apply.

 

(e) For the avoidance of doubt, in no circumstances shall any event occurring
on, or in connection with, the Original Issue Date be construed as a Liquidation
Event for purposes of the Series B Preferred Stock and this Certificate of
Designation.

 

 

 

 

 C-4 

 

 

8.                  Conversion.

 

(a) Optional Conversion.

 

(i)                 At any time and from time to time after the earlier of (A)
the approval by the stockholders of the Corporation of an amended and restated
certificate of incorporation of the Corporation which provides for a sufficient
number of shares of Common Stock authorized and available for issuance upon
conversion of the shares of Series B Preferred Stock or (B) an event occurring
in accordance with the terms set forth in Section 7(c) (either (A) or (B), the
“Conversion Period”), all or any portion of the Series B Preferred Stock held by
any Holder may be converted into shares of duly authorized, validly issued,
fully-paid and non-assessable share of Common Stock (each an “Underlying Share”)
at a rate of 5,734.185 shares of Common Stock per share of Series B Preferred
Stock to be converted by such Holder, as adjusted pursuant to Section 8(c). The
number of Underlying Shares into which each share of Series B Preferred Stock is
convertible, as adjusted from time to time in accordance with this Section 8, is
referred to herein as the “Conversion Number.” A Holder may convert Series B
Preferred Stock into Common Stock pursuant to this paragraph at any time, and
from time to time by delivering to the Corporation during the Conversion Period
(i) a written notice of the election to convert executed by the Holder (the
“Notice of Conversion”), specifying the number of shares of Series B Preferred
Stock to be converted, the name in which the shares of the Common Stock
deliverable upon conversion shall be registered, and the address of the named
person, and (ii) the original certificate(s), if any, evidencing the Series B
Preferred Stock being converted. The “Conversion Date,” or the date on which an
optional conversion shall be deemed effective, shall be defined as the first
Trading Day on which the Corporation has received each of (i) if applicable, the
original certificates (if any) representing the shares of the Series B Preferred
Stock being converted, duly endorsed, and (ii) the accompanying Conversion
Notice.

 

Notwithstanding the foregoing, at any time prior to the Conversion Date, upon
the occurrence of a Triggering Event, the Conversion Number shall be subject to
upward adjustment adjusted upward until the Corporation reaches the
Anti-Dilution Threshold through through one or more Qualfying Capital Raises:
provided that such adjustment shall terminate and not apply as to any shares of
Series B Preferred Stock that previously shall have converted into Common Stock.
For example, if Net Working Capital is $400,000, then the to reach the
Anti-Dilution Threshold the Corporation shall only need to raise $600,000 in one
or more Qualifying Capital Raises. Following any Qualifying Capital Raise, the
Conversion Number shall be adjusted to equal 10% of the fully diluted common
stock of the Corporation (including for such purposes all other convertible
securities outstanding and reserved for issuance except stock options issued and
outstanding and reserved for issuance under board approved employee stock option
plans reserving for issuance no more than ten percent (10%) of the outstanding
common stock of the Corporation then outstanding, after giving effect to any
Qualifying Capital Raise, until the Anti-Dilution Threshold is met) and divided
that sum by the number of shares of Series B Preferred Stock then outstanding.
For example, if the number of fully diluted shares of common stock of the
Corporation is 4,100,000,000 upon reaching the Anti-Dilution Threshold, then the
Conversion Number shall be 5,857.14286 (4,100,000,000 times 10% divided by the
number of shares of Series B Preferred Stock then outstanding)

 

(b) Mandatory Conversion. The Series B Preferred Stock shall not be subject to
mandatory conversion.

 

(c) Adjustments to Conversion Number.  Stock Splits and Combinations. If the
outstanding shares of Common Stock are split into a greater number of shares,
the Conversion Number will be proportionately increased. If the outstanding
shares of Common Stock are combined into a smaller number of shares, the
Conversion Number then in effect immediately before such combination will be
proportionately decreased. These adjustments will be effective at the close of
business on the date the split or combination becomes effective.

 

(i)        Dividends and Other Distributions in Shares of Common Stock. If the
Corporation declares or makes a dividend or other distribution payable in shares
of Common Stock, or any other securities convertible into Common Stock, to
holders of Common Stock, then the Conversion Number will be increased, effective
at the close of business on the date of issuance of the shares of Common Stock
paid as a dividend or distribution as calculated on as converted basis taking
into account any securities issued which are convertible into Common Stock (the
“Measurement Date”), to a number determined by multiplying such Conversion
Number by a fraction:

 

 

 

 

 C-5 

 

 

(A)             the numerator of which will be sum of (x) the number of shares
of Common Stock outstanding immediately prior to the Measurement Date, as
calculated on a fully-diluted basis, plus (y) the number of shares of Common
Stock issued in payment of such dividend or distribution as calculated on as
converted basis taking into account any securities issued which are convertible
into Common Stock, and

 

(B)              the denominator of which will be the number of shares of Common
Stock outstanding, on a fully diluted basis, immediately prior to the
Measurement Date.

 

(ii)            Rules of Calculation; Treasury Stock. The number of shares of
Common Stock outstanding will be calculated on the basis of the number of issued
and outstanding shares of Common Stock on the applicable date, not including
shares held in the treasury of the Corporation. The Corporation shall not pay
any dividend on or make any distribution to shares of Common Stock held in
treasury.

 

(iii)             Waiver. Notwithstanding the foregoing, the Conversion Number
will not be increased if the Corporation receives, prior to the Measurement
Date, written notice from the Holders representing at least a majority of the
then outstanding shares of Series B Preferred Stock, voting together as a
separate class, that no adjustment is to be made as the result of a dividend or
other distribution on shares of Common Stock. This waiver will be limited in
scope and will not be valid for any dividend or other distribution on shares of
Common Stock not specifically provided for in such notice.

 

9.                  Mechanics of Conversion.

 

(a)               Delivery of Certificate(s) Upon Conversion(a). Upon conversion
of any share of Series B Preferred Stock, the Corporation shall promptly (but in
no event later than three Trading Days after the Conversion Date or Mandatory
Conversion Date, as applicable (the “Share Delivery Date”) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder and
in such name or names as the Holder may designate a certificate or certificates
for the Underlying Shares issuable upon such conversion. The Corporation shall,
upon request of the Holder, deliver any certificate or certificates required to
be delivered by the Corporation under this Section electronically through the
Depositary Trust Company or another established clearing corporation performing
similar functions. The Holder, or any Person so designated by the Holder to
receive Underlying Shares, shall be deemed to have become the holder of record
of such Underlying Shares as of the Conversion Date. Upon surrender of a
certificate representing the shares of Series B Preferred Stock to be converted
following one or more partial conversions, the Corporation shall promptly
deliver to the Holder a new certificate representing the remaining shares of
Series B Preferred Stock. If the shares of Series B Preferred Stock are not
certificated, the holder must deliver evidence of ownership satisfactory to the
Corporation and its transfer agent. If in the case of any Notice of Conversion
such certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Corporation at any time on
or before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Corporation shall immediately return the
certificates representing the shares of Series B Preferred Stock tendered for
conversion. The Common Stock issuable upon the Mandatory Conversion shall be
issued with a restrictive legend indicating that it was issued in a transaction
which is exempt from registration under the Securities Act of 1933, as amended
(“Securities Act”), and that it cannot be transferred unless it is so
registered, or an exemption from registration is available, in the opinion of
counsel to the Corporation.

 

(b)               Transfer Tax Matters. Unless the shares of Common Stock
deliverable upon conversion are to be issued in the same name as the name in
which the shares of Series B Preferred Stock to be converted are registered, the
Holder must also deliver to the transfer agent an instrument of transfer, in
form satisfactory to the Corporation, duly executed by the Holder or the
Holder’s duly authorized attorney, together with an amount sufficient to pay any
transfer or similar tax in connection with the issuance and delivery of such
shares of Common Stock in such name (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid).

 

10.              Redemption Rights. The Series B Preferred Stock does not have
any redemption rights.

 

11.              Reservation of Common Stock. The Corporation shall at all times
during the Conversion Period reserve and keep available for issuance upon the
conversion of shares of Series B Preferred Stock, such number of its authorized
but unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding shares of Series B Preferred Stock
(including any shares of Series B Preferred Stock paid by the Corporation as in
kind dividends on the Series B Preferred Stock), and shall take all action to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
B Preferred Stock; provided, that the Holders approve any such action that
requires a vote of the Holders in accordance with Section 3. The Corporation
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable.

