Document:

EXHIBIT
      10.42

     

    

     

    

     

    

    LIMITED
      LIABILITY COMPANY

     

    OPERATING
      AGREEMENT

     

    OF

     

    [P-NEWCO],

     

    A
      DELAWARE LIMITED LIABILITY COMPANY

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    TABLE
      OF CONTENTS

     

    Page

    
      	 	 	 
	
              ARTICLE
                1

            	
              DEFINITIONS

            	
              1

            
	 	 	 
	
              ARTICLE
                2

            	
              FORMATION
                OF LIMITED LIABILITY COMPANY

            	
              7

            
	
              2.1

            	
              Formation

            	
              7

            
	
              2.2

            	
              Name;
                Principal Place of Business

            	
              7

            
	
              2.3

            	
              Registered
                Office and Registered Agent

            	
              7

            
	
              2.4

            	
              Agreement;
                Effect of Inconsistencies With the Act or the Code

            	
              7

            
	
              2.5

            	
              Business

            	
              8

            
	
              2.6

            	
              Term

            	
              8

            
	
              2.7

            	
              Qualification

            	
              8

            
	 	 	 
	
              ARTICLE
                3

            	
              MEMBERSHIP

            	
              8

            
	
              3.1

            	
              Members

            	
              8

            
	
              3.2

            	
              Representations
                and Warranties

            	
              9

            
	
              3.3

            	
              Incorporation
                of Representations and Warranties

            	
              9

            
	
              3.4

            	
              Resignation
                or Withdrawal of a Member.

            	
              10

            
	
              3.5

            	
              Effect
                of Certain Events on Membership.

            	
              10

            
	
              3.6

            	
              Restrictions
                on Transfers of Interests

            	
              10

            
	
              3.7

            	
              No
                Authority as Agent

            	
              11

            
	 	 	 
	
              ARTICLE
                4

            	
              MANAGEMENT

            	
              11

            
	
              4.1

            	
              Management
                of the Company by Management Committee

            	
              11

            
	
              4.2

            	
              Appointment
                of Management Committee.

            	
              11

            
	
              4.3

            	
              Responsibilities
                of the Management Committee

            	
              13

            
	
              4.4

            	
              Officers

            	
              13

            
	
              4.5

            	
              Liability
                of Committee Members and Officers

            	
              14

            
	
              4.6

            	
              Records,
                Audits and Reports

            	
              14

            
	
               

            	 	 
	
              ARTICLE
                5

            	
              CAPITAL
                CONTRIBUTIONS

            	
              15

            
	
              5.1

            	
              Initial
                Capital Contributions

            	
              15

            
	
              5.2

            	
              Percentage
                Interests

            	
              15

            
	
              5.3

            	
              Working
                Capital Contributions.

            	
              15

            
	
              5.4

            	
              Failure
                to Make Contributions

            	
              15

            
	
              5.5

            	
              Capital
                Accounts

            	
              16

            
	
               

            	 	 
	
              ARTICLE
                6

            	
              DISTRIBUTIONS,
                ALLOCATIONS AND TAX MATTERS

            	
              17

            
	
              6.1

            	
              Application
                of Gross Cash Proceeds.

            	
              17

            
	
              6.2

            	
              Allocation
                of Net Profits

            	
              18

            
	
              6.3

            	
              Allocation
                of Net Losses

            	
              18

            
	
              6.4

            	
              General
                Rules for Allocations

            	
              18

            
	
              6.5

            	
              Special
                Allocations to Capital Accounts.

            	
              18

            
	
              6.6

            	
              Tax
                Allocations; Section 704(c) of the Code.

            	
              19

            
	
              6.7

            	
              Tax
                Matters Member.

            	
              20

            
	
              6.8

            	
              Section
                754 Election

            	
              20

            
	
              6.9

            	
              Returns
                and Other Elections

            	
              20

            
	
              6.10

            	
              Partnership
                Tax Treatment

            	
              21

            

    

     

     

    
      
         

      

      
        -i-

        
          

        

      

      
         

      

    

     

     

    
      	
               

            	 	 
	
              ARTICLE
                7

            	
              INDEMNIFICATION
                AND LIMITATION OF LIABILITY

            	
              21

            
	
              7.1

            	
              Indemnification.

            	
              21

            
	
              7.2

            	
              Limitation
                of Liability

            	
              22

            
	
              7.3

            	
              Savings
                Clause

            	
              22

            
	
               

            	 	 
	
              ARTICLE
                8

            	
              DISSOLUTION
                AND WINDING UP

            	
              23

            
	
              8.1

            	
              Dissolution

            	
              23

            
	
              8.2

            	
              Winding
                Up

            	
              23

            
	
              8.3

            	
              Reversion
                of Rights

            	
              23

            
	
              8.4

            	
              Order
                of Payment Upon Liquidation

            	
              23

            
	
              8.5

            	
              Antecedent
                Activities.

            	
              23

            
	
              8.6

            	
              Limitations
                on Payments Made in Dissolution

            	
              24

            
	
              8.7

            	
              Certificate
                of Cancellation

            	
              24

            
	
              8.8

            	
              Effect
                of Filing Certificate of Cancellation

            	
              24

            
	
               

            	 	 
	
              ARTICLE
                9

            	
              MISCELLANEOUS

            	
              24

            
	
              9.1

            	
              Amendment

            	
              24

            
	
              9.2

            	
              Governing
                Law and Severability

            	
              25

            
	
              9.3

            	
              Counterparts

            	
              25

            
	
              9.4

            	
              Titles
                and Subtitles

            	
              25

            
	
              9.5

            	
              Notices

            	
              25

            
	
              9.6

            	
              Entire
                Agreement

            	
              25

            
	
              9.7

            	
              Power
                of Attorney

            	
              26

            
	
              9.8

            	
              Related
                Party Transactions

            	
              26

            
	
              9.9

            	
              Dispute
                Resolution

            	
              26

            
	
              9.10

            	
              No
                Partition

            	
              26

            
	
              9.11

            	
              Bankruptcy

            	
              26

            

    

    

    SCHEDULE
      1 - INITIAL CAPITAL CONTRIBUTIONS

     

    SCHEDULE
      2 - PERCENTAGE INTERESTS

     

    EXHIBIT
      A
      - CONSENT
      OF CHARLES H. MOORE TO LIMITED LIABILITY OPERATING AGREEMENT OF P-NEWCO, A
      DELAWARE LIMITED LIABILITY COMPANY

     

    
      
         

      

      
        -ii-

        
          

        

      

      
         

      

    

     

    LIMITED
      LIABILITY COMPANY

    OPERATING
      AGREEMENT FOR

    [P-NEWCO],

    A
      DELAWARE LIMITED LIABILITY COMPANY

     

    This
      Limited Liability Company Operating Agreement (this “Operating
      Agreement”)
      of
      [P-Newco], a Delaware limited liability company (the “Company”), is made as of
      June 7, 2005, by and between PATRIOT SCIENTIFIC CORPORATION, a Delaware
      corporation (“Patriot”),
      and
      TECHNOLOGY PROPERTIES LIMITED INC., a California corporation (“TPL”)
      (collectively, the “Members”).

     

    RECITALS

     

    WHEREAS,
      Patriot has formed the Company as a limited liability company under the Delaware
      Limited Liability Company Act, 6 Del.
      C.
      § 18-101, et
      seq.,
      as
      amended (the “Act”),
      for
      the purposes of effecting the transactions contemplated by the Master Agreement
      (as defined below);

     

    WHEREAS,
      prior to the capital contributions and the issuance of the Percentage Interests
      described in Article 5
      hereof,
      Patriot has been the sole member of the Company;

     

    WHEREAS,
      the Members wish to enter into this Operating Agreement to provide for the
      structure, governance and operation of the Company.

     

    AGREEMENT

     

    NOW
      THEREFORE, in consideration of the respective covenants and promises contained
      herein and for other good and valuable consideration, the receipt and adequacy
      of which is hereby acknowledged, the parties hereto agree as
      follows:

     

    ARTICLE
      1

    DEFINITIONS

     

    The
      following terms shall have the meanings set forth below for purposes of this
      Operating Agreement:

     

    “Act”
means
      the Delaware Limited Liability Company Act.

     

    “Active
      Potential Licensees”
has
      the
      meaning set forth in Section 6.2 of the Master Agreement.

     

    “Adjusted
      Capital Account Deficit”
means,
      with respect to any Member for any taxable year or other period, the deficit
      balance, if any, in such Member’s Capital Account as of the end of such year or
      other period, after giving effect to the following adjustments: (a) credit
      to
      such Capital Account any amounts that such Member is obligated to restore or
      is
      deemed obligated to restore as described in the penultimate sentence of Treasury
      Regulation Section 1.704-2(g)(1) and in Treasury Regulation
      Section 1.704-2(i); and (b) debit to such Capital Account the items
      described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and
      (6).

     

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

     

    “Adjusted
      Gross Cash Proceeds”
means
      Gross Cash Proceeds minus
      TPL
      Direct Reimbursable Expenses.

     

    “Affiliate”,
      with
      respect to any Person, means any other Person directly or indirectly
      controlling, controlled by or under common control with, such Person. For
      purposes of this Operating Agreement, “control”
      (including with correlative meanings, the terms “controlling”,
      “controlled
      by”
or
      “under
      common control with”)
      as
      used with respect to any Person, shall mean the possession, directly or
      indirectly, of the power to direct or cause the direction of the management
      and
      policies of such Person, whether through the ownership of voting securities
      or
      by contract or otherwise.

     

    “Annual
      Business Plan”
means,
      for any Fiscal Year, the Company’s annual financial and operating plan and
      budget for such Fiscal Year as formally approved by the Management Committee,
      as
      such financial and operating plan and budget may be amended from time to time
      by
      the Management Committee.

     

    “Antecedent
      Activities”
means
      active negotiations with parties identified as Active Potential Licensees
      pursuant to Section 6.2 of the Master Agreement..

     

    “Applicable
      Law”
means
      any domestic or foreign, federal, state or local statute, law, common law,
      ordinance, rule, administrative interpretation, regulation, order, writ,
      injunction, directive, judgment, decree, permit or other requirement of any
      Governmental Authority.

     

    “Book
      Value”
means,
      with respect to any asset, the asset’s adjusted basis for federal income tax
      purposes, except as follows:

     

    (a)The
      initial Book Value of any asset contributed by a Member to the Company shall
      be
      the gross fair market value of such asset (not reduced by any associated
      liabilities), as agreed to by the contributing Member and the Management
      Committee;

     

    (b)The
      Book
      Value of the property of the Company shall be adjusted to equal its gross fair
      market value, as determined by the Management Committee, as of the following
      times: (i) the acquisition of an additional Interest by any new or existing
      Member in exchange for more than a de
      minimis
      Capital
      Contribution; (ii) the distribution by the Company to a Member of more than
      a de
      minimis
      amount
      of property as consideration for an Interest; (iii) the liquidation of the
      Company within the meaning of Treasury Regulations Section 1.704-1
      (b)(2)(ii)(g); and (iv) any other instance in which such adjustment is permitted
      under Treasury Regulation Section 1.704-1(b)(2)(iv); provided,
      however,
      that
      adjustments pursuant to clauses (i), (ii), and (iv) above shall be made
      only if the Management Committee reasonably determines that such adjustments
      are
      necessary or appropriate to reflect the relative economic interests of the
      Members in the Company; and

     

    (c)The
      Book
      Value of any property distributed to a Member shall be adjusted to equal the
      gross fair market value of such asset on the date of distribution as determined
      by the Management Committee.

