Unassociated Document


    ANTIDILUTION
      AGREEMENT AND ADDENDUM TO WARRANTS

    


    THIS
      AGREEMENT (the "Antidilution Agreement" or the “Agreement”) is entered into as
      of March 19, 2003, by and among Patriot Scientific Corporation, a corporation
      duly organized and existing under the laws of the State of Delaware (the
      "Company" or “Patriot”) and Swartz Private Equity, LLC (hereinafter referred to
      as “Swartz” or “Holder”). This Agreement supersedes the Addendum to Amended
      Secured Promissory Note (the “Addendum to Amended Note”) between the Company and
      Swartz dated on or about March 12, 2002, a copy of which is attached hereto
      as
Exhibit
      A,
      which
      superseded the
      Agreement (the “Original Loan Advance Agreement”) between the Company and Swartz
      dated on or about January 28, 2002, a copy of which is attached hereto as
Exhibit
      B.

    


    RECITALS:

     

    WHEREAS,
      the Company and Swartz entered into an Amended Secured Promissory Note in an
      initial amount of $87,500 dated as of October 9, 2001 (the “Secured
      Note”);

    


    WHEREAS,
      Swartz has advanced funds to the Company from time to time, as specified in
      Schedule A to the Secured Note; 

    


    WHEREAS,
      Swartz agreed to loan one such advance, for one hundred thousand dollars
      ($100,000), to the Company on or about January 28, 2002 subject to the terms
      of
      the Original Loan Advance Agreement;

    


    WHEREAS,
      the Original Loan Advance Agreement, among other things, gave Swartz certain
      antidilution protection;

    


    WHEREAS,
      Swartz agreed to another such advance, for two hundred thousand dollars
      ($200,000), to the Company on or about March 12, 2002 subject to the terms
      of
      the Addendum to Amended Note;

    


    WHEREAS,
      Swartz agreed to defer additional payments under the Secured Note pursuant
      to
      the Addendum to Amended Note;

    


    WHEREAS,
      the Addendum to Amended Note, among other things, gave Swartz certain additional
      antidilution protection;

    


    WHEREAS,
      pursuant to advances under the Secured Note, Patriot has issued to Swartz
      certain warrants to purchase common stock of Patriot (the “Note
      Warrants”);

    


    WHEREAS,
      pursuant to the terms of the Original Loan Advance Agreement and the Addendum
      to
      Amended Note, Patriot has issued to Swartz certain warrants to purchase common
      stock of Patriot (the “Existing Snapshot Warrants”);

    


    WHEREAS,
      on or about July 12, 1999, the Company and Swartz entered into a private equity
      line Investment Agreement, and related agreements (collectively, the “First
      Equity Line Agreements”), pursuant to which the Company has issued to Swartz
      certain purchase warrants (the “First Equity Line Purchase
      Warrants”);

    


    
      
         

      

      
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    WHEREAS,
      on or about May 2, 2000, the Company and Swartz entered into a private equity
      line Investment Agreement, and related agreements (collectively, the “Second
      Equity Line Agreements”), pursuant to which the Company has issued to Swartz
      certain purchase warrants (the “Second Equity Line Purchase Warrants”, together
      with the First Equity Line Purchase Warrants, referred to herein as the
“Purchase Warrants”);

    


    WHEREAS,
      on or about September 17, 2001, the Company and Swartz entered into a private
      equity line Investment Agreement, and related agreements (collectively, the
      “Third Equity Line Agreements”, together with the First Equity Line Agreements
      and the Second Equity Line Agreements, referred to as the “Equity Line
      Agreements”), pursuant to which the Company has issued to Swartz a commitment
      warrant (the “Commitment Warrant”) to purchase 900,000 shares, with an issue
      date of September 17, 2001;

    


    WHEREAS,
      the Note Warrants, the Existing Snapshot Warrants, the Commitment Warrant and
      the Purchase Warrants (collectively, the “Existing Swartz Warrants”) are all
      described on Exhibit
      C.

    


    WHEREAS,
      the parties mutually desire to enter into this Agreement whereby, among other
      things, payments on the Secured Note are further deferred, certain of the
      Existing Swartz Warrants are subjected to a contractual lock-up and 20,007,350
      shares that were originally reserved for issuance upon exercise of certain
      of
      the Existing Swartz Warrants will be reserved for other purposes for a period
      of
      time, and in exchange, among other things, Swartz is granted certain additional
      antidilution protection.

     

    TERMS:

    


    NOW,
      THEREFORE, in consideration of the mutual promises, representations, warranties,
      covenants and conditions set forth in this Agreement and for other good and
      valuable consideration, the receipt and sufficiency of which is hereby
      acknowledged, the parties hereto agree as follows:

     

    1. Deferral
      of Payments on Secured Promissory Note. Swartz
      hereby agrees that the principal payments on the Secured Note that were
      originally due on the first day of each month beginning January 1, 2002
      throughout the term of the Secured Note shall be deferred until March 1, 2004,
      at which time Patriot shall pay Swartz all outstanding principal and interest
      which shall be due and payable on March 1, 2004, at which time the Secured
      Notes
      shall be retired. The parties acknowledge that the balance of the Secured Note
      as of the close of business on March 19, 2003 is $635,275.53 in principal and
      $53,317.27 in accrued interest. Patriot shall continue to make timely interest
      payments under the Secured Note, notwithstanding such deferral of
      principal.