 

 

 

 

 C-6 

 

 

12.              Charges, Taxes and Expenses. The issuance of certificates for
shares of Series B Preferred Stock and for Underlying Shares issued upon
conversion of (or otherwise in respect of) the Series B Preferred Stock shall be
made without charge to the Holders for any issue or transfer tax, transfer agent
fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Corporation;
provided, however, that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the registration of
any certificates for Common Stock or Series B Preferred Stock in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring the Series B
Preferred Stock or receiving Underlying Shares in respect of the Series B
Preferred Stock.

 

13.              Replacement Certificates. If any certificate evidencing Series
B Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed,
the Corporation shall issue or cause to be issued in exchange and substitution
for and upon cancellation thereof, or in lieu of and substitution for such
certificate, a new certificate, but only upon receipt of evidence reasonably
satisfactory to the Corporation of such loss, theft or destruction and customary
and reasonable indemnity, if requested. Applicants for a new certificate under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Corporation or
its transfer agent may prescribe.

 

14.              Fundamental Transactions. If, at any time while any shares of
Series B Preferred Stock are outstanding, (i) the Corporation effects any merger
of the Corporation into, or consolidation of the Corporation with, another
Person, (ii) the Corporation effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) a Change in Control
Event occurs, (iv) a Liquidation Event occurs under which Section 7(d) is
applicable, or (v) the Corporation effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then, upon any subsequent
conversion of Series B Preferred Stock, each Holder shall have the right to
receive, for each Underlying Share that would have been issuable upon such
conversion absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the record holder of such Underlying Shares (the
“Alternate Consideration”). The foregoing provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of the shares of
Series B Preferred Stock outstanding as of the date of such transaction, and
shall similarly apply to successive mergers, consolidations, sales,
reclassifications or share exchanges.

 

15.              No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series B Preferred Stock, whether
voluntary or mandatory. Instead, the Corporation shall pay the cash value of any
fractional share to each Holder that would otherwise be entitled to a fractional
share.

 

16.              Notice of Corporate Events. If the Corporation (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including, without limitation, any granting of
rights or warrants to subscribe for or purchase any capital stock of the
Corporation or any subsidiary, or (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Liquidation
Event, Fundamental Transaction, or Change of Control, then the Corporation shall
deliver to each Holder a notice which shall specify (1) the record date for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such Liquidation Event, Fundamental
Transaction, or Change of Control is expected to become effective, and (3) the
date, if any, that is to be fixed as to when the holders of record of Common
Stock (or other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable upon
any such Liquidation Event or Fundamental Transaction.

 

17.              Negative Covenants. So long as any shares of Series B Preferred
Stock are outstanding, the Corporation will not, and will not permit any of its
Subsidiaries to, directly or indirectly, without the prior written consent of
the Holders of a majority of the Series B Preferred Stock then outstanding: (i)
amend its Certificate of Incorporation, bylaws or other charter documents so as
to materially and adversely affect any rights of any Holder; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock or Common Stock Equivalents
pursuant to key employee equity incentive awards; (iii) enter into any agreement
with respect to the foregoing; or (iv) pay cash dividends or distributions on
any equity securities of the Corporation other than pursuant to the terms of the
Corporation’s outstanding Series B Convertible Voting Preferred Stock. For
purposes of this Section 17, the following terms shall have the meanings set
forth below:

 

 

 

 

 C-7 

 

 

“Common Stock Equivalents” means any securities of the Corporation or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

18.              Notices. Any and all notices or other communications or
deliveries hereunder (including without limitation any Conversion Notice) shall
be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section prior to 5:00 p.m. (Eastern
time) on a Business Day, (ii) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Business Day
or later than 5:00 p.m. (Eastern time) on any Business Day, (iii) the Business
Day following the date of transmittal, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be:
(i) if to the Corporation, to Duane Morris LLP, One Riverfront Plaza, 1037
Raymond Blvd., Suite 1800, Newark, NJ 07102 Attn: Dean M. Colucci, or (ii) if to
a Holder, to the address or facsimile number appearing on the Corporation’s
Preferred Stock Register or such other address or facsimile number as such
Holder may provide to the Corporation in accordance with this Section.

 

19.              Miscellaneous.

 

(a) The headings herein are for convenience only, do not constitute a part of
this Certificate of Designation and shall not be deemed to limit or affect any
of the provisions hereof.

 

(b) No provision of this Certificate of Designation may be amended, except in a
written instrument signed by the Corporation and Holders of at least a majority
of the shares of Series B Preferred Stock then outstanding.

 

(c) The Series B Preferred Stock (i) is senior to all other equity interests in
the Corporation outstanding as of the Original Issue Date in right of payment,
whether with respect to dividends or upon liquidation or dissolution, or
otherwise, other than the outstanding Series B Preferred Stock, and (ii) unless
otherwise approved in accordance with this Certificate of Designation, will be
senior to all other equity or equity equivalent securities issued by the
Corporation after the Original Issue Date, other than Series B Preferred Stock
issued after the Original Issue Date in accordance with this Series B Preferred
Stock Certificate of Designation.

 

(d) Any of the rights of the Holders of Series B Preferred Stock set forth
herein may be waived by the affirmative vote of Holders of a majority of the
shares of Series B Preferred Stock then outstanding. No waiver of any default
with respect to any provision, condition or requirement of this Certificate of
Designation shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

 

[Signature Page Follows.]

 

 

 

 C-8 

 

 

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation
for the Series B Preferred Stock to be executed by its duly authorized officer
on August 19, 2020.

 

 

  PATRIOT SCIENTIFIC CORPORATION           By:        Name: Carlton Johnson
Title: Interim Chief Executive Officer and Interim Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 C-9 

 

 

Exhibit D

Form of Investor Rights agreement

 

TABLE OF CONTENTS

 

Page

1.   Definitions 1 2.   Registration Rights 3 2.1   Demand Registration 3
2.2   Company Registration 4 2.3   Underwriting Requirements 4 2.4   Obligations
of the Company 5 2.5   Furnish Information 7 2.6   Expenses of Registration 7
2.7   Delay of Registration 7 2.8   Reports Under Exchange Act 7 2.9   “Market
Stand-off” Agreement 8 2.10   Restrictions on Transfer 8 2.11   Termination of
Registration Rights 10 3.   Information Rights 10 3.1   Delivery of Financial
Statements 10 3.2   Inspection 11 3.3   Termination of Information 11
3.4   Confidentiality 11 4.   Miscellaneous 11 4.1   Successors and Assigns 11
4.2   Governing Law 12 4.3   Counterparts; Facsimile 12 4.4   Titles and
Subtitles 12 4.5   Notices 12 4.6   Amendments and Waivers 13 4.7   Severability
13 4.8   Aggregation of Stock 13 4.9   Entire Agreement 13 4.10 Dispute
Resolution 13 4.11 Delays or Omissions 14         Schedule A   -   Schedule of
Investors  

 

 

 

 

 

 

D-1

 

 

 

INVESTORS’ RIGHTS AGREEMENT

 

THIS INVESTORS’ RIGHTS AGREEMENT is made as of the 19th day of August, 2020,
between:

 

(a)        PATRIOT SCIENTIFIC CORPORATION, a Delaware corporation (the
“Company”), and

 

(b)        the investor listed on Schedule A hereto, referred to in this
Agreement as the “Investor”.

 

Background

 

1.       Upon the consummation of the transactions set forth in that certain
Stock Purchase Agreement (the “SPA”), dated as of even date herewith, among the
Company, PTSC Sub One, Inc., Mosaic ImmunoEngineering, Inc. (“Mosaic”), certain
shareholders of Mosaic set forth therein, (the “Sellers”), and Steve King (as
the “Sellers’ Representative”), the Investor, as one of the Sellers, shall
receive shares of the Company’s Series B Preferred Stock.

 

2.       As the sole holder of the Series B Preferred Stock the Investor shall
receive certain registration rights and information rights, to which the Company
has agreed under the SPA. This Agreement is intended to set forth those rights
in detail.

 

NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

 

1.       Definitions. For purposes of this Agreement:

 

1.1              “Affiliate” means, with respect to any specified Person, any
other Person who, directly or indirectly, controls, is controlled by, or is
under common control with such Person, including without limitation any general
partner, managing member, officer or director of such Person or any venture
capital fund now or hereafter existing that is controlled by one or more general
partners or managing members of, or shares the same management company with,
such Person.

 

1.2              “Common Stock” means shares of the Company’s common stock,
$0.00001 par value per share.