     

    The
      Book
      Value of any property which has been established or adjusted to reflect gross
      fair market value hereunder shall thereafter be adjusted by depreciation as
      provided in Treasury Regulation

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    Section
      1.704-1(b)(2)(iv)(g) and any other adjustment to the value of such property
      other than depreciation or amortization.

     

    “Capital
      Account”
means,
      with respect to any Member, the capital account maintained by the Company for
      such Member in accordance with Section 5.5.

     

    “Change
      of Control”
means
      (a) the merger or consolidation of Patriot with or into another corporation
      in
      which Patriot is not the surviving entity, or a reverse triangular merger,
      or
      similar transaction, in which Patriot is the surviving entity but the shares
      of
      Patriot’s capital stock outstanding immediately prior to the merger are
      converted into other property, whether in the form of securities, cash, or
      otherwise, and as a result of which the outstanding capital stock of Patriot
      prior to such transaction represents less than a majority of the outstanding
      capital stock of Patriot or the acquirer or successor following such
      transaction, (b) any sale or transfer of all or substantially all of Patriot’s
      assets to any other Person, or (c) the sale or transfer of shares of Patriot’s
      capital stock, warrants, options or instruments convertible into capital stock
      of Patriot and as a result of which the outstanding capital stock of Patriot
      on
      a fully diluted basis assuming conversion of all outstanding instruments
      convertible into shares of Patriot’s capital stock prior to such transaction
      represents less than a majority of the outstanding capital stock of Patriot
      or
      the acquirer or successor following such transaction.

     

    “Certificate
      of Formation”
means
      the Certificate of Formation of the Company as filed with the Secretary of
      State
      of the State of Delaware on June [__], 2005, as the same may be amended or
      restated from time to time.

     

    “Code”
means
      the Internal Revenue Code of 1986, as amended from time to time, or any
      successor federal tax statute enacted after the date of this Operating
      Agreement.

     

    “Commercialization
      Agreement”
means
      that certain Commercialization Agreement, dated as of the date hereof, by and
      among Patriot, TPL and the Company.

     

    “Company”
has
      the
      meaning set forth in the Preamble.

     

    “Company
      Expenses”
means
      any direct operating expenses of the Company as may be approved by the
      Management Committee, including any fees or other compensation payable to the
      Managers or for expenses related to the preparation of Company financial
      statements, tax reporting and the maintenance of a bank account in the name
      of
      the Company, and other similar administrative expenses.

     

    “Company
      Minimum Gain”
means
      “partnership minimum gain” as defined in Treasury Regulation
      Section 1.704-2(d).

     

    “Damages”
means
      all demands, claims, actions or causes of action, assessments, losses (including
      reasonably foreseeable lost profits), damages, costs, expenses, liabilities,
      judgments, awards, fines, sanctions, penalties, charges and amounts paid in
      settlement (net of insurance proceeds and proceeds from related third party
      indemnification, contribution or similar claims actually received), including
      (a) interest at a rate equal to 200 basis points above the prime rate, as
      in effect from time to time, of Citibank, N.A., on cash disbursements in respect
      of any of the foregoing, compounded quarterly, from the date each such cash
      disbursement is made until the Person incurring the same shall have been
      indemnified in respect thereof, (b) reasonable costs, fees and expenses
      of

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    such
      Person’s Representatives and (c) any reasonable costs, fees and expenses
      incurred in connection with investigating, defending against, or settling any
      such claims.

     

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

     

    “Fair
      Market Value”
shall
      mean, with respect to the Initial Capital Contributions, the fair market value
      of such asset as determined by the Members.

     

    “Fiscal
      Year”
means
      (i) any twelve (12) month period commencing on June 1 and ending on
      May 31, or (ii) any portion of the period described in clause (i)
      of this sentence for which the Company is required to allocate Net Profits,
      Net
      Losses and other items of Company income, gain, loss or deduction pursuant
      to
Article VI,
      as the
      case may be.

     

    “Governmental
      Approval”
means
      an authorization, consent, approval, permit or license issued by, or a
      registration or filing with, any Governmental Authority.

     

    “Governmental
      Authority”
means
      any foreign, domestic, federal, territorial, state or local governmental
      authority, quasi-governmental authority, instrumentality, court, government
      or
      self-regulatory organization, commission, tribunal or organization or any
      regulatory, administrative or other agency, or any political or other
      subdivision, department or branch of any of the foregoing.

     

    “Gross
      Cash Proceeds”
means
      all cash proceeds received pursuant to licenses, judgments, settlements and
      other payments with respect to the right to make, have made, use, sell, and
      import products utilizing the MSD Patents.

     

    “Indemnitees”
means
      the Members, Managers, officers and employees of the Company, as well as their
      respective Representatives, entitled to indemnification by the Company pursuant
      to Article VII.

     

    “Independent
      Manager”
has
      the
      meaning set forth in Section 4.2(c).

     

    “Initial
      Capital Contributions”
has
      the
      meaning set forth in Section 5.1.

     

    “Initial
      Working Capital Contribution”
means
      the Two Million Dollars ($2,000,000) payable by each of Patriot and TPL, in
      the
      aggregate amount of Four Million Dollars ($4,000,000), due upon the execution
      of
      this Operating Agreement.

     

    “JAMS”
has
      the
      meaning set forth in Section 4.2(c).

     

    “Liabilities”
means,
      with respect to any Person, any liability or obligation of such Person of any
      kind, character or description, whether known or unknown, absolute or
      contingent, accrued or unaccrued, liquidated or unliquidated, secured or
      unsecured, joint or several, due or to become due, vested or unvested,
      executory, determined, determinable or otherwise and whether or not the same
      is
      required to be accrued on the financial statements of such Person or is
      disclosed on any schedule to the Master Agreement or this Operating
      Agreement.

     

    “Lien”
means,
      with respect to any asset, any mortgage, title defect or objection, lien,
      pledge, charge, security interest, hypothecation, restriction, encumbrance
      or
      charge of any kind in respect of such asset.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    “Liquidator”
has
      the
      meaning set forth in Section 8.2.

     

    “Management
      Committee”
has
      the
      meaning set forth in Section 4.1.

     

    “Manager”
means
      a
      member of the Management Committee.

     

    “Master
      Agreement”
means
      that certain agreement, dated as of May [27], 2005, by and between Patriot
      and TPL.

     

    “Member
      Minimum Gain”
means
      the Company’s “partner nonrecourse debt minimum gain” as defined in Treasury
      Regulation Section 1.704-2(i)(2).

     

    “Member
      Nonrecourse Debt”
means
      “partner nonrecourse debt” as defined in Treasury Regulation
      Section 1.704-2(b)(4).

     

    “Member
      Nonrecourse Deductions”
means
      “partner nonrecourse deductions” as defined in Treasury Regulation
      Section 1.704-2(i)(2).

     

    “Members”
has
      the
      meaning set forth in the Preamble.

     

    “MSD
      Patents”
means
      those microprocessor science and design patents identified on Schedule 1 to
      the Master Agreement.

     

    “Net
      Cash Proceeds”
has
      the
      meaning set forth in Section 6.1(a)(v).

     

    “Net
      Profit”
or
      “Net
      Loss”
means,
      for any Accounting Period, the amount, computed as of the last day thereof,
      of
      the net income or loss of the Company determined in accordance with federal
      income tax principles (but without requiring any items to be stated separately
      pursuant to Code Section 703), with the following adjustments:

     

    (a)
      Any
      income of the Company that is exempt from federal income tax shall be included
      in the computation of Net Profit or Net Loss;

     

    (b)
      Any
      expenditures of the Company described in Code Section 705(a)(2)(B) or
      treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
      Regulations Section 1.704-l(b)(2)(iv)(i) shall be included in the
      computation of Net Profit or Net Loss;

     

    (c)
      Any
      adjustment in the Book Value of property in accordance with this Agreement
      and
      pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) or (g) shall be
      taken into account as gain or loss from the disposition of such asset for
      purposes of computing Net Profit or Net Loss (to the extent such adjustment
      is
      not already reflected in the Capital Accounts of the Members);

     

    (d)
      In
      any
      situation in which an item of income, gain, loss or deduction is affected by
      the
      adjusted tax basis of property, the Book Value of the property shall be used
      in
      lieu of adjusted basis (notwithstanding that the adjusted tax basis of such
      property may differ from its Book Value), and in lieu of depreciation,
      amortization and other cost recovery deductions taken into account in computing
      taxable income or loss, there will be taken into account

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    depreciation
      for the taxable year or other period as determined in accordance with Treasury
      Regulation Section 1.704-1(b)(2)(iv)(g); and

     

    (e)
      Any
      items
      of income, gain, deduction and loss specially allocated pursuant to Section
      6.6
      of this Agreement shall not be considered in determining Net Profit or Net
      Loss.

     

    “Newco
      Licenses”
means
      the P-Newco License and the T-Newco License.

     

    “Nonrecourse
      Deductions”
has
      the
      meaning set forth in Treasury Regulation
      Section 1.704-2(b)(1).

     

    “Operating
      Agreement”
has
      the
      meaning set forth in the Preamble.

     

    “Patriot”
has
      the
      meaning set forth in the Preamble.

     

    “Patriot
      Appointee”
has
      the
      meaning set forth in Section 4.2(a).

     

    “Percentage
      Interest”
means
      a
      Member’s percentage interest in the Company, as such Percentage Interest may be
      adjusted from time to time pursuant to the terms of this Operating
      Agreement.

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, joint
      venture, association, trust, estate or other entity or organization, including
      a
      Governmental Authority.

     

    “P-Newco
      License”
means
      that certain license agreement entered into between Patriot and the
      Company.

     

    “Proceedings”
means
      any actions, suits, claims, hearings, arbitrations, proceedings (public or
      private) or governmental investigations that have been brought by or against
      any
      Governmental Authority or any other Person.

     

    “Recovery
      Event”
means
      the moment at which payment is actually received by Patriot, TPL, or the Company
      as a result of or in connection with any Antecedent Activities.

     

    “Regulatory
      Allocations”
are
      those allocations contained in Section 6.5.

     

    “Representatives”
means
      the officers, directors, employees, attorneys, accountants, advisors,
      representatives and agents of a Person.

     

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

     

    “Tax
      Matters Member”
means
      that Member appointed by the Management Committee with the power to manage
      and
      control, on behalf of the Company, any administrative proceeding at the Company
      level with the Internal Revenue Service relating to the determination of any
      item of Company income, gain, loss, deduction or credit for federal income
      tax
      purposes.

