EXHIBIT 10.1
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SECURITIES PURCHASE AGREEMENT
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AGREEMENT, dated as of December 21, 2004, by and between Network-1
Security Solutions, Inc., a Delaware corporation with principal offices at 000
Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000 (the "Company"), and the
Investors signatory hereto (collectively, the "Investors").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to each of the Investors and
each Investor severally and not jointly desires to purchase (i) up to an
aggregate of 3,000,000 shares of common stock, par value $.01 per share (the
"Common Stock") at a purchase price of $1.00 per share (equal to the average
closing price of the common stock as reported on the OTC Bulletin Board for the
5 trading days prior to 2 trading days before the date hereof, but in no event
less than $.90 per share or greater than $1.00 per share) (the "Purchase
Price"), and (ii) warrants to purchase up to an aggregate of 2,250,000 shares of
common stock (the "Warrants"), consisting of warrants to purchase 1,500,000
shares of common stock at an exercise price of $1.25 per share and warrants to
purchase 750,000 shares of common stock at an exercise price of $1.75 per share,
on the terms and subject to the conditions set forth herein. The shares of
common stock issuable upon exercise of the Warrants (as defined below) are
collectively referred to herein as the "Warrant Shares."
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Issuance of Common Stock and Warrants
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Section 1.1 Agreement to Purchase and Sell. At the closing provided
for in Section 1.2(a), the Company will issue and sell to each Investor and,
subject to the terms and conditions of this Agreement, each Investor will
purchase from the Company, severally and not jointly, (i) the Common Stock, and
(ii) the Warrants in the form of EXHIBIT A attached hereto, in the amounts
opposite such Investor's name and in consideration for payment by each Investor
to the Company of the Purchase Price as indicated on Schedule 1.1 hereto. The
Investors will be afforded registration rights with respect to the Common Stock
and the Warrant Shares in accordance with the Registration Rights Agreement in
the form attached hereto as EXHIBIT B.
Section 1.2 The Closing. (a) The closing of the issuance of the
Common Stock and Warrants (the "Closing") shall take place at the offices of
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP, Park Avenue Tower, 00 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, on the date that this Agreement is executed by
the parties hereto (the time and date of the Closing being herein referred to as
the "Closing Date"). On the Closing Date the Company will instruct its transfer
agent to deliver to each of the Investors the certificates for the Common Stock
and the Company will deliver the Warrants to be purchased hereunder in
accordance with Schedule 1.1 hereto and the other
terms hereof against delivery by each such Investor of a check payable to the
order of the Company (or wire transfer) in the full amount of the Purchase Price
payable by such Investor.
(b) Subject to the terms and provisions of this Agreement, if any of
the securities offered hereby are not sold at the Closing, the Company may at
any time within sixty (60) days following the Closing, sell the remaining
securities at the same purchase price as the securities purchased and sold at
the Closing (the "Subsequent Closings"). Any such Subsequent Closing shall be
upon the same terms and conditions as those in the Closing, and such additional
investors shall become parties to this Agreement and the Registration Rights
Agreement. Any such additional investors shall be deemed to be an "Investor" for
all purposes under this Agreement.
ARTICLE II
Representations, Warranties, and Agreements of the Company
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Except for the exceptions set forth on the Disclosure Schedule
attached hereto as Schedule 1.2 and furnished to Investors, the Company
represents and warrants to, and agrees with, the Investors as follows:
Section 2.1 Corporate Organization and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and is qualified to transact business
and is in good standing as a foreign corporation in every jurisdiction in which
its ownership, leasing, licensing or use of property or assets or the conduct of
its business makes such qualification necessary, except in such jurisdictions
where the failure to be so qualified or in good standing would not have a
material adverse effect on the business, results of operations, financial
condition or prospects of the Company. The Company has no subsidiaries except
for Network-1 Acquisition Corp. (which does not conduct any business or own any
material assets) and has no investment, whether by way of ownership of stock or
other securities or by loan, advance or otherwise, in any corporation,
partnership, firm, association or other business entity. The Company has all
required power and authority to own its property and to carry on its business as
now conducted and proposed to be conducted.