    


    
      
         

      

      
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    2. Extension
      of Warrants. The
      Company agrees that the respective term of each of the Existing Swartz Warrants
      that would otherwise expire prior to December 31, 2006, including but not
      limited to those warrants specified in Exhibit
      D,
      are
      hereby extended through December 31, 2006.

    


    3. Contractual
      Lock-Up of Specified Existing Swartz Warrants. Swartz
      agrees that it shall not exercise any of the warrants specified on Exhibit
      E,
      representing an aggregate of 20,007,350
      shares
      (the “Specified Existing Swartz Warrants”) prior to the Reservation Trigger Date
      (as defined below). 

    


    4.
       Antidilution;
      Issuance of Snapshot Warrants. As
      part
      of the consideration for Swartz entering into this Agreement, (i) on April
      1,
      2003, the Company shall issue and deliver to Swartz a warrant (a “First New
      Snapshot Warrant”), to purchase 621,512 shares of common stock of the Company
      (“Common Stock”), and (ii) on each three (3) month anniversary of April 1, 2003
      thereafter (and if such date is not a business day, then on the next business
      day), and on the trading day immediately preceding the closing of any Major
      Transaction, as defined below (each, a “Snapshot Date”) continuing through March
      19, 2008, the Company shall calculate a value for “X,” as defined below, with
      respect to that Snapshot Date. Within three (3) business days of each Snapshot
      Date, the Company shall issue and deliver to Swartz (each, a “Snapshot
      Issuance”) warrants (the “New Snapshot Warrants,” together with the First New
      Snapshot Warrant and the Existing Snapshot Warrants, referred to herein as
      the
“Snapshot Warrants”), to purchase a number of shares of common stock of the
      Company (“Common Stock”), if any, equal to the value of “X” for that Snapshot
      Date.

    


    For
      purposes hereof:

    


    “X”
=
      (Snapshot Rate Multiplier * [“Current Adjusted FDO” - 179,800,00 shares]) - the
      number of Snapshot Warrants issued to Swartz under this Agreement after March
      19, 2003 but prior to the current Snapshot Date .

    


    “Snapshot
      Rate Multiplier” shall equal 0.30, unless increased by the terms of this
      Agreement.

    


    “Current
      Adjusted FDO” shall mean (i) the number of Fully Diluted Shares (as defined
      below) of Common Stock of the Company determined after the close of business
      on
      the Snapshot Date with respect to which Snapshot Warrants are being issued
      (the
“Current Snapshot Date”), minus (ii) any shares or warrants that are issued to
      Swartz under this Agreement, minus (iii) any shares or warrants (“Future
      Agreement Shares”) that are issued to Swartz under any new agreement(s) which
      are entered into between Swartz and the Company after the date
      hereof.

    


    “Fully
      Diluted Shares” shall include all of the following: (i) all outstanding shares
      of Common Stock of the Company, including but not limited to those owned by
      Swartz Private Equity, LLC, and (ii) all shares of Common Stock of the Company
      that would be issuable if all outstanding Convertible Securities (as defined
      below), including but not limited to those Convertible Securities owned by
      Swartz Private Equity, LLC, were converted, exchanged or exercised, in their
      entirety, into Common Stock of the Company on the date in question, without
      regard for any contractual, legal or regulatory restrictions on the exercise,
      conversion or exchange thereof, and without regard to whether there are a
      sufficient number of authorized and reserved shares to effect such conversion,
      exchange or exercise. 

     

    
      
         

      

      
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    “Convertible
      Securities” shall mean any securities of the Company that are, or could become,
      convertible, exercisable or exchangeable into Common Stock of the Company,
      including but not limited to convertible preferred stock, convertible
      debentures, convertible notes, warrants and options.

    


    “Current
      Snapshot Date” shall mean the Snapshot Date for which “X” is being
      calculated.

    


    Notwithstanding
      the above, if the average closing bid price of the Company’s common stock for
      the five (5) trading days immediately preceding a given Snapshot Date (the
“5
      Day Average Price”) is greater than or equal to $1.00 (subject to appropriate
      adjustments for stock splits), then no Snapshot Warrants shall be issued with
      respect to that Snapshot Date, provided that if the 5 Day Average Price for
      one
      or more subsequent Snapshot Dates is less than $1.00 (subject to with
      appropriate adjustments for stock splits), then Snapshot Warrants shall be
      issued with respect to such subsequent Snapshot Dates as set forth in this
      Agreement. 

    


    The
      Snapshot Warrants shall be in the form of Exhibit
      F
      hereto,
      and shall be exerciseable at an exercise price (the “Exercise Price”) which
      shall initially equal (the
      “Initial Exercise Price”) the
      average closing bid price of the Company’s common stock for the five (5) trading
      days immediately preceding the applicable Snapshot Date, subject to resets
      as
      further described below and as described in the Snapshot Warrants. If
      the
      Date of Exercise is more than six (6) months after the Date of Issuance (as
      defined in the Snapshot Warrants), the Exercise Price shall be reset to equal
      the lesser of (i) the Exercise Price then in effect, or (ii) the “Lowest Reset
      Price,” as that term is defined below. The Company shall calculate a “Reset
      Price” on each six-month anniversary date of the Date of Issuance which shall
      equal the lowest Closing Bid Price (as defined below) of the Company’s Common
      Stock for the five (5) trading days ending on such six-month anniversary date
      of
      the Date of Issuance. The “Lowest Reset Price” shall equal the lowest Reset
      Price determined on any six-month anniversary date of the Date of Issuance
      up
      through the applicable Date of Exercise, taking into account, as appropriate,
      any adjustments made pursuant to Section 5 of the warrant.