 

1.3              “Damages” means any loss, damage, or liability (joint or
several) to which a party hereto may become subject under the Securities Act,
the Exchange Act, or other federal or state law, insofar as such loss, damage,
or liability (or any action in respect thereof) arises out of or is based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement of the Company, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) an omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
indemnifying party (or any of its agents or Affiliates) of the Securities Act,
the Exchange Act, any state securities law, or any rule or regulation
promulgated under the Securities Act, the Exchange Act, or any state securities
law.

 

1.4              “Derivative Securities” means any securities or rights
convertible into, or exercisable or exchangeable for (in each case, directly or
indirectly), Common Stock, including options and warrants.

 

1.5              “Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

 

 

 

 

 

D-2

 

 

 

1.6          “Excluded Registration” means (i) a registration relating to the
sale or grant of securities to employees of the Company or a subsidiary pursuant
to a stock option, stock purchase, equity incentive or similar plan; or (ii) a
registration relating to an SEC Rule 145 transaction.

 

1.7          “Form S-1” means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC.

 

1.8          “Form S-3” means such form under the Securities Act as in effect on
the date hereof or any registration form under the Securities Act subsequently
adopted by the SEC that permits incorporation of substantial information by
reference to other documents filed by the Company with the SEC.

 

1.9          “GAAP” means generally accepted accounting principles in the United
States.

 

1.10       “Holder” means any holder of Registrable Securities who is a party to
this Agreement.

 

1.11       “Immediate Family Member” means a child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including
adoptive relationships, of a natural person referred to herein.

 

1.12       “Initiating Holders” means, collectively, Holders who properly
initiate a registration request under this Agreement.

 

1.13       “IPO” means the Company’s first underwritten public offering of its
Common Stock under the Securities Act occurring after the date hereof and the
listing of such Common Stock on a national securities exchange.

 

1.18       “New Securities” means, collectively, equity securities of the
Company, whether or not currently authorized, as well as rights, options, or
warrants to purchase such equity securities, or securities of any type
whatsoever that are, or may become, convertible or exchangeable into or
exercisable for such equity securities.

 

1.19       “Person” means any individual, corporation, partnership, trust,
limited liability company, association or other entity.

 

1.20       “Preferred Stock” means, collectively, shares of the Company’s Series
 A Preferred Stock and Series B Preferred Stock.

 

1.21       “Registrable Securities” means the Common Stock issuable or issued
upon conversion of the Series B Preferred Stock.

 

1.22       “Registrable Securities then outstanding” means the number of shares
determined by adding the number of shares of outstanding Common Stock that are
Registrable Securities and the number of shares of Common Stock issuable
(directly or indirectly) pursuant to then exercisable and/or convertible
securities that are Registrable Securities.

 

1.23       “Restricted Securities” means the securities of the Company required
to bear the legend set forth in Section 2.12(b) hereof.

 

1.24       “SEC” means the Securities and Exchange Commission.

 

1.25       “SEC Rule 144” means Rule 144 promulgated by the SEC under the
Securities Act.

 

 

 

 

 

D-3

 

 

 

1.26       “SEC Rule 144(k)” means Rule 144(k) promulgated by the SEC under the
Securities Act.

 

1.27       “SEC Rule 145” means Rule 145 promulgated by the SEC under the
Securities Act.

 

1.28       “Securities Act” means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

 

1.29       “Selling Expenses” means all underwriting discounts, selling
commissions, and stock transfer taxes applicable to the sale of Registrable
Securities, and fees and disbursements of counsel for any Holder.

 

1.30       “Series A Preferred Stock” means shares of the Company’s Series A
Preferred Stock, $0.00001 par value per share.

 

1.31       “Series B Preferred Stock” means shares of the Company’s Series B
Preferred Stock, $0.00001 par value per share.

 

2.       Registration Rights. The Company covenants and agrees as follows:

 

2.1       Demand Registration.

 

(a)               Form S-1 Demand. If at any time after one hundred eighty (180
after the date of this Agreement, the Company receives a request from Holders of
seventy-five percent (75.00%) of the Registrable Securities then outstanding
that the Company file a Form S-1 registration statement with respect to
one-hundred percent (100%) of the Registrable Securities then outstanding, then
the Company shall (i) within ten (10) days after the date such request is given,
give notice thereof (the “Demand Notice”) to all Holders other than the
Initiating Holders; and (ii) as soon as practicable, and in any event within
sixty (60) days after the date such request is given by the Initiating Holders,
file a Form S-1 registration statement under the Securities Act covering all
Registrable Securities that the Initiating Holders requested to be registered
and any additional Registrable Securities requested to be included in such
registration by any other Holders, as specified by notice given by each such
Holder to the Company within twenty (20) days of the date the Demand Notice is
given, and in each case, subject to the limitations of Section 2.1(c) and
Section 2.3.

 

(b)               Form S-3 Demand. If at any time when it is eligible to use a
Form S-3 registration statement, the Company (x) receives a request from Holders
of the Registrable Securities then outstanding that the Company file a Form S-3
registration statement with respect to outstanding Registrable Securities of
such Holders or (y) undertakes to file a Form S-3 Registration Statement for the
Common Stock issued upon conversion of the Series B Preferred Stock that the
Company file a Form S-3 registration with respect to such Common Stock, then the
Company shall (i) within ten (10) days after the date such request is given or
determination under clause (y) is made, give a Demand Notice to all Holders
other than the Initiating Holders (when applicable); and (ii) as soon as
practicable, and in any event within sixty (60) days after the date such request
under clause (x) is given, file a Form S-3 registration statement under the
Securities Act covering all Registrable Securities requested to be included in
such registration, subject to the limitations of Sections 2.1(c) and 2.3.

 

(c)              Notwithstanding the foregoing obligations, if the Company
furnishes to Holders requesting a registration pursuant to this Section 2.1 a
certificate signed by the Company’s chief executive officer stating that in the
good faith judgment of the Company’s Board of Directors it would be materially
detrimental to the Company and its stockholders for such registration statement
to either become effective or remain effective for as long as such registration
statement otherwise would be required to remain effective, because such action
would (i) materially interfere with a significant acquisition, corporate
reorganization, or other similar transaction involving the Company; (ii) require
premature disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential; or (iii) render the Company
unable to comply with requirements under the Securities Act or Exchange Act,
then the Company shall have the right to defer taking action with respect to
such filing, and any time periods with respect to filing or effectiveness
thereof shall be tolled correspondingly, for a period of not more than ninety
(90) days after the request of the Initiating Holders is given; and provided
that the Company shall not register any securities for its own account or that
of any other stockholder during such ninety (90) day period.

 

 

 

 

 

D-4

 

 

 

(d)              The Company shall not be obligated to effect, or to take any
action to effect, any registration pursuant to Section 2.1(a) during the period
that is sixty (60) days before the Company’s good faith estimate of the date of
filing of, and ending on a date that is one hundred eighty (180) days after the
effective date of, a Company-initiated registration, provided, that the Company
is actively employing in good faith commercially reasonable efforts to cause
such registration statement to become effective

 

2.2       Company Registration. If the Company proposes to register (including,
for this purpose, a registration effected by the Company for stockholders other
than the Holders) any of its securities under the Securities Act in connection
with the public offering of such securities solely for cash, the Company shall,
at such time, promptly give each Holder notice of such registration. Upon the
request of each Holder given within twenty (20) days after such notice is given
by the Company, the Company shall, subject to the provisions of Section 2.3,
cause to be registered all of the Registrable Securities that each such Holder
has requested to be included in such registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.2 before the effective date of such registration, whether or not any
Holder has elected to include Registrable Securities in such registration. The
expenses (other than Selling Expenses) of such withdrawn registration shall be
borne by the Company in accordance with Section 2.6. For the avoidance of doubt,
this Section 2.2 shall not apply to any Excluded Registration.