     

    “T-Newco”
means
      a
      newly formed Delaware limited liability company, wholly owned by
      TPL.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    “T-Newco
      License”
means
      that certain license agreement entered into between TPL and
      T-Newco.

     

    “TPL”
has
      the
      meaning set forth in the Preamble.

     

    “TPL
      Appointee”
has
      the
      meaning set forth in Section 4.2(b).

     

    “TPL
      Direct Reimbursable Expenses”
has
      the
      meaning set forth in Section 4.2 of the Commercialization
      Agreement.

     

    “Transfer”
has
      the
      meaning set forth in Section 3.6.

     

    “Treasury
      Regulations”
means
      the proposed, temporary and final regulations promulgated under the Code in
      effect as of the date of filing the Certificate of Formation and the
      corresponding sections of any regulations subsequently issued that amend or
      supersede those regulations.

     

    “Working
      Capital Contribution”
means
      the amount payable to the Company each Fiscal Year by each of the Members for
      the Company’s working capital requirements pursuant to Section 5.3.

     

    “Working
      Capital Fund”
means
      the fund containing the Company’s working capital to be maintained pursuant to
Section 5.3(b).

     

    ARTICLE
      2

    FORMATION
      OF LIMITED LIABILITY COMPANY

     

    2.1 Formation.
      Patriot
      caused the Certificate of Formation of the Company to be filed with the Delaware
      Secretary of State on June [__], 2005.

     

    2.2 Name;
      Principal Place of Business.
      Unless
      and until amended in accordance with this Operating Agreement and the Act,
      the
      name of the Company is “[__________]”. The principal place of business of the
      Company shall be such place or places as the Management Committee from time
      to
      time determines.

     

    2.3 Registered
      Office and Registered Agent.
      The
      Company’s initial registered office shall be at the office of its registered
      agent at 160 Greentree Drive, Suite 101, Dover, Delaware 19904, and the name
      of
      its initial registered agent at such address shall be National Registered
      Agents, Inc. The registered agent may be changed from time to time by filing
      the
      address of the new registered office and/or the name of the new registered
      agent
      with the Secretary of State of the State of Delaware pursuant to the
      Act.

     

    2.4 Agreement;
      Effect of Inconsistencies With the Act or the Code.
      It is
      the express intention of the Members that this Operating Agreement, together
      with the Exhibits and Schedules, shall be the sole source of agreement of the
      parties with respect to the structure, governance and the operation of the
      Company and, except to the extent a provision of this Operating Agreement
      expressly incorporates federal income tax rules by reference to sections of
      the

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    Code
      or
      Treasury Regulations or is expressly prohibited or ineffective under the Act,
      this Operating Agreement shall govern the structure and operation of the
      Company, even when inconsistent with, or different than, the provisions of
      the
      Act or any other law or rule. To the extent that any provision of this Operating
      Agreement is prohibited or ineffective under the Act, this Operating Agreement
      shall be deemed to be amended to the smallest degree possible in order to make
      this Operating Agreement effective under the Act in accordance with the intent
      of the parties. In the event the Act is subsequently amended or interpreted
      in
      such a way to make any provision of this Operating Agreement that was formerly
      invalid valid, such provision shall be considered to be valid from the effective
      date of such interpretation or amendment. Each of the Members shall be entitled
      to rely on the provisions of this Operating Agreement, and none of the Members
      shall be liable to the Company or to any of the other Members for any action
      or
      refusal to act taken in good faith reliance on the terms of this Operating
      Agreement. The Members hereby agree that the duties and obligations imposed
      on
      the Members as such shall be those set forth in this Operating Agreement, which
      is intended to govern the relationship among and between the Company and the
      Members, notwithstanding any provision of the Act or common law to the
      contrary.

     

    2.5 Business.
      The
      purpose of the Company is to engage in any activity for which a limited
      liability company may be organized under the Act.

     

    2.6 Term.
      The
      term of the Company commenced upon the filing of the Certificate of Formation
      with the Delaware Secretary of State on June [__], 2005 and shall continue
      until the Company’s dissolution in accordance with Article VIII of this
      Operating Agreement.

     

    2.7 Qualification.
      The
      Management Committee shall cause the Company to be qualified or registered,
      if
      and to the extent required, under the applicable laws of any jurisdiction in
      which such registration may be required, and shall be authorized to execute,
      deliver and file any certificates and documents necessary to effect such
      qualification or registration.

     

    ARTICLE
      3

    MEMBERSHIP

     

    3.1 Members.
      The
      names and addresses of the Members are as follows:

     

    
      	
              Patriot
                Scientific Corporation

            	
              10989
                Via Frontera

              San
                Diego, California 92127

            
	
              Technology
                Properties Limited Inc.

            	
              21730
                Stevens Creek Boulevard, Suite 201

              Cupertino,
                California 95014

            

    

     

    
 

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    3.2 Representations
      and Warranties.
      Each
      Member hereby represents and warrants to the Company and the other Member as
      follows:

     

    (a) Such
      Member is either an individual or a corporation duly organized, validly existing
      and in good standing under the laws of its state of incorporation with all
      requisite corporate power and authority to own, lease and operate its properties
      and assets and to carry on its business as now conducted;

     

    (b) Such
      Member has all requisite power and authority to execute and deliver this
      Operating Agreement and to perform its obligations hereunder. The execution
      and
      delivery by such corporate Member of this Operating Agreement and the
      consummation of the transactions contemplated hereby have been duly authorized
      by all necessary corporate action on its part. This Operating Agreement has
      been
      duly executed and delivered by such Member and constitutes the legal, valid
      and
      binding obligations of such Member, enforceable against it in accordance with
      its terms, except as enforcement may be limited by equitable principles and
      by
      bankruptcy, insolvency, reorganization, moratorium or similar laws relating
      to
      creditors’ rights generally;

     

    (c) The
      execution, delivery and performance by such Member of this Operating Agreement
      and the consummation of the transactions contemplated hereby do not and will
      not
      (i) violate the certificate of incorporation or bylaws of such Member, in
      each case as amended through the date hereof, (ii) conflict with, result in
      a breach of or constitute (or, with the giving of notice or lapse of time,
      or
      both, constitute) a default under, or require the approval or consent of any
      Person pursuant to, any material agreement, instrument or other document to
      which such Member is a party or by which it or its properties or assets is
      bound, or (iii) violate any material provision of any statute, rule or
      regulation applicable to such Member or binding on it or any of its assets,
      or
      (iv) except as set forth in the Newco Licenses, result in the creation or
      imposition of any Lien on the MSD Patents.

     

    (d) Such
      Member is acquiring its Percentage Interest for investment purposes and not
      with
      a view to the resale or distribution thereof;

     

    (e) Such
      Member understands and acknowledges that such Member’s Percentage Interest has
      not been registered under the Securities Act or any state securities or blue
      sky
      laws and may not be sold unless registered under the Securities Act and
      qualified under applicable state securities or blue sky laws or such sale is
      made pursuant to an exemption from such registration and qualification
      requirements;

     

    (f) The
      limitations on Transfer contained in Section 3.6 create an economic risk
      that such Member is capable of bearing; and

     

    (g) Such
      Member is a “United States person” within the meaning of Section 7701(a)(30) of
      the Code.

     

    3.3 Incorporation
      of Representations and Warranties.
      Each of
      Patriot and TPL hereby reaffirms the representations and warranties made by
      such
      Member in the Master Agreement as if such representations and warranties were
      set forth fully herein.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    3.4 Resignation
      or Withdrawal of a Member.

     

    (a) No
      Member
      shall resign from membership in the Company or withdraw their interest in the
      capital of the Company, except (i) in connection with the dissolution of
      the Company pursuant to the provisions of Article VIII,
      or
      (ii) with the prior written consent of all of the other
      Members.

     

    (b) The
      resignation of a Member shall not (i) relieve such Member of any of its
      covenants, agreements, duties, obligations or liabilities under this Operating
      Agreement whether arising prior to, on, or after the date of such resignation
      (including, without limitation, any contingent obligations based on acts or
      omissions occurring, or liabilities or obligations incurred, prior to, on or
      after the date of such resignation), or (ii) directly or indirectly result
      in the termination of, or relieve such Member (or any Affiliate thereof) of,
      or
      otherwise affect, any of the covenants, agreements, duties, obligations or
      liabilities of such Member (or any Affiliate thereof) under any other agreement
      to which such Member is a party.

     

    3.5 Effect
      of Certain Events on Membership.

     

    (a) Bankruptcy,
      Foreclosure, or Other Similar Event.
      In the
      event of a Member’s bankruptcy, or the foreclosure upon or other similar
      proceeding with respect to that Member’s interest in the MSD Patents or that
      Member’s Percentage Interest:

     

    
      	 	
              (i)

            	
              any
                and all rights that Member may have under Section 4.2
                of
                this Operating Agreement shall automatically terminate;
                and

            

    

     

    
      	 	
              (ii)

            	
              any
                and all rights that Member may have under Sections 2.2.1
                and 2.2.2
                of
                the P-Newco License or T-Newco License, as the case may be, shall
                automatically and without further action by any of the parties thereto
                be
                irrevocably transferred to the
                Company.

            

    

     

    (b) Change
      of Control.
      In the
      event of a Change of Control of Patriot or TPL:

     

    
      	 	
              (i)

            	
              any
                and all rights Patriot or TPL may have under Section 4.2
                of
                this Operating Agreement, as the case may be, shall automatically
                terminate; and

            

    

     

    
      	 	
              (ii)

            	
              Patriot
                or TPL’s rights under Sections 2.2.1
                and 2.2.2
                of
                the P-Newco License or T-Newco License, as the case may be, shall
                automatically and without further action by any of the parties thereto
                be
                irrevocably transferred to the
                Company.

            

    

     

    3.6 Restrictions
      on Transfers of Interests.
      Except
      as provided in Section 5.4, no Member shall sell, assign, pledge, mortgage
      or otherwise dispose of or transfer (a “Transfer”)
      its
      Percentage Interest in the Company, whether in whole or in part, without the
      consent of the Management Committee, which consent may be withheld for any
      or
      for no reason.

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    3.7 No
      Authority as Agent.
      Except
      as may be authorized by the Management Committee, or as set forth in the
      Commercialization Agreement, no Member shall have the authority in its or his
      capacity as a Member to enter into any transaction on behalf of the Company
      or
      to otherwise bind the Company.

     

    ARTICLE
      4

    MANAGEMENT

     

    4.1 Management
      of the Company by Management Committee.
      The
      business and affairs of the Company shall be managed by a management committee
      (the “Management
      Committee”)
      consisting of three (3) Managers, which number may not be changed without the
      written consent of the Members holding at least seventy-five percent (75%)
      of
      the Percentage Interests.

     

    4.2 Appointment
      of Management Committee.

     

    (a) Patriot
      Appointment.
      Patriot
      shall have the right to appoint one (1) Manager to the Management Committee
      (the
“Patriot
      Appointee”).

     

    (b) TPL
      Appointment.
      TPL
      shall have the right to appoint one (1) Manager to the Management Committee
      (the
“TPL
      Appointee”).