    


    For
      purposes hereof, the term “Closing Bid Price” shall mean the closing bid price
      on the Nasdaq Small Cap Market, the National Market System (“NMS”), the New York
      Stock Exchange, or the O.T.C. Bulletin Board, or if no longer traded on the
      Nasdaq Small Cap Market, the National Market System (“NMS”), the New York Stock
      Exchange, or the O.T.C. Bulletin Board, the “Closing Bid Price” shall equal the
      closing price on the principal national securities exchange or the
      over-the-counter system on which the Common Stock is so traded and, if not
      available, the mean of the high and low prices on the principal national
      securities exchange on which the Common Stock is so traded.

    


    The
      Snapshot Warrants shall have the registration rights set forth in the
      Registration Rights Agreement (“Registration Rights Agreement”) entered into by
      and between the parties concurrently herewith and shall have a 5-year term.
      

    


    5.
       Addendum
      to Amended Note is Superseded; Other Agreements and Securities Remain in Effect.
      As
      part
      of the consideration for this Agreement, the Addendum to Amended Note is
      superseded hereby, effective as of the date that this Agreement is entered
      into
      by both the Company and Swartz, provided that, except as expressly specified
      to
      the contrary in this Agreement, all other agreements between the parties and
      all
      securities that have been previously issued by the Company to Swartz shall
      remain in full force and effect, including but not limited to the
      following:

    


    
      
         

      

      
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    -
      all
      Existing Swartz Warrants (provided that the Specified Existing Swartz Warrants
      are subject to the contractual lockups and share reservation adjustments
      specified herein),

    -
      the
      Secured Note, and all Note Warrants to be issued in the future
      thereunder.

    -
      the
      Equity Line Agreements, the Commitment Warrant and the Purchase
      Warrants.

    


    6. Addendum
      to Note Warrants and Snapshot Warrants. All
      warrants that have been issued from the Company to Swartz as of the date hereof,
      including but not limited to the Existing Swartz Warrants, and all Snapshot
      Warrants to be issued under this Agreement (collectively, the “Swartz Warrants”
or the “Warrants”), shall be considered to contain and be subject to the
      following provision, which shall replace Section 5(a) of such
      Warrants:

    


    Adjustment
      Due to Distribution. If at any time after the Issue Date hereof, the Company
      shall declare or make any distribution of its assets (or rights to acquire
      its
      assets) or shares of its capital stock to Holders of Common Stock of the Company
      as a partial liquidating dividend, by way of return of capital or otherwise
      (including any dividend or distribution to the Company’s shareholders in cash or
      shares [or rights to acquire shares] of capital stock of any other public or
      private company, including but not limited to a subsidiary or spin-off of the
      Company (a “Distribution”)), then the Holders of this Warrant shall be entitled,
      to immediately receive the amount of such distribution (in kind) which would
      have been payable to the Holder with respect to the shares of Common Stock
      issuable upon a full exercise of this Warrant (without
      regard to any contractual, legal or regulatory limitations on the amount of
      such
      conversion),
      had
      such Holder been the holder of such shares of Common Stock on the record date
      for determination of shareholders entitled to such
      Distribution.

    


    7. 9.9%
      Provision.
      The
      parties agree that, if by virtue of the addendum in Section 6 above (the
“Distribution Provision”), or by virtue of any other agreement between the
      parties, the Holder becomes entitled to receive a number of shares of common
      stock of another issuer company (the “Other Issuer”), such that the sum of (1)
      the number of shares of common stock of the Other Issuer beneficially owned
      by
      the Holder and any applicable affiliates, and (2) the number of shares of common
      stock of the Other Issuer that is issuable by virtue of the Distribution
      Provision described above, with respect to which the determination of this
      proviso is being made, would result in beneficial ownership by the Holder and
      its affiliates of more than 9.99% of the outstanding shares of common stock
      of
      the Other Issuer (collectively, the “9.99% LIMITATION”), then the Company shall
      immediately deliver to Swartz the number of shares of common stock of the Other
      Issuer that can be issued without exceeding the 9.99% Limitation, and shall,
      each five (5) business days thereafter (or such longer time period that Swartz
      requests in writing), issue additional such shares to Swartz, in an amount
      equal
      to the number of shares that Swartz states, by written notice, may then be
      issued to Swartz without causing a violation of the 9.99%
      limitation.

    


    
      
         

      

      
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    For
      purposes of the proviso to the immediately preceding sentence, (i) beneficial
      ownership shall be determined by the Holder in accordance with Section 13(d)
      of
      the Exchange Act and Regulations 13D-G thereunder, except as otherwise provided
      in clause (1) of such proviso to the immediately preceding sentence, and
      PROVIDED THAT the 9.99% Limitation shall be conclusively satisfied if the
      applicable notice from Swartz includes a signed representation by the Holder
      that the issuance of the shares in such notice will not violate the 9.99%
      Limitation, and the Company shall not be entitled to require additional
      documentation of such satisfaction. 

    


    8.
       Term.
      The term
      of this Agreement shall be from the date hereof through the date that is 5
      years
      after the date hereof.

    


    9. Opinion
      of Counsel and Board Resolutions. Concurrently
      with the execution of this Agreement, the Company shall deliver to Swartz an
      Opinion of Counsel (signed by the Company’s independent counsel) and a board
      resolution, signed by all disinterested members of the board, covering the
      execution and legality of this Agreement, the Share Reservation Tolling (as
      defined below), the issuance of the Snapshot Warrants hereunder, and the
      issuance and resale of the Common Stock issuable upon exercise of the Snapshot
      Warrants. 