 

2.3       Underwriting Requirements.

 

(a)       In connection with any offering involving an underwriting of shares of
the Company’s capital stock pursuant to Section 2.2, the Company shall not be
required to include any of the Holders’ Registrable Securities in such
underwriting unless the Holders accept the terms of the underwriting as agreed
upon between the Company and its underwriters, and then only in such quantity as
the underwriters in their sole discretion determine will not jeopardize the
success of the offering by the Company. If the total number of securities,
including Registrable Securities, requested by stockholders to be included in
such offering exceeds the number of securities to be sold (other than by the
Company) that the underwriters in their reasonable discretion determine is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters and the Company in their sole
discretion determine will not jeopardize the success of the offering. If the
underwriters determine that less than all of the Registrable Securities
requested to be registered can be included in such offering, then the
Registrable Securities that are included in such offering shall be allocated
among the selling Holders in proportion (as nearly as practicable to) the number
of Registrable Securities owned by each selling Holder or in such other
proportions as shall mutually be agreed to by all such selling Holders.
Notwithstanding the foregoing, in no event shall (i) the number of Registrable
Securities included in the offering be reduced unless all other securities
(other than securities to be sold by the Company) are first entirely excluded
from the offering, or (ii) the number of Registrable Securities included in the
offering be reduced below twenty percent (20%) of the total number of securities
included in such offering, unless such offering is the IPO, in which case the
selling Holders may be excluded further if the underwriters make the
determination described above and no other stockholder’s securities are included
in such offering. For purposes of the provision in this Section 2.3(b)
concerning apportionment, for any selling Holder that is a partnership, limited
liability company, or corporation, the partners, members, retired partners,
retired members, stockholders, and Affiliates of such Holder, or the estates and
Immediate Family Members of any such partners, retired partners, members, and
retired members and any trusts for the benefit of any of the foregoing Persons,
shall be deemed to be a single “selling Holder,” and any pro rata reduction with
respect to such “selling Holder” shall be based upon the aggregate number of
Registrable Securities owned by all Persons included in such “selling Holder,”
as defined in this sentence.

 

2.4       Obligations of the Company. Whenever required under this Section 2 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

 

(a)       prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its commercially reasonable efforts to cause
such registration statement to become effective and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
registration statement has been completed; provided, however, that such one
hundred twenty (120) day period shall be extended for a period of time equal to
the period the Holder refrains, at the request of an underwriter of Common Stock
(or other securities) of the Company, from selling any securities included in
such registration;

 

 

 

 

 

D-5

 

 

(b)               prepare and file with the SEC such amendments and supplements
to such registration statement, and the prospectus used in connection with such
registration statement, as may be necessary to comply with the Securities Act in
order to enable the disposition of all securities covered by such registration
statement;

 

(c)               furnish to the selling Holders such numbers of copies of a
prospectus, including a preliminary prospectus, as required by the Securities
Act, and such other documents as the Holders may reasonably request in order to
facilitate their disposition of their Registrable Securities;

 

(d)               use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue-sky laws of such jurisdictions as shall be reasonably
requested by the selling Holders; provided that the Company shall not be
required to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;

 

(e)               in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the underwriter(s) of such offering;

 

(f)                use its commercially reasonable efforts to cause all such
Registrable Securities covered by such registration statement to be listed on a
national securities exchange or trading system and each securities exchange and
trading system (if any) on which similar securities issued by the Company are
then listed;

 

(g)               provide a transfer agent and registrar for all Registrable
Securities registered pursuant to this Agreement and provide a CUSIP number for
all such Registrable Securities, in each case not later than the effective date
of such registration;

 

(h)               promptly make available for inspection by the selling Holders,
any managing underwriter(s) participating in any disposition pursuant to such
registration statement, and any attorney or accountant or other agent retained
by any such underwriter or selected by the selling Holders, all financial and
other records, pertinent corporate documents, and properties of the Company, and
cause the Company’s officers, directors, employees, and independent accountants
to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant, or agent, in each case, as necessary or advisable to
verify the accuracy of the information in such registration statement and to
conduct appropriate due diligence in connection therewith;

 

(i)                 notify each selling Holder, promptly after the Company
receives notice thereof, of the time when such registration statement has been
declared effective or a supplement to any prospectus forming a part of such
registration statement has been filed; and

 

(j)                 after such registration statement becomes effective, notify
each selling Holder of any request by the SEC that the Company amend or
supplement such registration statement or prospectus.

 

2.5              Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as is reasonably required to effect the registration of such Holder’s
Registrable Securities.

 

2.6              Expenses of Registration. All expenses (other than Selling
Expenses) incurred in connection with registrations, filings, or qualifications
pursuant to Section 2, including all registration, filing, and qualification
fees; printers’ and accounting fees; fees and disbursements of counsel for the
Company shall be paid for by the Company; provided, however, that the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 2.1 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all selling Holders shall bear such
expenses pro rata based upon the number of Registrable Securities that were to
be included in the withdrawn registration). All Selling Expenses relating to
Registrable Securities registered pursuant to this Section 2 shall be borne and
paid by the Holders pro rata on the basis of the number of Registrable
Securities registered on their behalf.

 

 

 

 

 

D-6

 

 

2.7              Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any registration
pursuant to this Agreement as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 2.

 

2.8              Reports Under Exchange Act. With a view to making available to
the Holders the benefits of SEC Rule 144 and any other rule or regulation of the
SEC that may at any time permit a Holder to sell securities of the Company to
the public without registration or pursuant to a registration on Form S-3, the
Company shall:

 

(a)       make and keep available adequate current public information, as those
terms are understood and defined in SEC Rule 144;

 

(b)       use commercially reasonable efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after the Company has become
subject to such reporting requirements); and

 

(c)       furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) to the extent accurate, a written
statement by the Company that it has complied with the reporting requirements of
SEC Rule 144 (at any time after ninety (90) days after the effective date of the
registration statement filed by the Company for the IPO), the Securities Act,
and the Exchange Act (at any time after the Company has become subject to such
reporting requirements), or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after the Company so qualifies);
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company; and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC that permits the selling of any such securities without
registration (at any time after the Company has become subject to the reporting
requirements under the Exchange Act) or pursuant to Form S-3 (at any time after
the Company so qualifies to use such form).

 

2.9          “Market Stand-off” Agreement. Each Holder hereby agrees that it
will not, without the prior written consent of the managing underwriter, during
the period commencing on the date of the final prospectus relating to the
registration by the Company of shares of its Common Stock or any other equity
securities under the Securities Act on a registration statement on Form S-1 or
Form S-3, and ending on the date specified by the Company and the managing
underwriter (such period not to exceed (x) one hundred eighty (180) days in the
case of the IPO or (y) ninety (90) days in the case of any registration other
than the IPO, (i) lend; offer; pledge; sell; contract to sell; sell any option
or contract to purchase; purchase any option or contract to sell; grant any
option, right, or warrant to purchase; or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable (directly or indirectly) for Common Stock
(whether such shares or any such securities are then owned by the Holder or are
thereafter acquired) or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of such securities, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or other
securities, in cash, or otherwise. The foregoing provisions of this Section 2.9
shall not apply to the sale of any shares to an underwriter pursuant to an
underwriting agreement, and shall be applicable to the Holders only if all
officers and directors are subject to the same restrictions and the Company uses
commercially reasonable efforts to obtain a similar agreement from all
stockholders individually owning more than five percent (5%) of the Company’s
outstanding Common Stock (after giving effect to conversion into Common Stock of
all outstanding Preferred Stock). The underwriters in connection with such
registration are intended third-party beneficiaries of this Section 2.9 and
shall have the right, power, and authority to enforce the provisions hereof as
though they were a party hereto. Each Holder further agrees to execute such
agreements as may be reasonably requested by the underwriters in connection with
such registration that are consistent with this Section 2.9 or that are
necessary to give further effect thereto.

 

2.10          Restrictions on Transfer.

 

a)       The Series B Preferred Stock and the Registrable Securities shall not
be sold, pledged, or otherwise transferred, and the Company shall not recognize
and shall issue stop-transfer instructions to its transfer agent with respect to
any such sale, pledge, or transfer, in violation of Section 2.9 or Section
2.10(c) of this Agreement. A transferring Holder will cause any proposed
purchaser, pledgee, or transferee of the Series B Preferred Stock and the
Registrable Securities held by such Holder to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.

 

 

 

 

 

 

D-7

 

 

 

(b)       Each certificate or instrument representing (i) the Series B Preferred
Stock, (ii) the Registrable Securities, and (iii) any other securities issued in
respect of the securities referenced in clauses (i) and (ii), upon any stock
split, stock dividend, recapitalization, merger, consolidation, or similar
event, shall (unless otherwise permitted by the provisions of Section 2.10(c))
be stamped or otherwise imprinted with a legend substantially in the following
form:

 

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

 

THE SECURITIES REPRESENTED HEREBY HAVE THE RIGHTS AND BENEFITS AND ARE SUBJECT
TO THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

The Holders consent to the Company making a notation in its records and giving
instructions to any transfer agent of the Restricted Securities in order to
implement the restrictions on transfer set forth in Section 2.9 and Section
2.10(c) of this Agreement.