Section 2.2 Validity of Transaction. The Company has all requisite
power and authority to execute, deliver and perform this Agreement, the
Registration Rights Agreement and the Warrants, and to issue the Common Stock
and Warrants to the Investors. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Warrants and to authorize the issuance and sale of the Common Stock and
Warrants, and upon exercise of the Warrants, to authorize the issuance of the
Warrant Shares to the Investors. The Common Stock and Warrants, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
and non-assessable and will be free and clear of all pledges, liens,
encumbrances and restrictions, other than under applicable federal and state
securities laws. This Agreement, the Registration Rights Agreement and the
Warrants have been duly authorized, executed and delivered by the Company, are
the legal, valid
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and binding obligations of the Company, and are enforceable as to the Company in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally or as rights to indemnification may be limited by applicable
securities laws. Except as to filings which may be required under applicable
state securities regulations, no consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
Federal, state, local or other governmental authority or of any court or other
tribunal is required by the Company in connection with the transactions
contemplated hereby. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement or understanding to which the Company is
a party, or by which any of its properties or assets is bound, is required for
the execution, delivery or performance by the Company of this Agreement, the
Registration Rights Agreement, the Warrants and the issuance of the Warrant
Shares. The execution, delivery, and performance of this Agreement, the
Registration Rights Agreement and the Warrants by the Company will not violate,
result in a breach of, conflict with or (with or without the giving of notice or
the passage of time or both) entitle any party to terminate or call a default
under any such contract, agreement, instrument, lease, license, arrangement or
understanding, or violate or result in a breach of any term of the Certificate
of Incorporation or By-laws of the Company, or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment or decree binding on
the Company or to which any of its operations, business, properties or assets is
subject. The registration rights granted to the Investors, in accordance with
the Registration Rights Agreement, do not violate any of the terms and
conditions of the registration rights previously granted by the Company to other
holders of the Company's securities or any other agreements to which the Company
is a party. The Warrant Shares issuable upon exercise of the Warrants are duly
authorized, have been reserved for issuance and upon exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid, and
nonassessable, will not have been issued in violation of any preemptive right of
stockholders or rights of first refusal and the Investors, upon exercise, will
have good title to the Warrant Shares, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders agreements and voting
trusts.
Section 2.3 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, par value $.01 per share. Immediately prior to the Closing, the
Company shall have 15,012,572 shares of Common Stock outstanding and no
outstanding shares of preferred stock. All issued and outstanding shares of
Common Stock have been validly issued and are fully paid and nonassessable and
have not been issued in violation of any Federal or state securities laws.
Except for the obligation of the Company to issue (a) the Warrant Shares upon
exercise of the Warrants, (b) upon the exercise of the options and warrants that
are currently outstanding to purchase an aggregate of 3,710,005 shares of Common
Stock (excluding the options issued under the Company's Stock Option Plan as set
forth in the following clause (c)), (c) upon the exercise of options to purchase
3,742,370 shares of Common Stock issued under the Company's Stock Option Plan,
there are not, as of the date hereof, any outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or any other
agreements obligating the Company to issue (i) any additional shares of its
capital stock or (ii) any securities convertible into, or exercisable or
exchangeable for, or evidencing the right to subscribe
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for, any shares of its capital stock except (as set forth in the Disclosure
Schedule). Other than the Company's Stock Option Plan, the Company has not
adopted or authorized any plan for the benefit of its officers, employees, or
directors which requires or permits the issuance, sale, purchase, or grant of
any shares of the Company's capital stock, any securities convertible into, or
exercisable or exchangeable for, or evidencing the right to subscribe for any
shares of the Company's capital stock or any phantom shares or any stock
appreciation rights. The Company is under no obligation (contingent or
otherwise) to purchase or otherwise acquire or retire any shares of its capital
stock, except as may be provided with respect to options outstanding under the
Stock Option Plan.
Section 2.4 Financial Statements. The financial statements of the
Company, including the notes thereto, as they appear in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2003 (the "10-KSB") and
the Company's Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 2004 (the "10-QSB"), respectively (the "Financials"), fairly
present, in all material respects, the financial position and results of
operations of the Company at the dates thereof and for the periods covered
thereby, subject, in the case of interim periods, to year-end adjustments and
normal recurring accruals and to the extent that such Financials may not include
footnotes. Such Financials have been prepared in conformity with generally
accepted accounting principles ("GAAP"), consistently applied throughout the
periods involved except as may otherwise be stated therein and except that the
notes in the interim financial statements may be abbreviated and do not contain
all of the information that is contained in the notes to the audited financial
statements. The Company has no material liabilities or obligations, contingent,
direct, indirect or otherwise except (i) as set forth in the latest balance
sheet included in the Financials or the footnotes thereto (the date of such
balance sheet being referred to as the "Balance Sheet Date"), and (ii) those
incurred in the ordinary course of business since the Balance Sheet Date.
Section 2.5 No Undisclosed Liabilities. The Company does not have
any liabilities or obligations of any nature required to be set forth in the
Financials under GAAP, whether or not accrued, contingent or otherwise, and
there is no existing condition, situation or set of circumstances which may
result in such a liability or obligation, except (a) liabilities or obligations
of the Company reflected in its Securities and Exchange Commission (the "SEC")
filings and in the Financial Statements or (b) liabilities and obligations which
are not, individually or in the aggregate, reasonably expected to have a
material adverse effect on the Company.
Section 2.6 Legal Proceedings. Except as set forth in the Disclosure
Schedule annexed hereto as Schedule 1.2, there are no actions, suits,
proceedings, claims or hearings of any kind or nature existing or pending or, to
the best knowledge of the Company, threatened and, to the best knowledge of the
Company, no investigations or inquiries, before or by any court, or other
governmental authority, tribunal or instrumentality (or, to the Company's best
knowledge, any state of facts that would give rise thereto), pending or
threatened against the Company, or involving the properties of the Company,
that, individually or in the aggregate as to any matter covered by this Section
2.6, are reasonably likely to result in any material adverse effect on the
Company or that might adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement.