    


    10. Repayment
      of Funds.
      Notwithstanding the full repayment of the Secured Note, this Agreement,
      including but not limited to the Company’s obligation to issue the Snapshot
      Warrants, shall remain in full force and effect throughout the term hereof,
      and
      may not be terminated. 

    


    11. Removal
      of Legend Upon Conversion. 

    


    (a)
      Legend
      Removal.
      As
      contemplated by the Warrants, upon exercise of the Warrants, the Holder shall
      submit an Exercise Notice, substantially in the form attached to the Warrants.
      Any legend on the shares of common stock issued upon exercise of a warrant
      restricting the resale of such share of common stock (a “Legend”) shall be
      removed and the Company shall issue a certificate without such Legend to the
      holder of any Security upon which it is stamped, and a certificate for a
      security shall be originally issued without the Legend, if, unless otherwise
      required by state securities laws, (a) the sale of such Security is registered
      under the Act, or (b) such holder provides the Company with an opinion of
      counsel, in form, substance and scope customary for opinions of counsel in
      comparable transactions (the reasonable cost of which shall be borne by the
      Company), to the effect that a public sale or transfer of such Security may
      be
      made without registration under the Act, or (c) such holder provides the Company
      with reasonable assurances that such Security can be sold pursuant to Rule
      144.
      The Holder agrees to sell all Securities, including those represented by a
      certificate(s) from which the Legend has been removed, or which were originally
      issued without the Legend, pursuant to an effective registration statement
      and
      to deliver a prospectus in connection with such sale or in compliance with
      an
      exemption from the registration requirements of the Act. 

    


    
      
         

      

      
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    (b)
      Legend
      Replacement.
      In the
      event the Legend is removed from any Security or any Security is issued without
      the Legend and thereafter the effectiveness of a registration statement covering
      the resale of such Security is suspended or the Company determines that a
      supplement or amendment thereto is required by applicable securities laws,
      then
      upon reasonable advance notice to Subscriber holding such Security, the Company
      may require that the Legend be placed on any such Security that cannot then
      be
      sold pursuant to an effective registration statement or Rule 144 or with respect
      to which the opinion referred to in clause (b) next above has not been rendered,
      which Legend shall be removed when such Security may be sold pursuant to an
      effective registration statement or Rule 144 or such holder provides the opinion
      with respect thereto described in clause (b) next above.

    


    (c)
      Acknowledgement
      of Tacking Periods.
      For
      purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
      understood and acknowledged that the Common Stock issuable upon any cashless
      exercise of a Warrant shall be deemed to have been acquired at the time the
      applicable Warrant was issued. Moreover, it is intended, understood and
      acknowledged that the holding period for the Common Stock issuable upon any
      cashless exercise of a Warrant shall be deemed to have commenced on the date
      the
      applicable Warrant was issued. 

    


    12. Authorization
      and Reservation of Shares of Common Stock.  Except
      as
      expressly set forth herein, the Company shall be required to maintain a
      sufficient number of authorized and reserved shares of common stock to effect
      the conversion or exercise of all warrants or other Convertible Securities
      owned
      by Swartz as required by the terms of such securities, including, but not
      limited to, the Swartz Warrants. Under the terms of the Specified Existing
      Swartz Warrants, the Company is required to have and maintain a sufficient
      number of reserved shares of common stock to effect the full exercise of each
      such warrant. Swartz hereby agrees that the Company shall be entitled to
“unreserved” (the “Share Reservation Tolling”) up to 20,007,350 shares of common
      stock that are currently reserved for issuance upon exercises of the Specified
      Existing Swartz Warrants (the “Specified Existing Swartz Warrant Shares”), and
      to issue such shares of common stock to other persons or entities or to reserve
      such shares for issuance to others persons or entities, even if such actions
      temporarily cause there to be an insufficient number of authorized and reserved
      shares available to effect the exercise of the Specified Existing Swartz
      Warrants, provided that at all times after the earlier of (i) March 1, 2004
      or
      (ii) the date that is ninety (90) days after the first date, if any, after
      the
      date hereof for which the Closing Price of the Company’s common stock has
      exceeded $0.375 (subject to adjustment to account for any forward or reverse
      stock splits) for ten (10) consecutive trading days (the earlier of which is
      referred to herein as the “Reservation Trigger Date”), the Company shall have
      authorized and reserved and keep available for issuance, solely for the purpose
      of effecting the exercise of the Specified Existing Swartz Warrants, a number
      of
      shares of common stock equal to the aggregate number of outstanding Specified
      Existing Swartz Warrants, which number shall not be reduced thereafter. Upon
      shareholder approval to authorize additional shares after the date hereof,
      the
      required number of shares shall be reserved for issuance to Swartz upon the
      exercise of the Specified Existing Swartz Warrants before any of such shares
      are
      reserved for any other purpose (the requirements of this Section 12 are referred
      to as the “Share Reservation Requirements”). In the event that, due to a failure
      of the Company to meet the Share Reservation Requirements (a “Share Reservation
      Failure,” or otherwise, the Company has an insufficient number of reserved
      shares available to effect the full exercise of any Swartz Warrant that is
      submitted for exercise, in addition to any other remedies for such failure,
      the
      Company shall use all authorized but unreserved shares as necessary to honor
      exercises of the Swartz Warrants.

    


    
      
         

      

      
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    13. Major
      Transactions; Automatic Redemption. 