 

(c)       The holder of each certificate representing Restricted Securities, by
acceptance thereof, agrees to comply in all respects with the provisions of this
Section 2. Before any proposed sale, pledge, or transfer of any Restricted
Securities, unless there is in effect a registration statement under the
Securities Act covering the proposed transaction, the Holder thereof shall give
notice to the Company of such Holder’s intention to effect such sale, pledge, or
transfer. Each such notice shall describe the manner and circumstances of the
proposed sale, pledge, or transfer in sufficient detail and, if reasonably
requested by the Company, shall be accompanied at such Holder’s expense by
either (i) a written opinion of legal counsel who shall, and whose legal opinion
shall, be reasonably satisfactory to the Company, addressed to the Company, to
the effect that the proposed transaction may be effected without registration
under the Securities Act; (ii) a “no action” letter from the SEC to the effect
that the proposed sale, pledge, or transfer of such Restricted Securities
without registration will not result in a recommendation by the staff of the SEC
that action be taken with respect thereto; or (iii) any other evidence
reasonably satisfactory to counsel to the Company to the effect that the
proposed sale, pledge, or transfer of the Restricted Securities may be effected
without registration under the Securities Act, whereupon the Holder of such
Restricted Securities shall be entitled to sell, pledge, or transfer such
Restricted Securities in accordance with the terms of the notice given by the
Holder to the Company. The Company will not require such a legal opinion or “no
action” letter (x) in any transaction in compliance with SEC Rule 144 or (y) in
any transaction in which such Holder distributes Restricted Securities to an
Affiliate of such Holder for no consideration; provided that each transferee
agrees in writing to be subject to the terms of this Section 2.12. Each
certificate or instrument evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to SEC
Rule 144, the appropriate restrictive legend set forth in Section 2.11(b),
except that such certificate shall not bear such restrictive legend if, in the
opinion of counsel for such Holder and the Company, such legend is not required
in order to establish compliance with any provisions of the Securities Act.

 

2.11          Termination of Registration Rights. The right of any Holder to
request registration or inclusion of Registrable Securities in any registration
pursuant to Section 2.1 or Section 2.2 shall terminate upon the earliest to
occur of:

 

(a)       when all of such Holder’s Registrable Securities could be sold without
restriction under SEC Rule 144(k); and

 

(b)       the first anniversary of the date of this Agreement.

 

 

 

 

 

D-8

 

 

 

3.       Information Rights.

 

3.1       Delivery of Financial Statements. The Company shall deliver to each
Holder:

 

(a)       as soon as practicable, but in any event within ninety (90) days after
the end of each fiscal year of the Company, (i) a balance sheet as of the end of
such year, (ii) statements of income and of cash flows for such year, and a
comparison between (x) the actual amounts as of and for such fiscal year and (y)
the comparable amounts for the prior year and as included in the Budget (as
defined in Section 3.1(e)) for such year, with an explanation of any material
differences between such amounts and a schedule as to the sources and
applications of funds for such year, and (iii) a statement of stockholders’
equity as of the end of such year, all such financial statements audited and
certified by independent public accountants of nationally recognized standing
selected by the Company and all being prepared in accordance with GAAP;

 

(b)       as soon as practicable, but in any event within forty-five (45) days
after the end of each of the first three (3) quarters of each fiscal year of the
Company, unaudited statements of income and of cash flows for such fiscal
quarter, and an unaudited balance sheet as of the end of such fiscal quarter,
all prepared in accordance with GAAP (except that such financial statements may
(i) be subject to normal year-end audit adjustments and (ii) not contain all
notes thereto that may be required in accordance with GAAP); and

 

(c)       with respect to the financial statements called for in Section 3.1(a)
and Section 3.1(b) an instrument executed by the chief financial officer and
chief executive officer of the Company certifying that such financial statements
were prepared in accordance with GAAP consistently applied with prior practice
for earlier periods (except as otherwise set forth in Section 3.1(b)) and fairly
present the financial condition of the Company and its results of operation for
the periods specified therein.

 

If, for any period, the Company has any subsidiary whose accounts are
consolidated with those of the Company, then in respect of such period the
financial statements delivered pursuant to the foregoing sections shall be the
consolidated and consolidating financial statements of the Company and all such
consolidated subsidiaries.

 

Notwithstanding anything else in this Section 3.1 to the contrary, the Company
may cease providing the information set forth in this Section 3.1 during the
period starting with the date sixty (60) days before the Company’s good-faith
estimate of the date of filing of a registration statement if it reasonably
concludes it must do so to comply with the SEC rules applicable to such
registration statement and related offering; provided that the Company’s
covenants under this Section 3.1 shall be reinstated at such time as the Company
is no longer actively employing its commercially reasonable efforts to cause
such registration statement to become effective.

 

3.2       Inspection. The Company shall permit the Holders (provided that the
Board of Directors has not reasonably determined that such Holder is a
competitor of the Company), at such Holder’s expense, to visit and inspect the
Company’s properties; examine its books of account and records; and discuss the
Company’s affairs, finances, and accounts with its officers, during normal
business hours of the Company as may be reasonably requested by the Holder;
provided, however, that the Company shall not be obligated pursuant to this
Section 3.2 to provide access to any information that it reasonably and in good
faith considers to be a trade secret or confidential information (unless covered
by an enforceable confidentiality agreement, in form acceptable to the Company)
or the disclosure of which would adversely affect the attorney-client privilege
between the Company and its counsel.

 

3.3       Termination of Information. The covenants set forth in Section 3.1 and
Section 3.2 shall terminate and be of no further force or effect (i) immediately
before the consummation of the IPO, or (ii) if the Company is and remains
subject to the periodic reporting requirements of Section 12(g) or 15(d) of the
Exchange Act, whichever event occurs first.

 

 

 

 

 

D-9

 

 

 

3.4       Confidentiality. Each Investor agrees that such Investor will keep
confidential and will not disclose, divulge, or use for any purpose (other than
to monitor its investment in the Company) any confidential information obtained
from the Company pursuant to the terms of this Agreement (including notice of
the Company’s intention to file a registration statement), unless such
confidential information (a) is known or becomes known to the public in general
(other than as a result of a breach of this Section 3.4 by such Investor), (b)
is or has been independently developed or conceived by the Investor without use
of the Company’s confidential information, or (c) is or has been made known or
disclosed to the Investor by a third party without a breach of any obligation of
confidentiality such third party may have to the Company; provided, however,
that an Investor may disclose confidential information (i) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their services in connection with monitoring its investment in the
Company; (ii) to any prospective purchaser of any Registrable Securities from
such Investor, if such prospective purchaser agrees to be bound by the
provisions of this Section 3.5; (iii) to any existing or prospective Affiliate,
partner, member, stockholder, or wholly owned subsidiary of such Investor in the
ordinary course of business, provided that such Investor informs such Person
that such information is confidential and directs such Person to maintain the
confidentiality of such information; or (iv) as may otherwise be required by
law, provided that the Investor promptly notifies the Company of such disclosure
and takes reasonable steps to minimize the extent of any such required
disclosure.

 

4.       Miscellaneous.

 

4.1       Successors and Assigns. The rights under this Agreement may be
assigned (but only with all related obligations) by a Holder to a transferee of
Registrable Securities; provided, however, that (x) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee and the Registrable Securities with respect to
which such rights are being transferred; and (y) such transferee agrees in a
written instrument delivered to the Company to be bound by and subject to the
terms and conditions of this Agreement, including the provisions of Section
2.11. For the purposes of determining the number of shares of Registrable
Securities held by a transferee shall be aggregated together and with those of
the transferring Holder; provided further that all transferees shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices, or taking any action under this Agreement. The terms and conditions of
this Agreement inure to the benefit of and are binding upon the respective
successors and permitted assignees of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assignees any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.

 

4.2       Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.

 

4.3       Counterparts; Facsimile. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed and delivered by facsimile signature and in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

4.4       Titles and Subtitles. The titles and subtitles used in this Agreement
are for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

4.5       Notices. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed effectively given upon
the earlier of actual receipt or: (i) personal delivery to the party to be
notified; (ii) when sent, if sent by electronic mail or facsimile during the
recipient’s normal business hours, and if not sent during normal business hours,
then on the recipient’s next business day; (iii) five (5) days after having been
sent by registered or certified mail, return receipt requested, postage prepaid;
or (iv) one (1) business day after the business day of deposit with a nationally
recognized overnight courier, freight prepaid, specifying next-day delivery,
with written verification of receipt. All communications shall be sent to the
respective parties at their addresses as set forth on Schedule A hereto, or to
the principal office of the Company and to the attention of the Chief Executive
Officer, in the case of the Company, or to such email address, facsimile number,
or address as subsequently modified by written notice given in accordance with
this Section 6.5. If notice is given to the Company, a copy shall also be sent
to Duane Morris LLP, One Riverfront Plaza, 1037 Raymond Blvd., Suite 1800,
Newark, NJ 07102 Attn: Dean M. Colucci and if notice is given to Stockholders, a
copy shall also be given to Benesch, Friedlander, Coplan & Aronoff LLP, 200
Public Square, Cleveland, OH 44114 Attn: Ira C. Kaplan.