     

    (c) Independent
      Manager.
      The
      Patriot Appointee and the TPL Appointee shall work together in good faith to
      appoint a mutually acceptable third Manager (the “Independent
      Manager”).
      In
      the event that the Patriot Appointee and the TPL Appointee are unable to appoint
      a mutually acceptable Manager within 10 days of the resignation or removal
      of
      the Independent Manager, either party may apply to the Judicial Arbitration
      and
      Mediation Service (“JAMS”)
      in
      Santa Clara County, or the nearest county thereto, if necessary, for the
      appointment of the Independent Manager, and JAMS shall select the Independent
      Manager from a list of no more than three persons submitted by each party.
      All
      costs associated with the selection of the Independent Manager by JAMS pursuant
      to this Section 4.2(c)
      shall be
      paid by the Company.

     

    (d) Term
      of Service.
      Each
      Manager (other than the Independent Manager) will serve until his or her death
      or resignation from the Management Committee, or until his or her removal from
      the Management Committee by the Member who appointed him or her. The Independent
      Manager shall serve a five (5) year term (subject to earlier removal as provided
      below).

     

    (e) Initial
      Managers. 
      The
      initial Managers are as follows:

     

    
      	
              Patriot
                Appointee

            	
              David
                H. Pohl

            
	
              TPL
                Appointee

            	
              Daniel
                E. Leckrone

            
	
              Independent
                Manager

            	
              Robert
                K. Neilson

            

    

    
 

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    (f) Meetings;
      Place of Meetings; Telephonic Participation.
      Meetings of the Management Committee may be held at such times and places within
      or without the State of Delaware as the Management Committee may from time
      to
      time designate or as shall be designated by the Manager or Managers calling
      the
      meeting in the notice or waiver of notice of any such meeting. Regular meetings
      of the Management Committee shall be held not less than once during every
      calendar quarter. Special meetings of the Management Committee shall be held
      whenever called by one or more Managers. Notice of the time, place and purpose
      of each such special meeting shall be sent by facsimile transmission or
      electronic mail or be delivered personally or mailed to and received by each
      Manager not less than seventy-two (72) hours before the time at which the
      meeting is to be held. Notice of any meeting of the Management Committee shall
      not be required to be given to any Manager who waives such notice in writing
      or
      who is present at such meeting, except a Manager who shall attend such meeting
      for the express purpose of objecting, at the beginning of the meeting, to the
      transaction of any business because the meeting is not lawfully called or
      convened. At the request of any Manager, any or all Managers may participate
      telephonically in any meeting of the Management Committee so long as all persons
      participating in the meeting can hear each other, and such participation shall
      constitute presence in person at such meeting. Any action required or permitted
      to be taken at any meeting of the Management Committee may be taken without
      a
      meeting, without prior notice and without a vote, if a consent in writing
      (including by electronic transmission as permitted by Section 18-302 of the
      Act), setting forth the action so taken, shall be signed or delivered by all
      Managers. Such written (or electronically transmitted) consent shall be filed
      with the minutes of proceedings of the Management Committee.

     

    (g) Quorum.
      Two (2)
      Managers must be present at a meeting of the Management Committee to establish
      a
      quorum for the transaction of business.

     

    (h) Majority
      Vote.
      All
      actions to be taken by the Management Committee shall require the affirmative
      vote of at least two (2) of the three (3) Managers.

     

    (i) Resignation;
      Removal; Vacancies; Compensation.

     

    
      	 	
              (i)

            	
              Resignation.
                A
                Manager may resign at any time by giving written notice to the Members.
                The resignation of a Manager shall take effect upon receipt of such
                notice
                or at such later time as shall be specified in the notice. Unless
                otherwise specified in the notice, the acceptance of the resignation
                shall
                not be necessary to make it
                effective.

            

    

     

    
      	 	
              (ii)

            	
              Removal.
                The Patriot Appointee to the Management Committee may be removed
                only by
                Patriot, with or without cause. The TPL Appointee to the Management
                Committee may be removed only by TPL, with or without cause. The
                Independent Manager may be removed at any time, with or without cause,
                by
                written consent of the Members holding at least seventy-five percent
                (75%)
                of the Percentage Interests.

            

    

     

    
      	 	
              (iii)

            	
              Vacancies.
                Vacancies on the Management Committee shall be filled by the Member
                who
                originally appointed the vacating Manager, or, in the case of the
                Independent Manager, pursuant to Section 4.2(c)
                of
                this Operating Agreement.

            

    

     

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    
      	 	
              (iv)

            	
              Compensation.
                No Manager other than the Independent Manager (in the Members’ discretion)
                shall be eligible to receive separate compensation from the Company
                for
                his or her services on the Management Committee; provided,
                however,
                that the Managers shall be reimbursed by the Company for the reasonable
                and actual costs incurred in attending and participating in any meetings
                of the Management Committee and other costs and expenses reasonably
                related to fulfilling the duties and obligations of a Manager
                hereunder.

            

    

     

    4.3 Responsibilities
      of the Management Committee.
      The
      Management Committee shall have the responsibility, on behalf of the
      Company:

     

    (a) To
      approve the Annual Business Plan, as well as any modifications
      thereto.

     

    (b) To
      make
      any distributions to Members pursuant to Article VI.

     

    (c) To
      make
      any filings with any Governmental Authority on behalf of the
      Company.

     

    (d) To
      purchase liability and other insurance to protect the Company’s properties and
      business and to purchase liability insurance to indemnify or otherwise protect
      the Members, Managers, officers and employees of the Company.

     

    (e) To
      make
      certain decisions regarding tax matters pursuant to the terms of this Operating
      Agreement.

     

    (f) To
      approve the execution by TPL pursuant to the Commercialization Agreement of
      any
      license agreement, infringement claim settlement or other agreement with respect
      to the MSD Patents, the proposed terms of which do not fall within the
      guidelines for allowable license agreements and infringement claim settlements
      set forth in Exhibit C to the Commercialization Agreement.

     

    (g) To
      approve any modifications, amendments or waivers of the Commercialization
      Agreement, and any of the license or other agreements referred to therein to
      which the Company is a party.

     

    (h) To
      take
      or authorize such other actions on behalf of the Company as are consistent
      with
      Applicable Law and the fiduciary duties of the Managers and the
      Members.

     

    4.4 Officers.
      The
      Company shall have a President and Treasurer and such other officers as the
      Management Committee may determine. Any officer except the President and the
      Treasurer may hold more than one office concurrently. Except as set forth
      herein, the officers shall serve at the pleasure of the Management Committee.
      The Management Committee may determine a reasonable compensation to be paid
      to
      each officer so appointed. The officers shall exercise such powers as shall
      be
      determined or delegated from time to time by the Management
      Committee.

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

     

    (a) President.
      The
      Company shall have a President with primary responsibility for and active charge
      of the management and supervision of the Company’s business and affairs. The
      President may execute in the name of the Company license agreements, settlement
      agreements, checks and other similar documents and instruments to the extent
      that such execution is consistent with and in furtherance of the Annual Business
      Plan, as well as such other documents and instruments otherwise authorized
      for
      execution by the Management Committee. For as long as the Commercialization
      Agreement is in effect, Robert K. Neilson shall be President of the
      Company.

     

    (b) Treasurer.
      The
      Company shall have a Treasurer as the principal financial officer and principal
      accounting officer of the Company who shall keep full and accurate accounts
      of
      receipts and disbursements in books belonging to the Company. The initial
      treasurer shall be [__________].

     

    4.5 Liability
      of Committee Members and Officers.
      The
      Managers and the officers shall not be liable to the Company or to any Member
      for any Damages suffered or sustained by the Company or any Member, as the
      case
      may be, unless the Damage results from the fraud, deceit, gross negligence,
      willful misconduct, breach of fiduciary duty, a knowing violation of law by
      a
      specific Manager or officer or a material breach of such Manager’s or officer’s
      obligations under this Operating Agreement, in which event only the Manager
      or
      officer who engaged in such conduct or behavior (and no other Manager or
      officer) shall be liable for the full extent of Damages suffered or sustained
      to
      the full extent permitted pursuant to this Agreement or provided by Applicable
      Law.

     

    4.6 Records,
      Audits and Reports.
      At the
      expense of the Company, proper and complete records and books of account shall
      be kept or shall be caused to be kept by the Management Committee (or a designee
      thereof) in which shall be entered fully and accurately all transactions and
      other matters relating to the Company’s business in the detail and completeness
      customary and usual for businesses of the type engaged in by the Company. The
      books and records shall at all times be maintained at the principal executive
      offices of the Company and shall be open to the inspection and examination
      of
      the Members or their duly authorized agents during business hours. At a minimum,
      the Company shall keep at its principal place of business:

     

    (a) A
      current
      list of the full name and last known business, residence or mailing address
      of
      each Member and Manager;

     

    (b) A
      copy of
      the Certificate of Formation and all amendments thereto, together with executed
      copies of any powers of attorney pursuant to which any amendment has been
      executed;

     

    (c) Copies
      of
      the Company’s federal, state and local income tax returns and reports, if any,
      for the four most recent years;

     

    (d) A
      copy of
      this Operating Agreement, as amended to date, any correspondence relating to
      any
      Member’s obligation to contribute cash, property or services, and copies of any
      financial statements of the Company for the three most recent years;
      and

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

    (e) Minutes
      of every meeting of the Management Committee, or any written consents of the
      Managers obtained in lieu of a meeting.

     

    The
      Management Committee shall maintain and preserve, during the term of the Company
      and for a period of five years thereafter, all accounts, books and other
      relevant Company documents.

     

    ARTICLE
      5

    CAPITAL
      CONTRIBUTIONS

     

    5.1 Initial
      Capital Contributions.
      Concurrently with the execution hereof, Patriot and TPL shall enter into the
      P-Newco License, TPL and T-Newco shall enter into the T-Newco License, T-Newco
      shall merge with and into the Company and each of the Members shall make the
      capital contributions set forth on Schedule 1
      hereto
      (collectively, the “Initial
      Capital Contributions”).
      The
      Initial Capital Contributions to the Company of each Member shall be deemed
      to
      have a Fair Market Value as set forth opposite such Member’s name on
Schedule 1
      hereto.

     

    5.2 Percentage
      Interests.
      Upon
      making its Initial Capital Contribution, and as a result of the merger
      contemplated by the Merger Agreement (as defined in the Master Agreement),
      TPL
      shall be issued Percentage Interests in the Company such that Patriot will
      no
      longer be the sole Member of the Company and the Members shall have the
      Percentage Interests set forth on Schedule 2
      hereto.
      Percentage Interests shall for all purposes be personal property. A Member
      has
      no interest in specific property of the Company.

     

    5.3 Working
      Capital Contributions.

     

    (a) Initial
      Working Capital Contribution.
      On the
      date hereof, Patriot and TPL shall each make an Initial Working Capital
      Contribution to the Company of Two Million Dollars ($2,000,000), for an
      aggregate Initial Working Capital Contribution of Four Million Dollars
      ($4,000,000).