    


    (a) Redemption
      Option Upon Major Transaction.
      The
      Company shall not effect any Major Transaction (as defined below) unless it
      first gives at least forty five (45) business days prior notice of such Major
      Transaction, during which time the Holder shall be entitled, at its option,
      to
      exercise its warrants, in whole or in part, into Common Stock (to the extent
      that shares of common stock are authorized and reserved for such issuance).
      Any
      Swartz Warrants not previously exercised as of the closing date of the Major
      Transaction shall be automatically redeemed (“Automatic Redemption”) by the
      Company as of such closing date at a price per share (that is, per share of
      common stock represented by the warrants) for each Warrant equal to the
“Redemption Price,” which shall be defined as the greater of (A) $0.375 per
      share, less the Exercise Price per share in effect for that Warrant on the
      trading day immediately preceding the date of closing of the Major Transaction
      (each subject to adjustment to account for any forward or reverse stock splits),
      or (B) the applicable Warrant Redemption Market Value (as defined below). In
      addition, the Secured Note shall be automatically redeemed as of the closing
      date of the Major Transaction (“Automatic Note Redemption”) by the Company as of
      such closing date for an amount (the “Secured Note Redemption Amount”) equal to
      the outstanding principal amount plus all accrued and unpaid interest. As a
      condition to the Company entering into any Major Transaction, either the Company
      or the resulting successor or acquiring entity in such transaction (if not
      the
      Company), must place into an escrow account (“Escrow Account”) an amount of cash
      equal to the aggregate Redemption Price of all Swartz Warrants the are required
      to be redeemed (or, if applicable, the Holder Demand Prepayment Amount for
      all
      affected Warrants), plus the amount of the Secured Note Redemption Amount,
      which
      funds are to be distributed to Swartz at closing of such transaction. Company
      agrees not to consummate any Major Transaction until either the Holder has
      received any outstanding Redemption Price and Secured Note Redemption Amount
      in
      full, or the amount of such Redemption Price and Secured Note Redemption Amount
      has been placed in an escrow account for distribution to Swartz upon closing.
      For purposes hereof, the “Warrant Redemption Market Value,” for purposes of a
      Major Transaction, shall equal the aggregate of the highest Warrant Market
      Values (as defined in Section 15(c) below) for all of the Warrants being so
      redeemed calculated on any date during the forty five (45) business day period
      ending on the date that such Major Transaction closes.

    


    (b) "Major
      Transaction".
      A
      "Major Transaction" shall be deemed to have occurred at such time as any of
      the
      following events:

    


    (i) a
      consolidation, merger, exchange of shares, recapitalization, reorganization,
      business combination or other similar event, (A) following which the holders
      of
      Common Stock of the Company immediately preceding such consolidation, merger,
      combination or event either (i) no longer hold a majority of the shares of
      Common Stock of the Company or (ii) no longer have the ability to elect the
      board of directors of the Company or (B) as a result of which shares of Common
      Stock of the Company shall be changed into (or the shares of Common Stock become
      entitled to receive) the same or a different number of shares of the same or
      another class or classes of stock or securities of the Company or another entity
      (collectively, a “Change of Control”);

    


    
      
         

      

      
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    (ii) the
      sale
      or transfer of all or substantially all of the Company's assets, or the sale
      or
      transfer of all or any portion of the Critical IP, as defined in Section 14
      below (each, an “Asset Sale”); or

    


    (iii) a
      purchase, tender or exchange offer made to the holders of outstanding shares
      of
      Common Stock, such that following such purchase, tender or exchange offer a
      Change of Control shall have occurred.

    


    


    (c) Mechanics
      of Redemption.
       On
      the
      5th
      business
      day prior to the closing date of any Major Transaction, the Company shall
      provide notice to the Holder, by facsimile and overnight courier, indicating
      the
      number of Warrants that are being automatically redeemed and the applicable
      Redemption Price. 

     

    (d) Tender
      of Warrant Certificates; Payment of Redemption Price.
      The
      Holder shall tender the Warrants being redeemed (or notice that such Warrants
      have been lost, stolen or mutilated, if applicable) to the Company, promptly
      after receiving notice of redemption from the Company, by delivering such
      warrant certificates so redeemed to the Company’s Transfer Agent by overnight
      or, if outside the U.S., two-day courier within two business days of the date
      of
      the redemption, and the Company shall pay the applicable Redemption Price to
      the
      Holder within five (5) business days of the date the Transfer Agent receives
      the
      original warrants being redeemed (or a written statement that such Warrants
      have
      been lost, stolen or mutilated)(the “Redemption Payment Deadline”). The agent of
      the Escrow Account (the “Escrow Agent”) shall be instructed that it is obligated
      to deliver the Redemption Price to the Holder once the Warrants so redeemed
      are
      delivered to the Transfer Agent, or, in the event one (1) or more warrants
      have
      been lost, stolen, mutilated or destroyed, unless the Holder has notified the
      Company, in writing, of such loss or destruction. In the event that the Warrants
      being redeemed are inadvertently forwarded to the Company instead of the
      Transfer Agent, the Company shall promptly forward such certificates to the
      Transfer Agent. The Escrow Agent shall be instructed that, if the Major
      Transaction does not close within forty five (45) days of the initial notice
      of
      Major Transaction from the Company to the Holder, then the Escrow Agent return
      the Warrants in its possession to the Holder and return the funds reserved
      for
      payment of the Redemption Prices to the sender, and the automatic redemption
      of
      such Warrants shall be considered to be null and void.