 

 

 

 

 

D-10

 

 

 

4.6       Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance, and either retroactively or prospectively) only with
the written consent of the Company and the holders of of the Registrable
Securities then outstanding; provided that the Company may in its sole
discretion waive compliance with Section 2.12(c) (and the Company’s failure to
object promptly in writing after notification of a proposed assignment allegedly
in violation of Section 2.12(c) shall be deemed to be a waiver); and provided
further that any provision hereof may be waived by any waiving party on such
party’s own behalf, without the consent of any other party. Notwithstanding the
foregoing, this Agreement may not be amended or terminated and the observance of
any term hereof may not be waived with respect to any Investor without the
written consent of such Investor, unless such amendment, termination, or waiver
applies to all Investors in the same fashion (it being agreed that a waiver of
the provisions of Section 4 with respect to a particular transaction shall be
deemed to apply to all Investors in the same fashion if such waiver does so by
its terms, notwithstanding the fact that certain Investors may nonetheless, by
agreement with the Company, purchase securities in such transaction). The
Company shall give prompt notice of any amendment or termination hereof or
waiver hereunder to any party hereto that did not consent in writing to such
amendment, termination, or waiver. Any amendment, termination, or waiver
effected in accordance with this Section 6.6 shall be binding on all parties
hereto, regardless of whether any such party has consented thereto. No waivers
of or exceptions to any term, condition, or provision of this Agreement, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such term, condition, or provision.

 

4.7       Severability. In case any one or more of the provisions contained in
this Agreement is for any reason held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provision of this Agreement, and such invalid, illegal, or
unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.

 

4.8       Aggregation of Stock. All shares of Registrable Securities held or
acquired by Affiliates shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement and such
Affiliated persons may apportion such rights as among themselves in any manner
they deem appropriate.

 

4.9       Entire Agreement. This Agreement (including any Schedules and Exhibits
hereto) constitutes the full and entire understanding and agreement among the
parties with respect to the subject matter hereof, and any other written or oral
agreement relating to the subject matter hereof existing between the parties is
expressly canceled.

 

4.10       Dispute Resolution The parties (a) hereby irrevocably and
unconditionally submit to the jurisdiction of the federal and state courts
located within the geographic boundaries of the United States District Court for
the District of Delaware for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement, (b) agree not to commence any suit,
action or other proceeding arising out of or based upon this Agreement except in
the federal and state courts located within the geographic boundaries of the
United States District Court for the District of Delaware, and (c) hereby waive,
and agree not to assert, by way of motion, as a defense, or otherwise, in any
such suit, action or proceeding, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or the subject matter hereof may
not be enforced in or by such court.

 

4.11       Delays or Omissions. No delay or omission to exercise any right,
power, or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power, or remedy of such non-breaching or non-defaulting party, nor shall it be
construed to be a waiver of or acquiescence to any such breach or default, or to
any similar breach or default thereafter occurring, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. All remedies, whether under this Agreement
or by law or otherwise afforded to any party, shall be cumulative and not
alternative.

 

[Remainder of Page Intentionally Left Blank]

 

 

 

 

 

 

 

 

 

 

D-11

 

 

 

IN WITNESS WHEREOF, the parties have executed this INVESTORS’ RIGHTS AGREEMENT
as of the date first written above.

 

    PATRIOT SCIENTIFIC CORPORATION             By:     Name:  

Carlton Johnson

Title:   Interim CEO                

INVESTOR:

CASE WESTERN RESERVE UNIVERSITY

            By:     Name:   Michael Haag Title:  

Executive Director, Technology Management

 

          By:     Name:   Michael Lee Title:   Treasurer

 

 

 

 

 

 

 

D-12

 

 

 

SCHEDULE A

 

Investors

 

 

First Name Last Name   Steven King         Paul Lytle         Nicole Steinmetz  
      Jonathan Pokorski         Steven

Fiering

        Robert

Garnick

         

 

 

 

 

 

 

 

 

 

 

 

D-13

 

 

  

Exhibit E

Form of Voting Agreement

 

 

 

PATRIOT SCIENTIFIC CORPORATION

 

VOTING AGREEMENT

 

 

 

 

 

 

 

 E-1 

 

 

TABLE OF CONTENTS

Page

1.   Vote to Increase Authorized Common Stock. 1 2.   Vote for Reverse Stock
Split. 2 3.   Remedies. 2 3.1   Covenants of the Company. 2 3.2   Irrevocable
Proxy and Power of Attorney. 2 3.3   Specific Enforcement. 3 3.4   Remedies
Cumulative. 3 4.   Term. 3 5.   Miscellaneous. 3 5.1   Additional Parties.  . 3
5.2   Transfers. 3 5.3   Successors and Assigns. 4 5.4   Governing Law. 4
5.5   Counterparts. 4 5.6   Titles and Subtitles. 4 5.7   Notices. 4
5.8   Consent Required to Amend, Modify, Terminate or Waive. 5 5.9   Delays or
Omissions. 5 5.10   Severability. 6 5.11   Entire Agreement. 6 5.12   Share
Certificate Legend. 6 5.13   Stock Splits, Stock Dividends, Etc. 6 5.14   Manner
of Voting. 6 5.15   Further Assurances. 6 5.16   WAIVER OF JURY TRIAL.. 7
5.17   Dispute Resolution 7 5.18   Aggregation of Stock.  . 7

 

  Schedule A Investor         Schedule B Series A Holders         Exhibit A
Adoption Agreement

 

 

 

 

 

 E-2 

 

 

VOTING AGREEMENT

 

THIS VOTING AGREEMENT (this “Agreement”) is made as of the 19th day of August,
2020, between:

 

(a)        PATRIOT SCIENTIFIC CORPORATION, a Delaware corporation (the
“Company”),

 

(b)        the investor listed on Schedule A hereto, referred to in this
Agreement as the “Investor” (together with any subsequent holders of Series B
Preferred Stock (as defined below) and transferees who become parties hereto as
“Series B Holders” pursuant to Section 7.1(a) or Section 7.2, the “Series B
Holders”), and

 

(c)       each holder of the Company’s Series A Preferred Stock, $0.0001 par
value per share and any additional series of Series A Preferred Stock of the
Company hereafter authorized (together, “Series A Preferred Stock”) listed on
Schedule B (together with any subsequent holders of Series A Preferred Stock and
transferees who become parties hereto as “Series A Holders” pursuant to
Section 7.1(a) or Section 7.2, the “Series A Holders”).

 

Background

 

1.       Upon the consummation of the transactions set forth in that certain
Stock Purchase Agreement (the “SPA”), dated as of even date herewith, among the
Company, PTSC Sub One, Inc., Mosaic ImmunoEngineering, Inc. (“Mosaic”), certain
shareholders of Mosaic set forth therein, (the “Sellers”), and Steve King (as
the “Sellers’ Representative”), the Investor, as one of the Sellers, shall
receive shares of the Company’s Series A Series A Preferred Stock, $0.0001 par
value per share (the “Series B Preferred Stock”).

 

2.       Each of the Series A Preferred Stock and Series B Preferred Stock
convert into shares of the common stock, $0.0001 par value per share, of the
Company (the “Common Stock”)

 

3.       In connection with the SPA, the Series A Holders, who as of the date
hereof and after giving effect to the transactions contemplated by the SPA shall
hold a majority of the voting securities of the Company, and the Investor have
agreed to take certain actions in connection with their voting rights.

 

NOW, THEREFORE, the Company, the Series A Holders, and the Investor agree as
follows:

 

1.                  Vote to Increase Authorized Common Stock.

 

1.1              For purposes of this Agreement, the term “Shares” shall mean
and include any securities of the Company that the Series A Holders and Series B
Holders (collectively, the “Preferred Stock Holders”), as applicable, are
entitled to vote, including, without limitation, all shares of Common Stock,
Series A Preferred Stock, and Series B Preferred Stock, by whatever name called,
now owned or subsequently acquired by a Preferred Stock Holder, however
acquired, whether through stock splits, stock dividends, reclassifications,
recapitalizations, conversion, similar events or otherwise.