     

    (b) Future
      Working Capital Contributions.
      At any
      time during the Fiscal Year at the discretion of the Management Committee,
      Patriot and TPL shall be obligated to make Working Capital Contributions in
      equal amounts in order to maintain a Working Capital Fund of not more than
      Eight
      Million Dollars ($8,000,000), and then only to the extent necessary to bring
      the
      balance of the Working Capital Fund to Eight Million Dollars ($8,000,000),
      provided,
      however,
      that
      neither TPL nor Patriot shall be required to contribute more than Two Million
      Dollars ($2,000,000) in any Fiscal Year.

     

    Except
      as
      provided in this Section 5.3,
      no
      Member shall be obligated to make any contribution of capital to the
      Company.

     

    5.4 Failure
      to Make Contributions.
      The
      failure of Patriot or TPL to make Working Capital Contributions when due
      pursuant to Section 5.3
      shall
      result in the following adjustments to that Member’s Percentage
      Interest:

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    (a) For
      each
      One Dollar ($1) that is not contributed by Patriot or TPL when due pursuant
      to
Section 5.3,
      one
      hundred thousandth of a percent (0.00001%) of the outstanding Percentage
      Interests of the Company shall be deducted from that Member’s Percentage
      Interest and transferred to the other Member. As an example, if a Member failed
      to contribute One Million Dollars ($1,000,000) when due pursuant to Section 5.3,
      ten
      percent (10%) of the outstanding Percentage Interests of the Company would
      be
      deducted from that Member’s Percentage Interest and transferred to the other
      Member.

     

    (b) In
      the
      event that Patriot’s Percentage Interest falls below twenty-five percent (25%),
      Patriot shall lose the right to appoint the Patriot Appointee pursuant to
Section 4.2(a),
      and TPL
      shall have the right to appoint the Patriot Appointee, such that TPL shall
      have
      the right to appoint two (2) of the three (3) Managers. In the event that TPL’s
      Percentage Interest falls below twenty-five percent (25%), TPL shall lose the
      right to appoint the TPL Appointee pursuant to Section 4.2(b),
      and
      Patriot shall have the right to appoint the TPL Appointee, such that Patriot
      shall have the right to appoint two (2) of the three (3) Managers.

     

    5.5 Capital
      Accounts.
      A
      separate Capital Account shall be established and maintained for each
      Member.

     

    (a) Each
      Member’s Capital Account will be increased by:

     

    
      	 	
              (i)

            	
              The
                Initial Capital Contribution by the Member to the Company pursuant
                to
                Section 5.1;

            

    

     

    
      	 	
              (ii)

            	
              The
                Working Capital Contributions by the Member to the Company pursuant
                to
                Section 5.3;
                and

            

    

     

    
      	 	
              (iii)

            	
              Each
                Member’s pro
                rata
                allocation of the Company’s and each Member’s contributions to the Working
                Capital Fund.

            

    

     

    (b) Each
      Member’s Capital Account will be decreased by:

     

    
      	 	
              (i)

            	
              The
                amount of Net Cash Proceeds distributed to the Member by the
                Company;

            

    

     

    
      	 	
              (ii)

            	
              The
                Fair Market Value of property distributed to the Member by the Company;
                and

            

    

     

    
      	 	
              (iii)

            	
              Allocations
                to the Member of Net Losses.

            

    

     

    (c) The
      manner in which Capital Accounts are to be maintained pursuant to this
Section 5.5
      is
      intended to comply with the requirements of Section 704(b) of the Code and
      the Treasury Regulations promulgated thereunder. If, in the opinion of the
      Management Committee after consultation with the Company’s accountants, the
      manner in which Capital Accounts are to be maintained pursuant to the preceding
      provisions of this Section 5.5
      should
      be modified to comply with Section 704(b) of the Code and the Treasury
      Regulations thereunder, then, notwithstanding anything to the contrary contained
      in the preceding provisions of this Section 5.5,
      the
      method in which Capital Accounts are maintained shall be

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

     

    so
      modified without any approval of the Management Committee; provided,
      however,
      that
      any change in the manner of maintaining Capital Accounts shall not materially
      alter the economic agreement between the Members.

     

    (d) No
      Member
      shall have any liability to restore all or any portion of a deficit balance
      in
      the Member’s Capital Account.

     

    ARTICLE 
      6

    DISTRIBUTIONS,
      ALLOCATIONS AND TAX MATTERS

     

    6.1 Application
      of Gross Cash Proceeds.

     

    (a) Application
      of Gross Cash Proceeds.
      Within
      sixty (60) days after the close of each of the Company’s fiscal quarters, the
      Company shall apply and distribute Gross Cash Proceeds in accordance with the
      following schedule of priorities:

     

    
      	 	
              (i)

            	
              First,
                for the payment to TPL (or, in the case of any payment to satisfy
                the
                obligations of the Company under Section 4.2
                of
                the Commercialization Agreement, directly to the Person identified
                by TPL)
                in satisfaction of the Company’s payment obligations under Sections 4.2
                and 4.3
                of
                the Commercialization Agreement;

            

    

     

    
      	 	
              (ii)

            	
              Next,
                to the payment of any Company
                Expenses;

            

    

     

    
      	 	
              (iii)

            	
              Next,
                for the Working Capital Fund until the Working Capital Fund equals
                Eight
                Million Dollars ($8,000,000);

            

    

     

    
      	 	
              (iv)

            	
              Next,

            

    

     

    
      	 	
              (1)

            	
              for
                payment to Patriot of an amount equal to ten percent (10%) of the
                Gross
                Cash Proceeds until Patriot shall have received Twenty Million Dollars
                ($20,000,000); and

            

    

     

    
      	 	
              (2)

            	
              for
                payment to TPL of an amount equal to fifteen percent (15%) of the
                Adjusted
                Gross Cash Proceeds minus
                any amounts previously advanced to TPL (and not previously credited
                against payments to TPL hereunder) pursuant to Section 4.3
                of
                the Commercialization Agreement;
                and

            

    

     

    
      	 	
              (v)

            	
              Finally,
                the remaining Gross Cash Proceeds (such remaining amount, the
                “Net
                Cash Proceeds”)
                to the Members according to their respective Percentage
                Interests.

            

    

     

    In
      the
      event that funds sufficient to satisfy the payments required to be made pursuant
      to subsections (iv)(a) and (iv)(b) above are unavailable, such payment
      obligations shall be pari
      passu,
      and any
      unpaid amounts thereof shall be paid from Gross Cash Proceeds subsequently
      received by the Company.

     

    
      
         

      

      
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    (b) Distribution
      of Company Property.
      Company
      property shall be distributed only pursuant to Article
      VIII.

     

    (c) Withholdings.
      All
      amounts withheld pursuant to the Code or any provisions of state or local tax
      law with respect to any payment or distribution to the Members from the Company
      shall be treated as amounts distributed to the relevant Members pursuant to
      this
Section 6.1.

     

    6.2 Allocation
      of Net Profits.
      Subject
      to the provisions of Sections
      6.4 and 6.5,
      Net
      Profits for any Fiscal Year or other period shall be allocated to the Members
      according to their Percentage Interests.

     

    6.3 Allocation
      of Net Losses.
      Subject
      to the provisions of Sections 6.4
      and 6.5,
      Net
      Losses for any Fiscal Year or other period shall be allocated to the Members
      according to their Percentage Interests.

     

    6.4 General
      Rules for Allocations.
      The
      rules of this Section 6.4
      shall
      govern all allocations under this Article:

     

    (a) Except
      as
      otherwise provided in this Operating Agreement, an allocation of Net Profits
      or
      Net Losses shall be treated as an allocation between the Members of the same
      share of each item of income, gain, loss and deduction that is taken into
      account in computing such Net Profits or Net Losses, as the case may
      be.

     

    (b) If
      any
      Member is deemed to have received imputed income with respect to any property
      licensed or otherwise made available to the Company pursuant to this Operating
      Agreement, the corresponding imputed expenses to the Company arising out of
      such
      arrangement shall be specially allocated to such Member.

     

    (c) For
      purposes of determining the Net Profits or Net Losses allocable to any period,
      the Net Profits and Net Losses shall be determined on a daily, monthly or other
      basis, as determined by the Management Committee using any permissible method
      under Section 706 of the Code and the Treasury Regulations promulgated
      thereunder.

     

    6.5 Special
      Allocations to Capital Accounts.

     

    (a) Notwithstanding
      anything to the contrary contained in this Article 6, if there is a net decrease
      in Company Minimum Gain or in any Member Minimum Gain during any taxable year
      or
      other period, prior to any other allocation pursuant hereto, such Member shall
      be specially allocated items of income and gain for such year (and, if
      necessary, subsequent years) in an amount and manner required by Treasury
      Regulation Sections 1.704-2(f) or 1.704-2(i)(4). The items to be so
      allocated shall be determined in accordance with Treasury Regulation
      Section 1.704-2.

     

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

     

    (b) Nonrecourse
      Deductions for any taxable year or other period shall be allocated (as nearly
      as
      possible) under Treasury Regulation Section 1.704-2 to the Members, pro
      rata in proportion to their respective Percentage Interests.

     

    (c) Any
      Member Nonrecourse Deductions for any taxable year or other period shall be
      allocated to the Member that made, or guaranteed or is otherwise liable with
      respect to the loan to which such Member Nonrecourse Deductions are attributable
      in accordance with principles under Treasury Regulation
      Section 1.704-2(i).

     

    (d) Any
      Member who unexpectedly receives an adjustment, allocation or distribution
      described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or
      (6) which causes or increases a negative balance in his or its Capital Account
      shall be allocated items of income and gain sufficient to eliminate such
      increase or negative balance caused thereby, as quickly as possible, to the
      extent required by such Treasury Regulation.

     

    (e) No
      allocation or loss or deduction shall be made to any Member if, as a result
      of
      such allocation, such Member would have an Adjusted Capital Account Deficit.
      Any
      such disallowed allocation shall be made to the Members entitled to receive
      such
      allocation under Treasury Regulation Section 1.704 in proportion to their
      respective Percentage Interests. If losses or deductions are reallocated under
      this subsection 6.5(e), subsequent allocations of income and losses (and items
      thereof) shall be made so that, to the extent possible, the net amount allocated
      under this subsection 6.5(e) equals the amount that would have been allocated
      to
      each Member if no reallocation had occurred under this subsection
      6.5(e).

     

    (f) For
      purposes of Section 752 of the Code and the Treasury Regulations thereunder,
      excess nonrecourse liabilities (within the meaning of Treasury Regulations
      Section 1.752-3(a)(3)) shall be allocated to the Members pro rata in proportion
      to their respective Percentage Interests.

     

    (g) The
      allocations contained in Sections 6.5(a), 6.5(c), 6.5(d) and 6.5(e) (the
“Regulatory Allocations”) are intended to comply with certain requirements of
      Treasury Regulation Sections 1.704-1 and 1.704-2. The Regulatory
      Allocations shall be taken into account in allocating Net Profit and Net Loss
      and other items of income, gain, loss and deduction among the Members so that
      to
      the extent possible, the allocations contained in this Agreement other than
      the
      Regulatory Allocations and the Regulatory Allocations made to each Member shall
      equal the net amount that would have been allocated to each Member had the
      Regulatory Allocations not occurred. The Management Committee shall take account
      of the fact that certain of the Regulatory Allocations will occur at a period
      in
      the future for purposes of applying this Section 6.5(g).