    


    14. Critical
      Intellectual Property.
      The
      patents and other intellectual property set forth as follows, shall be referred
      to herein as the “Critical IP”:

    


    


    Patents:

    


    U.S.
      Patent No. 5,440,749  Issued
      August 8, 1995

    


    U.S.
      Patent No. 5,457,784  Issued
      October 10, 1995

    


    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    U.S.
      Patent No. 5,530,890  Issued
      June 25, 1996

    


    U.S.
      Patent No. 5,604,915  Issued
      February 18, 1997

    


    U.S.
      Patent No. 5,648,787  Issued
      July 15, 1997

    


    U.S.
      Patent No. 5,659,703  Issued
      August 19, 1997

    


    U.S.
      Patent No. 5,784,584  Issued
      July 21, 1998

    


    U.S.
      Patent No. 5,809,336  Issued
      September 15, 1998

    


    Japanese
      Patent No. 2966085        Issued
      October 25, 1999

    


    Patent
      Applications

     

    
      	U.S. Patent Application Serial No.
              09/779,395  	Filed February 7, 2001 
	 	 
	U.S. Patent Application Serial No.
              09/872,762 	Filed
              June 1, 2001 
	 	 
	European Patent Application No.
              97200767.8 	Filed August 2, 1990  
	 	 
	European Patent Application No.
              96934069.4 	Filed
              October 4, 1996
	 	 
	
              Japanese
                Patent Application No. 9-515848

            	Filed October 4,
              1996


    

    


    Trademarks

    


    U.S.
      Trademark Application for the “ShBoom” mark, U.S. Class 21, Ind Class 9 along
      with any and all good will associated therewith

    


    U.S.
      Trademark Application for the “NetShark” mark, U.S. Class 21, Ind Class 9 along
      with any and all good will associated therewith 75/699034   
7/28/98

    


    U.S.
      Trademark Application for the “PTSC” mark, U.S. Class 21, Ind Class 9 along with
      any and all good will associated therewith 76/170283   
11/21/00

    


    U.S.
      Trademark Application for the “Driving Innovation” mark, U.S. Class 21, Ind
      Class 9 along with any and all good will associated therewith
      76/167143    11/16/00

    


    U.S.
      Trademark Application for the “Ignite I” mark, U.S. Class 21, Ind Class 9 along
      with any and all good will associated therewith 76/159514   
11/3/00

    


    U.S.
      Trademark Application for the “Ignite II” mark, U.S. Class 21, Ind Class 9 along
      with any and all good will associated therewith 76/159517   
11/3/00

    


    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    U.S.
      Trademark Application for the “Ignite III” mark, U.S. Class 21, Ind Class 9
      along with any and all good will associated therewith
      76/159515    11/3/00

    


    U.S.
      Trademark Application for the “Ignite IV” mark, U.S. Class 21, Ind Class 9 along
      with any and all good will associated therewith 76/159519   
11/3/00

    


    U.S.
      Trademark Application for the “JUICEtechnology” mark, U.S. Class 21, Ind Class 9
      along with any and all good will associated therewith
      76/265801    5/31/01

    


    


    15.  Events
      of Default.

    


    (a) Increase
      in Snapshot Multiplier Upon Event of Default.
      Upon
      the occurrence of an Event of Default (as herein defined), the Snapshot Rate
      Multiplier, with respect to such default, shall be increased by 0.01 for each
      thirty (30) days (pro rated) that passes from the date of the Event of Default
      through the date that either the Event of Default is cured or until the Swartz
      Warrants are prepaid under this Section. 

    


    (b) Holder’s
      Option to Demand Prepayment.
      In
      addition, if any Event of Default remains uncured for a period of sixty (60)
      days, Swartz shall have the right to elect at any time and from time to time
      prior to the cure by Company of such Event of Default to have all or any portion
      of such Holder’s then outstanding Warrants prepaid by the Company (a “Holder
      Demand Prepayment”) for an amount equal to the Holder Demand Prepayment Amount
      (as herein defined).

    


    (i) The
      right
      of a Holder to elect prepayment shall be exercisable upon the occurrence of
      an
      Event of Default by such Holder in its sole discretion by delivery of a Demand
      Prepayment Notice (as herein defined) in accordance with the procedures set
      forth in this Section 15. Notwithstanding the exercise of such right, the Holder
      shall be entitled to exercise all other rights and remedies available under
      the
      provisions of this Agreement, the provisions of the Warrants and at law or
      in
      equity.

    


    (ii) Swartz
      shall effect each demand for prepayment under this Section 15 by giving at
      least
      two (2) business days prior written notice (the “Demand Prepayment Notice”) of
      the date which such prepayment is to become effective (the “Effective Date of
      Demand of Prepayment”), the warrants selected for prepayment and the Holder
      Demand Prepayment Amount to the Company at the address and facsimile number
      provided in the stock records of the Company, which Demand Prepayment Notice
      shall be deemed to have been delivered on the business day after the date of
      transmission of Holder’s facsimile (with a copy sent by overnight courier to the
      Company) of such notice.

    


    (iii)
       The
      Holder Demand Prepayment Amount shall be paid to Swartz within five (5) business
      days following the date that the Company receives a written demand for
      prepayment; provided, however, that the Company shall not be obligated to
      deliver any portion of the Holder Demand Prepayment Amount until one (1)
      business day following either the date on which the warrant(s) being prepaid
      are
      delivered to the office of the Company or the Transfer Agent, or the date on
      which Swartz notifies the Company or the Transfer Agent that such warrant(s)
      have been lost, stolen or destroyed. 