 

 

 

 

 

 E-3 

 

 

1.2              Each Preferred Stock Holder agrees to vote or cause to be voted
all Shares owned by such Preferred Stock Holder, or over which such Preferred
Stock Holder has voting control, from time to time and at all times, in whatever
manner as shall be necessary to increase the number of authorized shares of
Common Stock from time to time to ensure that there will be sufficient shares of
Common Stock available for conversion of all of the shares of Series A Preferred
Stock and Series B Preferred Stock, in each case outstanding at any given time.

 

2.                  Vote for Reverse Stock Split. Each Preferred Stock Holder
agrees to vote or cause to be voted all Shares owned by such Preferred Stock
Holder, or over which such Preferred Stock Holder has voting control, from time
to time and at all times, in whatever manner as shall be necessary to vote for a
reverse stock split of the Common Stock, at such time and in such ratio as may
be determined by the board of directors of the Company. Notwithstanding the
foregoing, in no case shall the Preferred Stock Holders vote or cause to be
voted all Shares in favor of a reverse stock split if the result of such reverse
stock split would cause insufficient shares of Common Stock to be available for
conversion of all of the shares of Series A Preferred Stock and Series B
Preferred Stock, in each case, then outstanding.

 

3.                  Remedies.

 

3.1              Covenants of the Company. The Company agrees to use its best
efforts, within the requirements of applicable law, to ensure that the rights
granted under this Agreement are effective and that the parties enjoy the
benefits of this Agreement. Such actions include, without limitation, the use of
the Company’s best efforts to cause the nomination and election of the directors
as provided in this Agreement and to call and have a special meeting of the
stockholders of the Company to give effect to the purposes of this Agreement,
including, without limitation the provisions of Section 1 and Section 2 of this
Agreement. The Company shall use its best efforts to call such special meeting
to be held within ninety (90) days after the date of this Agreement.

 

3.2              Irrevocable Proxy and Power of Attorney. Each party to this
Agreement hereby constitutes and appoints as the proxies of the Series A
Preferred Holders and the Company, as applicable, and hereby grants a power of
attorney to the Chief Executive Officer of the Company, and a to a duly
authorized representatives of Case Western Reserve University (solely as to
Section 1 hereof), with full power of substitution, with respect to the matters
set forth herein, including, without limitation, votes to increase authorized
shares pursuant to Section 1 and votes regarding any reverse stock split
pursuant to Section 2, and hereby authorizes each of them to represent and vote,
if and only if the party (i) fails to vote, or (ii) attempts to vote (whether by
proxy, in person or by written consent), in a manner which is inconsistent with
the terms of this Agreement, all of such party’s Shares in favor of the increase
of authorized shares or approval of any reverse split of the Company pursuant to
and in accordance with the terms and provisions of Section 1 and Section 2,
respectively, or to take any action necessary to effect Section 1 and Section 2,
respectively. Each of the proxy and power of attorney granted pursuant to this
Section 3.2 is given in consideration of the agreements and covenants of the
Company and the parties in connection with the transactions contemplated by this
Agreement and, as such, each is coupled with an interest and shall be
irrevocable unless and until this Agreement terminates or expires pursuant to
Section 5. Each party hereto hereby revokes any and all previous proxies or
powers of attorney with respect to the Shares and shall not hereafter, unless
and until this Agreement terminates or expires pursuant to Section 5, purport to
grant any other proxy or power of attorney with respect to any of the Shares,
deposit any of the Shares into a voting trust or enter into any agreement (other
than this Agreement), arrangement or understanding with any person, directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of any of the Shares, in each case, with respect to any of the matters
set forth herein.

 

 

 

 

 

 E-4 

 

 

3.3              Specific Enforcement. Each party acknowledges and agrees that
each party hereto will be irreparably damaged in the event any of the provisions
of this Agreement are not performed by the parties in accordance with their
specific terms or are otherwise breached. Accordingly, it is agreed that the
Company and each of the Preferred Stock Holders shall be entitled to an
injunction to prevent breaches of this Agreement, and to specific enforcement of
this Agreement and its terms and provisions in any action instituted in any
court of the United States or any state having subject matter jurisdiction.

 

3.4              Remedies Cumulative. All remedies, either under this Agreement
or by law or otherwise afforded to any party, shall be cumulative and not
alternative.

 

4.                  Term. This Agreement shall be effective as of the date
hereof and shall continue in effect until terminated in accordance with
Section 5.8. In addition, this Agreement shall terminate as to a particular
Preferred Stock Holder when that Preferred Stock Holder no longer owns any
Shares.

 

5.                  Miscellaneous.

 

5.1              Additional Parties. Notwithstanding anything to the contrary
contained herein, if the Company issues additional shares of Series A Preferred
Stock after the date hereof, as a condition to the issuance of such shares, the
Company shall require that any purchaser become a party to this Agreement by
executing and delivering (i) the Adoption Agreement attached to this Agreement
as Exhibit A, or (ii) a counterpart signature page hereto agreeing to be bound
by and subject to the terms of this Agreement as an Investor and Series A Holder
hereunder. In either event, each such person shall thereafter be deemed a Series
A Holder for all purposes under this Agreement.

 

5.2              Transfers. Each transferee or assignee of any Shares subject to
this Agreement shall continue to be subject to the terms hereof, and, as a
condition precedent to the Company’s recognition of such transfer, each
transferee or assignee shall agree in writing to be subject to each of the terms
of this Agreement by executing and delivering an Adoption Agreement
substantially in the form attached hereto as Exhibit A. Upon the execution and
delivery of an Adoption Agreement by any transferee, such transferee shall be
deemed to be a party hereto as if such transferee were the transferor and such
transferee’s signature appeared on the signature pages of this Agreement and
shall be deemed to be a Series A Holder. The Company shall not permit the
transfer of the shares of Series A Preferred or of Shares subject to this
Agreement on its books or issue a new certificate representing any such Shares
unless and until such transferee shall have complied with the terms of this
Section 5.2. Each certificate, instrument or book entry representing such shares
subject to this Agreement if issued on or after the date of this Agreement shall
be notated by the Company with the legend set forth in Section 5.12.

 

 

 

 

 

 E-5 

 

 

5.3              Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Neither the Company nor and Series A
Preferred Holder shall be entitled to assign its rights under this Agreement.

 

5.4              Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.

 

5.5              Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Counterparts may be
delivered via facsimile, electronic mail by scanned pdf counterparts of
signature pages, or other such electronic means and any counterpart so delivered
shall be deemed to have been duly and validly delivered and be valid and
effective for all purposes.

 

5.6              Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

5.7              Notices.

 

(a)               All notices and other communications given or made pursuant to
this Agreement shall be in writing and shall be deemed effectively given upon
the earlier of actual receipt or: (i) personal delivery to the party to be
notified; (ii) when sent, if sent by electronic mail or facsimile during the
recipient’s normal business hours, and if not sent during normal business hours,
then on the recipient’s next business day; (iii) five (5) days after having been
sent by registered or certified mail, return receipt requested, postage prepaid;
or (iv) one (1) business day after the business day of deposit with a nationally
recognized overnight courier, freight prepaid, specifying next-day delivery,
with written verification of receipt. All communications shall be sent to the
respective parties at their addresses as set forth on Schedule A hereto, or to
the principal office of the Company and to the attention of the Chief Executive
Officer, in the case of the Company, or to such email address, facsimile number,
or address as subsequently modified by written notice given in accordance with
this Section 6.5. If notice is given to the Company, a copy shall also be sent
to Duane Morris LLP, One Riverfront Plaza, 1037 Raymond Blvd., Suite 1800,
Newark, NJ 07102 Attn: Dean M. Colucci and if notice is given to Stockholders, a
copy shall also be given to Benesch, Friedlander, Coplan & Aronoff LLP, 200
Public Square, Cleveland, OH 44114 Attn: Ira C. Kaplan.

 

(b)               Each Series A Holder consents to the delivery of any
stockholder notice pursuant to the Delaware General Corporation Law
(the “DGCL”), as amended or superseded from time to time, by electronic
transmission pursuant to Section 232 of the DGCL (or any successor thereto) at
such Investor’s electronic mail address or the facsimile number set forth on
Schedule B hereto or such Series A Holder’s signature page hereto, as the case
may be, or as subsequently modified by written notice given in accordance with
this Section 5.7. Each Series A Holder agrees to promptly notify the Company of
any change in its electronic mail address, and that failure to do so shall not
affect the foregoing.