     

    6.6 Tax
      Allocations; Section 704(c) of the Code.

     

    (a) Except
      as
      otherwise provided in this Section 6.6,
      for
      income tax purposes, each item of income, gain, loss, and deduction of the
      Company shall be allocated among the Members in accordance with the manner
      in
      which the equivalent items of Net Profits and Net Losses were allocated under
      the preceding sections of this Article VI.

     

    (b) In
      the
      event the Book Value of a Company asset differs from its adjusted federal income
      tax basis, then all allocations of income, gain, loss and deduction with
      respect

     

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

     

    to
      such
      asset shall take into account any variation between the adjusted tax basis
      of
      such asset and its Book Value. Such allocations shall be made under the
      principles of Sections 704(b) and 704(c) of the Code and the Treasury
      Regulations thereunder and are intended to eliminate, to the extent possible,
      disparities that otherwise exist between the balances of the Members’ Capital
      Accounts, as maintained by the Company, and such balances had the Capital
      Accounts been maintained in accordance with tax accounting principles. It is
      intended, for example, that any taxable gain recognized by the Company upon
      the
      disposition of property contributed by a Member to the Company shall be
      allocated to the contributing Member to the extent that the property’s initial
      Book Value exceeded its adjusted income tax basis on the date of the
      contribution, with any excess taxable gain being allocated to the Members
      (including the contributing Member) in a manner that coincides with the
      corresponding allocation of “book” gain. Any elections, accounting conventions
      or other decisions relating to such allocations shall be made by the Management
      Committee in a manner that (i) reasonably reflects the purposes and
      intention of this Operating Agreement, and (ii) complies with
      Sections 704(b) and 704(c) of the Code and the Treasury Regulations
      thereunder. The Management Committee shall determine the method set forth in
      Treasury Regulation Section 1.704-3c to be used for allocating such
      terms.

     

    6.7 Tax
      Matters Member.

     

    (a) At
      such
      time as it deems necessary, the Management Committee shall elect the “Tax
      Matters Member” of the Company for purposes of Section 6231(a)(7) of the
      Code. The Tax Matters Member shall have the power to manage and control, on
      behalf of the Company, any administrative proceeding at the Company level with
      the Internal Revenue Service relating to the determination of any item of
      Company income, gain, loss, deduction or credit for federal income tax
      purposes.

     

    (b) The
      Tax
      Matters Member shall, within ten (10) days of the receipt of any notice
      from the Internal Revenue Service in any administrative proceeding at the
      Company level relating to the determination of any Company item of income,
      gain,
      loss, deduction or credit, mail a copy of such notice to the other
      Members.

     

    6.8 Section 754
      Election.
      The Tax
      Matters Member may, in its discretion, make, on behalf of the Company, an
      election in accordance with Section 754 of the Code so as to adjust the
      basis of Company property in the case of a distribution of property within
      the
      meaning of Section 734 of the Code, and in the case of a transfer of a
      Member’s Percentage Interest within the meaning of Section 743 of the Code.
      Each Member shall, upon the request of the Tax Matters Member, furnish such
      information as the Tax Matters Member shall deem necessary or appropriate to
      give effect to such election.

     

    6.9 Returns
      and Other Elections.
      The
      Chief Financial Officer shall cause the preparation and timely filing all tax
      returns required to be filed by the Company pursuant to the Code and all other
      tax returns deemed necessary and required in each jurisdiction in which the
      Company does business. Copies of those returns, or pertinent information from
      the returns, shall be furnished to the Members within a reasonable time after
      the end of the Company’s fiscal year. All elections permitted to be made by the
      Company

     

    
      
         

      

      
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    under
      federal or state laws shall be made by the Chief Financial Officer, provided
      that the
      Management Committee may direct the Chief Financial Officer to make or refrain
      from making any tax election.

     

    6.10 Partnership
      Tax Treatment.
      The
      Members expect and intend that the Company shall be treated as a partnership
      for
      all federal and state income tax purposes, and the Members agree that they
      will
      not: (a) take a position on any federal, state, local or other tax return,
      or otherwise assert a position, inconsistent with such expectation and intent;
      or (b) elect for the Company to be treated as an association for tax
      purposes or do any other act or thing which could cause the Company to be
      treated as other than a partnership for federal income tax
      purposes.

     

    ARTICLE
      7

    INDEMNIFICATION
      AND LIMITATION OF LIABILITY

     

    7.1 Indemnification.

     

    (a) To
      the
      fullest extent permitted by the Act and by law, the Members, Managers, officers
      and employees of the Company, as well as their respective Representatives
      (collectively, “Indemnitees”)
      shall,
      in accordance with this Section 7.1,
      be
      indemnified, protected, held harmless and defended by the Company from and
      against any and all Damages and Liabilities by reason of their management of,
      or
      involvement in, the affairs of the Company, or rendering of advice or
      consultation with respect thereto, or which relate to the Company, its
      properties, business or affairs, if such Indemnitee acted in good faith and
      in a
      manner such Indemnitee reasonably believed to be in, or not opposed to, the
      best
      interests of the Company.

     

    (b) If
      any
      Indemnitee shall believe that such Indemnitee is entitled to indemnification
      pursuant to this Article 7
      in
      respect of any Damages or Liabilities, such Indemnitee shall give the Company
      prompt written notice thereof. Any such notice shall set forth in reasonable
      detail and to the extent then known the basis for such claim for
      indemnification. The failure of such Indemnitee to give notice of any claim
      for
      indemnification promptly shall not adversely affect such Indemnitee’s right to
      indemnity hereunder except to the extent that such failure adversely affects
      the
      right of the Company to assert all reasonable defenses to such claim. Each
      such
      claim for indemnity shall expressly state that the Company shall have only
      the
      thirty (30) calendar day period referred to in the next sentence to dispute
      or
      deny such claim. The Company shall have thirty (30) calendar days following
      its
      receipt of such notice either (y) to acquiesce in such claim and the
      responsibility to indemnify the Indemnitee in respect thereof in accordance
      with
      the terms of this Article 7
      by
      giving such Indemnitee written notice of such acquiescence or (z) to object
      to the claim by giving such Indemnitee written notice of the objection. If
      the
      Company does not object thereto within such thirty (30) calendar day period,
      the
      Company shall be deemed to have acquiesced in such claim and the responsibility
      to indemnify the Indemnitee in respect thereof in accordance with the terms
      of
      this Article 7.

     

    (c) In
      connection with any claim which may give rise to indemnity under this
Article 7
      resulting from or arising out of any claim or Proceeding against an Indemnitee
      by a

     

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

     

    Person
      that is not a party hereto, the Company may (unless such Indemnitee elects
      not
      to seek indemnity hereunder for such claim), upon written notice sent at any
      time to the relevant Indemnitee, assume the defense of any such claim or
      Proceeding if the Company with respect to such claim or Proceeding acknowledges
      to the Indemnitee the Indemnitee’s right to indemnity pursuant hereto in respect
      of the entirety of such claim (as such claim may have been modified through
      written agreement of the parties or arbitration hereunder) and provide
      assurances, reasonably satisfactory to such Indemnitee, that the Company will
      be
      financially able to satisfy such claim in full if such claim or Proceeding
      is
      decided adversely. The Company shall select counsel reasonably acceptable to
      such Indemnitee to conduct the defense of such claim or Proceeding, shall take
      all steps reasonably necessary in the defense or settlement thereof and shall
      at
      all times diligently and promptly pursue the resolution thereof. If the Company
      shall have assumed the defense of any claim or Proceeding in accordance with
      this Section 7,
      the
      Company shall not (without the written consent of each Indemnitee) consent
      to a
      settlement of, or the entry of any judgment arising from, any such claim or
      Proceeding, unless such settlement or order shall provide for the unconditional
      release of all Indemnitees. If the Company has so elected to assume the defense,
      each Indemnitee shall be entitled to participate in (but not control) the
      defense of any such action, with its own counsel and at its own expense. Each
      Indemnitee shall, and shall cause each of its Representatives to, cooperate
      fully with the Company in the defense of any claim or Proceeding being defended
      by the Company pursuant to this Section 7.
      If the
      Company does not assume the defense of any claim or Proceeding resulting
      therefrom in accordance with the terms of this Section 7,
      such
      Indemnitee may defend against such claim or Proceeding in such manner as it
      may
      deem appropriate, provided
      that the
      Indemnitee may not settle such claim or Proceeding without the written consent
      of the Company (which consent shall not be unreasonably withheld or delayed),
      and provided
      further
      that the
      Company shall be obligated to pay Indemnitee’s attorneys’ fees and costs
      promptly as they are incurred in the defense of such claim or
      Proceeding.

     

    (d) The
      indemnification provided by this Section 7.1
      shall
      not be deemed to be exclusive of any other rights to which any Person may be
      entitled under any agreement, or as a matter of law, or otherwise, both as
      to
      action in a Person’s official capacity and to action in another
      capacity.

     

    (e) The
      Management Committee shall have power to purchase and maintain insurance on
      behalf of the Company, the Managers, the Members, officers, employees or agents
      of the Company and any other Indemnitees at the expense of the Company, against
      any liability asserted against or incurred by them in any such capacity whether
      or not the Company would have the power to indemnify such Persons against such
      liability under the provisions of this Operating Agreement.

     

    7.2 Limitation
      of Liability.
      The
      debts, obligations and liabilities of the Company shall be solely the debts,
      obligations and liabilities of the Company; and, except as provided under the
      Act, no Manager or Member shall be obligated personally for any such debt,
      obligation or liability of the Company solely by reason of being a Manager
      or
      Member of the Company.

     

    7.3 Savings
      Clause.
      If this
Article 7
      or any
      portion hereof shall be invalidated on any ground by any court of competent
      jurisdiction, the Company shall nevertheless indemnify and hold harmless each
      Indemnitee or any other person indemnified pursuant to this Article 7
      as to
      costs, charges and expenses (including, without limitation, reasonable
      attorneys’ fees), judgments, fines and amounts paid in settlement with respect
      to any action, suit or proceeding, whether civil, criminal, administrative
      or
      investigative, to the full extent permitted by any applicable portion of this
      Article 7
      that
      shall not have been invalidated and to the fullest extent permitted by
      applicable law.

     

    
      
         

      

      
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    ARTICLE
      8

    DISSOLUTION
      AND WINDING UP

     

    8.1 Dissolution.
      The
      Company shall be dissolved, its assets shall be disposed of, and its affairs
      wound up on the first to occur of the following:

     

    (a) The
      written agreement of Members holding at least seventy-five percent (75%) of
      the
      Percentage Interests to dissolve the Company; or

     

    (b) The
      entry
      of a decree of judicial dissolution under Section 18-802 of the
      Act.

     

    Except
      for the foregoing, the Company shall not dissolve on the occurrence of any
      other
      event.