    


    
      
         

      

      
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    (c) Holder
      Demand Prepayment Amount.
      The
“Holder Demand Prepayment Amount” means the greater of: (a) 1.3 times the
      aggregate of the highest Warrant Market Value of the warrant(s) for which demand
      is being made calculated on any date beginning on the date that the Event of
      Default commenced through the date of prepayment, where “Warrant Market Value”
shall be calculated as follows:

    


    “Warrant
      Market Value” = the number of shares that would be issuable in a “cashless
      exercise” on the date in question, under the terms of the warrant (without
      regard to any contractual, legal, or regulatory restrictions on such exercise
      and issuance, if any, and without regard to whether or not a sufficient number
      of shares are authorized and reserved to effect any such exercise and issuance),
      multiplied by the Closing Price of the Company’s common stock for the preceding
      trading day.

    


    For
      purposes hereof, the term “Closing Price” shall mean the closing price on the
      O.T.C. Bulletin Board, Nasdaq Small Cap Market, the National Market System
      (“NMS”), the New York Stock Exchange, or if no longer traded on the Nasdaq Small
      Cap Market, the National Market System (“NMS”), the New York Stock Exchange, or
      the O.T.C. Bulletin Board, the “Closing Bid Price” shall equal the closing price
      on the principal national securities exchange or the over-the-counter system
      on
      which the Common Stock is so traded and, if not available, the mean of the
      high
      and low prices on the principal national securities exchange on which the Common
      Stock is so traded.

    


    (d) Events
      of Default.
      An
“Event of Default” means any one of the following:

    


    (i)
       an
      “Exercise Failure” (as defined below) which is uncured fifteen (15) business
      days after the Date of Exercise (as defined in the Warrants);

    


    (ii) one
      or
      more Share Reservation Failures occur and continue uncured for an aggregate
      of
      thirty (30) days; 

    


    (iii) the
      Company fails to pay any cash payments due to Holder under the terms of this
      Agreement within five (5) days after Holder has notified the Company, in
      writing, that such payment is past due and that the Holder intends to declare
      an
“Event of Default” under this Section 15;

    


    (iv) the
      Company fails to cause the registration statement required by the Registration
      Rights Agreement to become effective within thirty (30) days of the date that
      it
      is required by the Registration Rights Agreement to become effective, or if
      any
      Amended or New Registration Statement required to be filed under the
      Registration Rights Agreement is not declared effective within two (2) calendar
      months of the date it is required to be filed, or if Registration Blackouts
      (as
      defined in the Registration Rights Agreement) are in effect for a number of
      days
      that, in the aggregate, exceeds of the Maximum Annual Blackout Allowance by
      fifteen or more trading days, or if the Company otherwise fails to maintain
      an
      effective registration statement as required by the Registration Rights
      Agreement (the “Registration Rights Agreement”) between the Company and the
      Holder(s) (each, a “Registration Failure”), provided that a Registration Failure
      shall not constitute an Event of Default where all of (a) - (c) following are
      true: (a) where all of the outstanding Swartz Warrants (except for Snapshot
      Warrants that have been issued during the prior 12 month period) have been
      outstanding for more than one year (“Cured Warrants”), (b) where the shares
      issuable upon the cashless exercise of all of such outstanding Swartz Warrants
      (except for Snapshot Warrants that have been issued during the prior 12 month
      period) may be sold immediately, without volume limitations, without
      registration under the Act, by virtue of Rule 144 or similar provisions, and
      (ii) where the Company has not, at any time, failed or refused to issue
      unrestricted and unlegended shares of common stock upon the cashless exercise
      of
      a Cured Warrant.

    


    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    


    (v) for
      three
      (3) consecutive trading days or for an aggregate of ten (10) trading days in
      any
      nine (9) month period, the Common Stock (including any of the shares of Common
      Stock issuable upon exercise of the Swartz Warrants) is (i) suspended from
      trading on any of the OTC Bulletin Board, Nasdaq SmallCap, NMS, NYSE, or the
      AMEX, or (ii) is not qualified for trading on at least one of the OTC Bulletin
      Board, Nasdaq SmallCap, NMS, NYSE, or the AMEX;

    


    (vi) the
      Company fails, and such failure continues uncured for three (3) business days
      after the Company has been notified thereof in writing by a Holder, to remove
      any restrictive Legend on any certificate for any shares of Common Stock issued
      to a Holder upon exercise as and when required by this Agreement or the
      Registration Rights Agreement;

    


    (vii) the
      Company or any subsidiary of the Company shall make an assignment for the
      benefit of its creditors, or apply for or consent to the appointment of a
      receiver or trustee for it or for a substantial part of its property or
      business, or such receiver or trustee shall otherwise be appointed;
      or

    


    (viii) bankruptcy,
      insolvency, reorganization or liquidation proceedings or other proceedings
      for
      relief under any bankruptcy law or any law for the relief of debtors shall
      be
      instituted by or against the Company or any subsidiary of the Company (and
      such
      proceedings shall continue unstayed for thirty (30) days).

    


    The
      parties agree that the damages caused by any Event of Default breach hereof
      would be difficult or impossible to estimate accurately. 