 

 

 

 

 

 E-6 

 

 

5.8              Consent Required to Amend, Modify, Terminate or Waive. This
Agreement may be amended, modified or terminated (other than pursuant to
Section 5) and the observance of any term hereof may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by a
written instrument executed by (x) the Company, (y) the Series B Holders holding
at least a majority of the outstanding shares of Series B Preferred Stock, and
(z) the Investor. Notwithstanding the foregoing:

 

(a)               Schedule B hereto may be amended by the Company from time to
time to add information regarding Series A Holders without the consent of the
other parties hereto;

 

(b)               any provision hereof may be waived by the waiving party on
such party’s own behalf, without the consent of any other party; and

 

Any amendment, modification, termination or waiver effected in accordance with
this Section 5.8 and this Agreement shall be binding on each party and all of
such party’s successors and permitted assigns. . For purposes of this
Section 5.8, the requirement of a written instrument may be satisfied, as to the
Series A Holders, in the form of an action by written consent of the Series A
Holders circulated by the Company and executed by the Series A Holder parties
specified, so long as such action by written consent makes reasonably explicit
reference to the terms of this Agreement to such amendment, modification,
termination or waiver. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision. No waivers of or exceptions to any term, condition or provision of
this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.

 

5.9              Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.

 

 

 

 

 

 

 

 

 E-7 

 

 

5.10          Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.

 

5.11          Entire Agreement. This Agreement (including the Exhibits hereto),
and and the other Transaction Agreements (as defined in the SPA) constitute the
full and entire understanding and agreement between the parties with respect to
the subject matter hereof, and any other written or oral agreement relating to
the subject matter hereof existing between the parties is expressly canceled.

 

5.12          Share Certificate Legend. Each certificate, instrument or book
entry representing any Shares issued after the date hereof shall be notated by
the Company with a legend reading substantially as follows:

 

“THE SHARES REPRESENTED HEREBY ARE SUBJECT TO A VOTING AGREEMENT, AS MAY BE
AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST
FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON
ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY
ALL THE PROVISIONS OF THAT VOTING AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON
TRANSFER AND OWNERSHIP SET FORTH THEREIN.”

 

The Company, by its execution of this Agreement, agrees that it will cause the
certificates instruments, or book entry evidencing the Shares issued after the
date hereof to be notated with the legend required by this Section 5.12, and it
shall supply, free of charge, a copy of this Agreement to any holder of such
Shares upon written request from such holder to the Company at its principal
office. The parties to this Agreement do hereby agree that the failure to cause
the certificates, instruments, or book entry evidencing the Shares to be notated
with the legend required by this Section  5.12 herein and/or the failure of the
Company to supply, free of charge, a copy of this Agreement as provided
hereunder shall not affect the validity or enforcement of this Agreement.

 

5.13          Stock Splits, Stock Dividends, Etc. In the event of any issuance
of Shares of the voting securities of the Company hereafter to any of the Series
A or Series B Holders (including, without limitation, in connection with any
stock split, stock dividend, recapitalization, reorganization, or the like),
such Shares shall become subject to this Agreement and shall be notated with the
legend set forth in Section 5.12.

 

5.14          Manner of Voting. The voting of Shares pursuant to this Agreement
may be effected in person, by proxy, by written consent or in any other manner
permitted by applicable law. For the avoidance of doubt, voting of the Shares
pursuant to the Agreement need not make explicit reference to the terms of this
Agreement.

 

5.15          Further Assurances. At any time or from time to time after the
date hereof, the parties agree to cooperate with each other, and at the request
of any other party, to execute and deliver any further instruments or documents
and to take all such further action as the other party may reasonably request in
order to carry out the intent of the parties hereunder.

 

 

 

 

 

 E-8 

 

 

5.16           WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES ITS RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER
HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. THIS SECTION 5.16 HAS BEEN FULLY DISCUSSED BY
EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY
EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH
PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.

 

5.17           Dispute Resolution The parties (a) hereby irrevocably and
unconditionally submit to the jurisdiction of the federal and state courts
located within the geographic boundaries of the United States District Court for
the District of Delaware for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement, (b) agree not to commence any suit,
action or other proceeding arising out of or based upon this Agreement except in
the federal and state courts located within the geographic boundaries of the
United States District Court for the District of Delaware, and (c) hereby waive,
and agree not to assert, by way of motion, as a defense, or otherwise, in any
such suit, action or proceeding, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this Agreement or the subject matter hereof may
not be enforced in or by such court.

 

5.18          Aggregation of Stock. All Shares held or acquired by a Preferred
Stock Holder and/or its affiliates shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement, and such
affiliated persons may apportion such rights as among themselves in any manner
they deem appropriate.

 

 

 

 

 

 E-9 

 

 

IN WITNESS WHEREOF, the parties have executed this VOTING AGREEMENT as of the
date first written above.

 

  PATRIOT SCIENTIFIC CORPORATION         By:  
                                                        Name:

Carlton Johnson

Title:   Interim President          

INVESTOR:

CASE WESTERN RESERVE UNIVERSITY

        By:                                                           Name:  
Michael Haag Title:   Executive Director, Technology Management  

 

        By:                                                           Name:  
Michael Lee Title:   Treasurer

 

 

 

 

 

 E-10 

 

 

 

IN WITNESS WHEREOF, the Series A Holders have executed this VOTING AGREEMENT as
of the date first written above.

 

  Individuals Sign Below:  

 

                                                       

Signature

 

Steven King                             

Name

 

                                                       

Signature

 

Paul Lytle                                 

Name

 

                                                       

Signature

 

Nicole Steinmetz                    

Name

 

                                                       

Signature

 

Jonathan Pokorski                 

Name

 

                                                       

Signature

 

Steven Fiering                       

Name

 

                                                       

Signature

 

Robert Garnick                     

Name

 

 

 

 

 

 

 E-11 

 

 

SCHEDULE A

 

INVESTOR

 

Case Western Reserve University

 

 

 

 

 

 

 

 

 

 

 

 

 E-12 

 

 

SCHEDULE B

SERIES A HOLDERS

 

Steven King Paul Lytle Nicole Franziska Steinmetz Jonathan Kyle Pokorski Steven
Fiering Robert Garnick

 

 

 

 

 

 

 

 

 

 

 E-13 

 

 

EXHIBIT A

 

ADOPTION AGREEMENT

 

This Adoption Agreement (“Adoption Agreement”) is executed on _________________,
20__, by the undersigned (the “Holder”) pursuant to the terms of that certain
VOTING AGREEMENT dated as of ___, 2020 (the “Agreement”), by and among the
Company and certain of its stockholders, as such Agreement may be amended or
amended and restated hereafter. Capitalized terms used but not defined in this
Adoption Agreement shall have the respective meanings ascribed to such terms in
the Agreement. By the execution of this Adoption Agreement, the Holder agrees as
follows.

 

1.1       Acknowledgement. Holder acknowledges that Holder is acquiring certain
shares of the capital stock of the Company (the “Stock”)[ or options, warrants,
or other rights to purchase such Stock (the “Options”)], for one of the
following reasons (Check the correct box):

 

☐As a transferee of Shares from a party in such party’s capacity as an
“Investor” bound by the Agreement, and after such transfer, Holder shall be
considered an “Investor” and a “Series A Holder” for all purposes of the
Agreement.

☐As a transferee of Shares from a party in such party’s capacity as a “Common
Holder” bound by the Agreement, and after such transfer, Holder shall be
considered a “Common Holder” and a “Series A Holder” for all purposes of the
Agreement.

☐As a new Investor in accordance with Section 7.1(a) of the Agreement, in which
case Holder will be an “Investor” and a “Series A Holder” for all purposes of
the Agreement.

☐In accordance with Section 7.1(b) of the Agreement, as a new party who is not a
new Investor, in which case Holder will be a “Series A Holder” for all purposes
of the Agreement.

 

1.2       Agreement. Holder hereby (a) agrees that the Stock [Options], and any
other shares of capital stock or securities required by the Agreement to be
bound thereby, shall be bound by and subject to the terms of the Agreement and
(b) adopts the Agreement with the same force and effect as if Holder were
originally a party thereto.

 

1.3       Notice. Any notice required or permitted by the Agreement shall be
given to Holder at the address or facsimile number listed below Holder’s
signature hereto.

 

HOLDER: _____________________________ ACCEPTED AND AGREED:     By:
___________________________________ PATRIOT SCIENTIFIC CORPORATION     Address:
______________________________ By: ___________________________     Facsimile:
_____________________________ Title: _________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 E-14