     

    8.2 Winding
      Up.
      Upon
      the occurrence of any event specified in Section 8.1,
      the
      Management Committee promptly shall notify each of the Members, and the Company
      shall continue solely for the purpose of, and immediately begin the process
      of,
      winding up its affairs in an orderly manner, liquidating its assets, and
      satisfying the claims of its creditors. The Management Committee shall promptly
      appoint a Person to act as the liquidator of the Company (the “Liquidator”)
      who
      shall be responsible for overseeing the winding up and liquidation of the
      Company pursuant to the terms of this Operating Agreement. The Liquidator shall
      give written notice of the commencement of winding up by mail to all known
      creditors and claimants whose addresses appear on the records of the
      Company.

     

    8.3 Reversion
      of Rights.
      Upon
      the occurrence of any event specified in Section 8.1, or upon the valid
      termination of the Commercialization Agreement by the Company, all of the rights
      granted by each of Patriot and TPL to the Company pursuant to the P-Newco
      License and T-Newco License, respectively, shall immediately and without further
      action by any of the parties thereto revert in their entirety to each of Patriot
      and TPL, respectively.

     

    8.4 Order
      of Payment Upon Liquidation.
      Immediately after the reversion of rights contemplated by Section 8.3
      above,
      payment shall be made in the manner contemplated by Section 6.1.

     

    8.5 Antecedent
      Activities.

     

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    (a) The
      occurrence of any Recovery Event within twelve (12) months of a Termination
      Event, as defined in Section 6.2 of the Commercialization Agreement, shall
      entitle each of the Members to payment of the proceeds of such Recovery Event
      in
      accordance with Section 6.1.

     

    (b) The
      entitlements set forth in Section 8.5(a)
      shall
      vest in the Members without further action. All proceeds and incidents of any
      such Recovery Event shall be transferred by the Member receiving such proceeds
      within three (3) Business Days (as defined in the Master Agreement) after
      receipt of such proceeds directly into an independent escrow account approved
      by
      Patriot and TPL for distribution pursuant to the terms of this Operating
      Agreement and the joint instructions of Patriot and TPL.

     

    8.6 Limitations
      on Payments Made in Dissolution.
      Each
      Member shall only be entitled to look to the assets of the Company for the
      return of its Initial Capital Contribution, Working Capital Contribution and
      positive Capital Account balance and shall have no recourse for its Initial
      Capital Contribution, Working Capital Contribution, positive Capital Account
      balance and/or share of Gross Cash Proceeds (upon dissolution or otherwise)
      against the Management Committee or any other Member in the event the assets
      of
      the Company remaining after payment of or due provision for all debts,
      liabilities and obligations of the Company are insufficient to return such
      Member’s Initial Capital Contribution and positive Capital Account
      balance.

     

    8.7 Certificate
      of Cancellation.
      When
      all debts, liabilities and obligations have been paid and discharged or adequate
      provisions have been made therefor and all of the remaining property and assets
      have been distributed to the Members, a certificate of cancellation shall be
      executed in duplicate and verified by all three (3) Managers, which
      certificate shall set forth the information required by the Act. Duplicate
      originals of the certificate of cancellation shall be delivered to the Secretary
      of State of the State of Delaware.

     

    8.8 Effect
      of Filing Certificate of Cancellation.
      Upon
      the issuance of the certificate of cancellation, the existence of the Company
      shall cease. The Management Committee shall have the authority to distribute
      any
      Company property discovered after dissolution and take such other action as
      may
      be necessary on behalf of and in the name of the Company.

     

    ARTICLE
      9

    MISCELLANEOUS

     

    9.1 Amendment.
      The
      Management Committee shall have the duty and authority to amend the Certificate
      of Formation as and to the extent necessary to reflect any and all changes
      or
      corrections necessary or appropriate as a result of any action taken by the
      Members in accordance with the terms of this Operating Agreement. Members
      holding at least seventy-five percent (75%) of the Percentage Interests shall
      have the authority to amend this Operating Agreement. Notwithstanding anything
      to the contrary set forth herein, neither the Management Committee nor the
      Members may amend the Certificate of Formation or this Operating Agreement
      to
      decrease the Percentage Interest of a

     

    
      
         

      

      
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    Member,
      increase the Working Capital Contributions of a Member or the liability of
      a
      Member with respect to the Company without the consent of each Member affected
      thereby.

     

    9.2 Governing
      Law and Severability.
      This
      Operating Agreement shall, in all respects, be construed in accordance with
      and
      governed by the laws of the State of Delaware as applied to agreements among
      Delaware residents entered into and to be performed entirely within Delaware.
      If
      any provision of this Operating Agreement becomes or is deemed invalid, illegal
      or unenforceable in any jurisdiction by reason of the scope, extent or duration
      of its coverage, then such provision shall be deemed amended to the extent
      necessary to conform to applicable law so as to be valid and enforceable or,
      if
      such provision cannot be so amended without materially altering the intention
      of
      the parties, then such provision shall be stricken and the remainder of this
      Operating Agreement shall continue in full force and effect. Should there ever
      occur any conflict between any provision contained in this Operating Agreement
      and any present or future statute, law, ordinance or regulation contrary to
      which the parties have no legal right to contract, the latter shall prevail,
      but
      the provision of this Operating Agreement affected thereby shall be curtailed
      and limited only to the extent necessary to bring it into compliance with the
      law. All the other terms and provisions of this Operating Agreement shall
      continue in full force and effect without impairment or limitation.

     

    9.3 Counterparts.
      This
      Operating Agreement may be executed simultaneously in multiple counterparts
      and
      by facsimile, each of which shall be deemed an original, but all of which taken
      together shall constitute one and the same instrument.

     

    9.4 Titles
      and Subtitles.
      The
      headings of this Operating Agreement are inserted for convenience only and
      shall
      not constitute a part of this Operating Agreement in construing or interpreting
      any provision hereof.

     

    9.5 Notices.
      All
      notices and other communications required or permitted under this Operating
      Agreement shall be delivered to the parties at the address appearing on the
      books of Company, or at such other address that they designate by notice to
      all
      other parties in accordance with this section. All notices and communications
      shall be deemed to have been received unless otherwise set forth herein:
      (a) in the case of personal delivery, on the date of such delivery;
      (b) in the case of facsimile transmission, on the date on which the sender
      receives confirmation by facsimile transmission that such notice was received
      by
      the addressee, provided
      that a
      copy of such transmission is additionally sent by mail as set forth in
      (d) below; (c) in the case of overnight air courier, on the second
      business day following the day sent, with receipt confirmed by the courier;
      and
      (d) in the case of mailing by first class certified or registered mail,
      postage prepaid, return receipt requested, on the fifth business day following
      such mailing.

     

    9.6 Entire
      Agreement.
      This
      Operating Agreement, as well as the Stipulated Final Judgment, Master Agreement,
      Commercialization Agreement and Newco Licenses, constitutes the entire agreement
      and

     

    
      
         

      

      
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    understanding
      of the parties with respect to the terms and conditions of the transactions
      referred to herein and therein and supersede all prior and contemporaneous
      agreements and understandings, oral or written, between the parties relating
      to
      such subject matter, other than as provided herein and therein.

     

    9.7 Power
      of Attorney.
      By
      signing this Operating Agreement, each Member designates and appoints the
      Management Committee as their true and lawful attorney, in his name, place
      and
      stead, to make, execute, sign and file such instruments, documents or
      certificates which may from time to time be required by the laws of the United
      States of America and the State of Delaware and any political subdivision
      thereof or any other state or political subdivision in which the Company shall
      do business to carry out the purposes of this Operating Agreement, except where
      such action requires the express approval of a Member hereunder. The Management
      Committee shall provide to the Members copies of all documents executed pursuant
      to the power of attorney contained in this Section 9.7.

     

    9.8 Related
      Party Transactions.
      The
      Company shall not, without the approval of the Management Committee, engage
      in
      any loans, leases, contracts or other transactions with any Manager, officer
      or
      key employee of the Company, any member of any such person’s immediate family,
      including the parents, spouse, children and other relatives of any such person,
      or any Person controlled by such person, with the exception of the payments
      to
      be made to TPL pursuant to Article IV
      of the
      Commercialization Agreement.

     

    9.9 Dispute
      Resolution.
      All
      rights and obligations under this Operating Agreement shall be resolved as
      if
      all persons and all transactions related to this Operating Agreement had their
      legal residence, situs, and employment in Santa Clara County, California. Within
      fifteen (15) days after written notice of the dispute, members of the most
      senior management of the parties shall meet and exercise their best efforts
      to
      resolve any dispute under this Operating Agreement. If the dispute is not
      resolved to the mutual satisfaction of the parties within thirty (30) days
      after
      such notice, the Company, Patriot and TPL shall submit such dispute to expedited
      binding arbitration before a single arbitrator. The arbitration shall be
      administered by JAMS pursuant to its Comprehensive Arbitration Rules and
      Procedures. Judgment on the award, including without limitation injunctive
      relief, may be entered in any court having jurisdiction. All costs related
      to
      such arbitration shall be paid in advance by the Company, including the cost
      of
      translating into English all discoverable materials, and of providing
      contemporaneous translation of all live testimony. All performances due
      hereunder by the Company, Patriot and TPL shall continue unabated throughout
      the
      entire process and a final adjudication in accordance with the terms hereof
      has
      been made from which no appeal or review can be undertaken. This clause shall
      not preclude the parties from seeking provisional remedies in aid of
      arbitration, including without limitation a temporary or preliminary injunctive
      relief, from a court of appropriate jurisdiction. The arbitrator may, in the
      award, allocate all or part of the costs of the arbitration, including the
      fees
      of the arbitrator and the reasonable attorneys’ fees of the prevailing
      party.

     

    9.10 No
      Partition.
      No
      Member nor any legal successor of a Member shall have the right to partition
      the
      property of the Company or any part thereof or interest therein, or to file
      a
      complaint or institute any proceeding at law or in equity to partition the
      property of the Company or any part thereof or interest therein. Each Member,
      for such Member and such Member’s legal successor, hereby waives any such
      rights. The Members intend that, during the term of this Operating Agreement,
      the rights of the Members and their successors in interest, as among themselves,
      shall be governed solely by the terms of this Operating Agreement and by the
      Act.

     

    9.11 Bankruptcy.
      Neither
      the Management Committee, nor any Manager or Member of the Company, shall be
      permitted to file a bankruptcy petition on behalf of the Company unless the
      filing of the bankruptcy petition shall first have been approved in writing
      by
      Members holding at least seventy-five percent (75%) of the Percentage Interests
      of the Company.

     

    [signature
      page follows]

     

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Operating Agreement
      as of
      the day and year first above written.