    


    16. Exercise
      Failure. Subject
      to the restrictions on exercise of the Specified Existing Swartz Warrants,
      if
      (x) a Holder submits an Exercise Notice, and the Company fails for any reason
      to
      deliver, within ten (10) trading days (“Delivery Period”) for such exercise,
      such number of shares of Common Stock to which such exercising Holder is
      entitled upon such exercise (which shares shall be listed, authorized, reserved,
      registered (if and when required hereunder or under the Registration Rights
      Agreement or other applicable agreement), and freely tradeable to the extent
      required in the governing agreements, or (y) the Company provides notice to
      Holder at any time of its intention not to issue shares of Common Stock upon
      exercise by Holder of its exercise rights in accordance with the terms of the
      applicable governing agreements (each of (x) and (y) being a “Exercise
      Failure”), then in addition to all other available remedies which such Holder
      may pursue hereunder and under the applicable governing agreements, such
      Exercise Failure shall constitute an Event of Default under Section 15
      hereunder.

    


    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    17. Failure
      to Pay Damages Amount.
      If the
      Company fails to pay the Holder Demand Prepayment Amount within five (5)
      business days of its receipt of a Demand Prepayment Notice, then such Holder
      shall have the right, at any time and from time to time prior to the payment
      of
      the Holder Demand Prepayment Amount, to require the Company, upon written
      notice, to immediately exercise all or any portion of the Holder Demand
      Prepayment Amount, into shares of Common Stock at a price per share (the “Demand
      Conversion Price”) equal to the lowest Closing Bid Price of the Company’s common
      stock over the five (5) trading days immediately preceding the date of such
      notice, provided that if the Company has not delivered the full number of shares
      of Common Stock issuable upon such notice within three (3) business days after
      the Company receives written notice of such conversion, the Demand Conversion
      Price with respect to such Holder Demand Prepayment Amount shall thereafter
      be
      deemed to be the lowest Demand Conversion Price in effect during the period
      beginning on the date of the Event of Default through the date on which the
      Company delivers to the Holder the full number of freely tradable shares of
      Common Stock issuable upon such conversion.

    


    18. Adjustments
      Due to Stock Splits.
      Any
      applicable price or number of shares specified in this Agreement shall be
      subject to adjustment in the event of a forward or reverse stock split by the
      Company, if necessary, to properly account for such split.

    


    19. Arbitration;
      Governing Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York applicable to agreements made in and wholly to be performed
      in
      that jurisdiction, except for matters arising under the Act or the Securities
      Exchange Act of 1934, which matters shall be construed and interpreted in
      accordance with such laws. Any controversy or claim arising out of or related
      to
      the this Agreement or the breach thereof, shall be settled by binding
      arbitration in New York, New York in accordance with the Expedited Procedures
      (Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
      Association (“AAA”). A proceeding shall be commenced upon written demand by
      Company or Swartz to the other. The arbitrator(s) shall enter a judgment by
      default against any party, which fails or refuses to appear in any properly
      noticed arbitration proceeding. The proceeding shall be conducted by one (1)
      arbitrator, unless the amount alleged to be in dispute exceeds two hundred
      fifty
      thousand dollars ($250,000), in which case three (3) arbitrators shall preside.
      The arbitrator(s) will be chosen by the parties from a list provided by the
      AAA,
      and if they are unable to agree within ten (10) days, the AAA shall select
      the
      arbitrator(s). The arbitrators must be experts in securities law and financial
      transactions. The arbitrators shall assess costs and expenses of the
      arbitration, including all attorneys’ and experts’ fees, as the arbitrators
      believe is appropriate in light of the merits of the parties’ respective
      positions in the issues in dispute. Each party submits irrevocably to the
      jurisdiction of any state court sitting in New York, New York or to the United
      States District Court sitting in New York for purposes of enforcement of any
      discovery order, judgment or award in connection with such arbitration. The
      award of the arbitrator(s) shall be final and binding upon the parties and
      may
      be enforced in any court having jurisdiction. The arbitration shall be held
      in
      such place as set by the arbitrator(s) in accordance with Rule 55.

    


    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    Although
      the parties, as expressed above, agree that all claims, including claims that
      are equitable in nature, for example specific performance, shall initially
      be
      prosecuted in the binding arbitration procedure outlined above, if the
      arbitration panel dismisses or otherwise fails to entertain any or all of the
      equitable claims asserted by reason of the fact that it lacks jurisdiction,
      power and/or authority to consider such claims and/or direct the remedy
      requested, then, in only that event, will the parties have the right to initiate
      litigation respecting such equitable claims or 

    remedies.
      The forum for such equitable relief shall be in either a state or federal court
      sitting in New York, New York. Each party waives any right to a trial by jury,
      assuming such right exists in an equitable proceeding, and irrevocably submits
      to the jurisdiction of said New York court. New York law shall govern both
      the
      proceeding as well as the interpretation and construction of this Agreement
      and
      the transaction as a whole.

    


    


    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of this
19th
      day of
      March, 2003.

     

    
      	PATRIOT
              SCIENTIFIC CORPORATION	 	 	SWARTZ
              PRIVATE EQUITY, LLC.  
	 	 	 	 
	 	 	 	 
	By:
              _/s/ Lowell W.
              Giffhorn	 	 	By:
              /s/ Eric S.
              Swartz
	
              
                
Lowell
                W. Giffhorn, CFO

            	 	 	
              
                
Eric
                S. Swartz, Manager

            
	
              10989
                Via Frontera

              San
                Diego, CA 92127

              Telephone:
                (858) 674-5000

              Facsimile:
                (858) 674-5005

            	 	 	
              1025
                Old Roswell Road, Suite 203

              Roswell,
                GA  30076

              Telephone:
                770-640-8130

              Fax:
                770-643-0279

            


    

    


     

    
      
         

      

      
        15