     

    
      	
              PATRIOT
                SCIENTIFIC CORPORATION,
a
                Delaware corporation

               

              By:________________________________________

              Its:________________________________________

            
	 
	 
	
              TECHNOLOGY
                PROPERTIES LIMITED INC.,
a California corporation

               

              By:________________________________________

              Daniel
                E. Leckron

              Its: 
                Chairman

            

    

     

    
 

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

     

    SCHEDULE
      1

     

    INITIAL
      CAPITAL CONTRIBUTIONS

     

     

    
      	
              MEMBER

            	 	
              CONTRIBUTIONS

            	 	
              AGGREGATE
                FAIR MARKET VALUE OF CONTRIBUTIONS

            
	
              Patriot
                Scientific Corporation

            	 	
              · P-Newco
                License

              · $2,000,000

            	 	 
	
              Technology
                Properties Limited Inc.

            	 	
              · T-Newco
                License

              · $2,000,000

            	 	 

    

    

     

    
      
         

      

      
        -28-

        
          

        

      

      
         

      

    

    SCHEDULE
      2

     

    PERCENTAGE
      INTERESTS

     

    

     

    
      	
              MEMBER

            	 	
              PERCENTAGE
                INTEREST

            
	
              Patriot
                Scientific Corporation

            	 	
              50%

            
	
              Technology
                Properties Limited Inc.

            	 	
              50%

            

    

     

    
 

    
      
         

      

      
        -29-

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

     

     

    CONSENT
      OF CHARLES H. MOORE

    TO

    LIMITED
      LIABILITY OPERATING AGREEMENT

    OF

    P-NEWCO

    A
      DELAWARE LIMITED LIABILITY COMPANY

    

     

    Charles
      H. Moore (“Moore”) does hereby affirm and acknowledge that:

     

    (a) Moore
      has
      read and reviewed the accompanying Limited Liability Company Operating Agreement
      (the “P-Newco Operating Agreement”) for P-Newco, a Delaware Limited Liability
      Company (“P-Newco”) and is familiar with the contents thereof;

     

    (b) Technology
      Properties Limited Inc., a California Corporation, has full power and authority
      to enter into the P-Newco Operating Agreement insofar as it affects the
      interests of Moore in the microprocessor science and design patents set forth
      on
      Schedule 1 to the Master Agreement, to which Moore is a party;
      and

     

    (c) Moore
      consents to the P-Newco Operating Agreement.

     

    IN
      WITNESS WHEREOF, Moore has executed this Consent as of the [__] day of
      [__________], 2005.

     

    CHARLES
      H. MOORE

     

    ________________________________________

     

     

    
      
         

      

        -30-Exhibit 10.a

                             STOCK OPTION AGREEMENT

                            GLOBETECH VENTURES CORP.

     THIS  AGREEMENT  entered into as of the FEBRUARY 24, 2005 ("Date of Grant")
between  Globetech  Ventures  Corp.,  a  British  Columbia   corporation,   (the
"Corporation"),  and CASEY FORWARD (the "Optionee").  The Optionee is A DIRECTOR
of the Company.

     WHEREAS,  the  Board of  Directors  of the  Corporation  (the  "Board")  is
authorized to grant to directors,  officer, employees and other selected persons
stock options to purchase  common shares,  without par value, of the Corporation
(the "Common Shares"). In reference to this option agreement there are terms and
conditions  contained  in the Stock  Option Plan dated  December 31, , 2004 (the
"Plan");

     WHEREAS,  the Plan  provides for the granting of stock  options that either
(i) are intended to qualify as "Incentive  Stock Options"  within the meaning of
Section 422 of the Internal  Revenue Code of 1986, as amended (the  "Code"),  or
(ii)  do  not  qualify  under  Section  422 of the  Code  ("Non-Qualified  Stock
Options");

     WHEREAS,  the Board has  authorized  the grant to  Optionee  of  options to
purchase a total of 600,000  Common  Shares (the  "Options"),  which Options are
intended to be (select one):

          [ ] Incentive Stock Options

          [X]  Non-Qualified Stock Options;

     NOW THEREFORE,  the Corporation  agrees to offer to the Optionee the option
to  purchase,  upon the terms and  conditions  set forth herein and in the Plan,
600,000 Common Shares. Capitalized terms not otherwise defined herein shall have
the meanings ascribed thereto in the Plan.

1. Exercise Price.

     The exercise price of the options shall be $0.30 USD per share.

2. Vesting Schedule.

     The Options vest immediately.

3. Options non-Transferable.

     This Option may not be  transferred,  assigned,  pledged or hypothecated in
any manner  (whether by operation of law or  otherwise)  other than by will,  by
applicable  laws of  descent  and  distribution  or  (except  in the  case of an

                                       1
<PAGE>
Incentive Stock Option)  pursuant to a qualified  domestic  relations order, and
shall not be subject to  execution,  attachment  or similar  process;  PROVIDED,
HOWEVER,  that if this Option  represents a  Non-Qualified  Stock  Option,  such
Option is transferable  without  payment of  consideration  to immediate  family
members of the Optionee or to trusts or partnerships established exclusively for
the benefit of the Optionee and the Optionee's  immediate  family members.  Upon
any attempt to transfer,  pledge, hypothecate or otherwise dispose of any Option
or of any right of privilege  conferred by the Plan  contrary to the  provisions
thereof, or upon the sale, levy or attachment or similar process upon the rights
and privileges  conferred by the Plan, such Option shall thereupon terminate and
become null and void.

4. Investment Intent.

     By accepting the option,  the Optionee  represents  and agrees that none of
the Common Shares  purchased  upon exercise of the Option will be distributed in
violation  of  applicable  federal  and  provincial  laws  and  regulations.  In
addition, the Corporation may require, as a condition of exercising the Options,
that the  Optionee  execute an  undertaking,  in such a form as the  Corporation
shall reasonably specify,  that the Stock is being purchased only for investment
and without any then-present intention to sell or distribute such shares.

5. Termination of Employment and Options.

     Options shall terminate,  to the extent not previously exercised,  upon the
occurrence of any of the following events:

     (a)  Expiration: Three (3) years from the Date of Grant.

     (b)  Termination  for  Cause:  The  date of an  Optionee's  termination  of
          employment or  contractual  relationship  with the  Corporation or any
          Related Corporation for cause (as determined in the sole discretion of
          the Plan Administrator).c

     (c)  Termination Due to Death or Disability: The expiration of one (1) year
          from  the  date  of the  death  of the  Optionee  or  cessation  of an
          Optionee's  employment  or  contractual   relationship  by  reason  of
          Disability (as defined in Section 5(g) of the Plan).  If an Optionee's
          employment or  contractual  relationship  is terminated by death,  any
          Option held by the Optionee shall be exercisable only by the person or
          persons to whom such Optionee's rights under such Option shall pass by
          the Optionee's will or by the laws of descent and distribution.

     (d)  Termination Due to Cessation of Service as a Director:  The expiration
          of one (1) year  from  the  date an  Optionee,  if a  director  of the
          Corporation, ceases to serve as a director of the Corporation.

     (e)  Termination for Any Other Reason:  The expiration of one (1) year from
          the date of an Optionee's  termination  of  employment or  contractual
          relationship  with the Corporation or any Related  Corporation for any
          reason whatsoever other than cause, death or Disability (as defined in
          Section 5(g) of the Plan).

                                       2
<PAGE>
6. Shares.

     In the case of any stock split, stock dividend or like change in the nature
of shares of Stock covered by this Agreement,  the number of shares and exercise
price shall be proportionately adjusted.

7. Exercise of Option.

     Options  shall be  exercisable,  in full or in  part,  at any  time,  until
termination.  If less than all of the shares of any Option  are  purchased,  the
remainder may be purchased at any subsequent time prior to the expiration of the
Option term. Only whole shares may be issued  pursuant to an Option,  and to the
extent that an Option covers less than one (1) share, it is unexercisable.

     Each  exercise  of the Option  shall be by means of delivery of a notice of
election to exercise  (which may be in the form attached hereto as Exhibit A) to
the Secretary of the Corporation at its principal  executive office,  specifying
the number of Common Shares to be purchased and  accompanied  by payment in cash
by certified  check or cashier's  check in the amount of the full exercise price
for the  Common  Shares to be  purchased.  In  addition  to  payment  in cash by
certified  check or cashier's  check, an Optionee or transferee of an Option may
pay for all or any portion of the aggregate exercise price by complying with one
or more of the following alternatives:

     (a)  by delivering to the Corporation Common Shares previously held by such
          person  or by the  Corporation  withholding  Common  Shares  otherwise
          deliverable  pursuant to exercise of the Option,  which Common  Shares
          received  or withheld  shall have a fair  market  value at the date of
          exercise  (as  determined  by the  Plan  Administrator)  equal  to the
          aggregate  purchase  price  to be  paid  by  the  Optionee  upon  such
          exercise; or

     (b)  by complying  with any other  payment  mechanism  approved by the Plan
          Administrator at the time of exercise.

8. Subject to the Plan.

     The terms of the Options are subject to the  provisions of the Plan, as the
same may from time to time be  amended,  and any  inconsistencies  between  this
Agreement and the Plan,  as the same may be from time to time amended,  shall be
governed by the  provisions  of the Plan, a copy of which has been  delivered to
the Optionee,  and which is available for inspection at the principal offices of
the Corporation.

                                       3
<PAGE>
9. Professional Advice.

     The acceptance of the Options and the sale of Common Shares issued pursuant
to the exercise of Options may have consequences under federal and state tax and
securities  laws which may vary depending upon the individual  circumstances  of
the Optionee.  Accordingly,  the Optionee  acknowledges  that he or she has been
advised to consult his or her personal legal and tax advisor in connection  with
this  Agreement  and his or her dealings  with respect to Options for the Common
Shares.

10. No Employment Relationship.

     Whether  or not any  Options  are to be  granted  under  this Plan shall be
exclusively  within  the  discretion  of the  Plan  Administrator,  and  nothing
contained  in this Plan  shall be  construed  as giving  any person any right to
participate  under this Plan.  The grant of an Option shall in no way constitute
any form of agreement or understanding binding on the Corporation or any Related
Corporation, express or implied, that the Corporation or any Related Corporation
will employ or contract  with an Optionee  for any length of time,  nor shall it
interfere  in any way with the  Corporation's  or, where  applicable,  a Related
Corporation's right to terminate Optionee's  employment at any time, which right
is hereby reserved.

11. Entire Agreement.

     This  Agreement  is  the  only  agreement  between  the  Optionee  and  the
Corporation  with  respect  to the  Options,  and  this  Agreement  and the Plan
supersede  all  prior  and  contemporaneous  oral  and  written  statements  and
representations  and contain  the entire  agreement  between  the  parties  with
respect to the Options.

12. Notices.

     Any notice  required or  permitted to be made or given  hereunder  shall be
mailed or delivered  personally to the addresses set forth below,  or as changed
from time to time by written notice to the other:

     The Corporation:      Globetech Ventures Corp.
                           #1020 - 400 Burrard Street
                           Vancouver, BC,  V6C 3A6
                           Attention: Casey Forward, President

     The Optionee:         Casey Forward
                           1388 West 46th Avenue
                           Vancouver, BC, V5Z 22K5

                                       4
<PAGE>
GLOBETECH VENTURES CORP.

Per:
    -------------------------------
    Casey Forward, Director

Acknowledged and agreed to this _____ day of ______________ 2005 by:

-----------------------------------
Casey Forward

                                       5

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