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Section 2.7 SEC Filings. The Company has filed all forms, reports,
statements and other documents required to be filed with (i) the SEC including,
without limitation, (A) all Annual Reports on Form 10-KSB, (B) all Quarterly
Reports on Form 10-QSB, (C) all Reports on Form 8-K, (D) all other reports or
registration statements and (E) all amendments and supplements to all such
reports and registration statements (collectively referred to as the "SEC
Reports") and (ii) any other applicable state securities authorities (all such
forms, reports, statements and other documents in (i) and (ii) of this Section
2.7 being referred to herein, collectively, as the "Reports"). The Reports (i)
were prepared in all material respects in accordance with the requirements of
applicable law (including, with respect to the SEC Reports, the Securities Act
of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SEC Reports) and (ii) did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. In addition, since the last quarterly
report of the Company on Form 10-QSB filed with the SEC, there have been no
material events that require disclosure under the Exchange Act.
Section 2.8 Patents and Other Intellectual Property. The Company
owns all right, title and interest in all patents, trademarks or other
intellectual property necessary or material for use in connection with its
business as disclosed in the SEC Reports and which the failure to so have would
reasonably be expected to have a material adverse effect on the Company's
assets, business or financial condition.
Section 2.9 Finder or Broker. Except as set forth in the Disclosure
Schedule, neither the Company nor anyone acting on behalf of the Company has
negotiated with any finder, broker or intermediary or similar person in
connection with the transactions contemplated herein.
Section 2.10 Taxes. The Company has filed all federal tax returns
and all state and municipal and local tax returns (whether relating to income,
sales, franchise, withholding, real or personal property or other types of
taxes) required to be filed under the laws of the United States and applicable
states, and has paid in full all taxes which have become due pursuant to such
returns or claimed to be due by any taxing authority or otherwise due and owing;
provided, however, that the Company has not paid any tax, assessment, charge,
levy or license fee that it is contesting in good faith and by proper
proceedings and adequate reserves for the accrual of same are maintained if
required by GAAP. The Company believes that each of the tax returns heretofore
filed by the Company correctly and accurately reflects the amount of its tax
liability thereunder. The Company has withheld, collected and paid all levies,
assessments, license fees and taxes to the extent required.
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ARTICLE III
Representations, Warranties, and Agreements of the Investors
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Each of the Investors, severally and not jointly, represents and
warrants to, and agrees with, the Company as follows:
Section 3.1 Organization. Such Investor (if not an individual) is
duly organized under the laws of the state of its jurisdiction of organization
and has full power and authority to enter into this Agreement and to consummate
the transactions set forth herein. The address set forth on Schedule 1.1 hereof
is such Investor's true and correct business, residence or domicile address.
Section 3.2 Accredited Investor, Experience, Access to Information,
etc.
(a) Such Investor and, to the knowledge of such Investor, each
limited partner of such Investor in the case of an Investor which is a limited
partnership, and each partner of such Investor in the case of an Investor which
is a general partnership, is an "accredited investor," as that term is defined
in Rule 501 of Regulation D promulgated under the Securities Act;
(b) Such Investor and, to the knowledge of such Investor, the
shareholders of the general partner of such Investor, if any, and each of the
limited partners of such Investor, if any, have had substantial experience in
investing in private transactions like this one, are capable of evaluating the
merits and risks of an investment in the Company and understand that an
investment in the Common Stock and Warrants is speculative and involves a high
degree of risk and should not be purchased by anyone who cannot afford the loss
of their entire investment. Such Investor has also carefully considered the Risk
Factors set forth in EXHIBIT C hereof; and
(c) Such Investor acknowledges that it has had a full opportunity to
discuss the business, management and financial affairs of the Company with the
Company's management. Such Investor has reviewed the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended September 30, 2004 as well as
additional SEC Reports of the Company that it deemed appropriate, and any
additional requested documents from the Company and has had a full opportunity
to ask questions of, and receive answers from, the officers of the Company
concerning the terms and conditions of this Agreement, the purchase of the
Common Stock and Warrants, the business, operations, market potential,
capitalization, financial condition and prospects of the Company, and all other
matters deemed relevant by the Investor. Such Investor acknowledges that it has
had an opportunity to evaluate all information regarding the Company as it has
deemed necessary or desirable in connection with the transactions contemplated
by this Agreement, has independently evaluated the transactions contemplated by
this Agreement and has reached its own decision to enter into this Agreement.
Section 3.3 Investment Intent. Such Investor is acquiring the Common
Stock and Warrants and the Warrant Shares for its own account for investment and
not with a view to, or for sale in connection with, any public distribution
thereof in violation of the Securities Act. Such
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Investor understands that none of the shares of Common Stock and Warrants or the
Warrant Shares have been registered for sale under the Securities Act or
qualified under applicable state securities laws and that the shares of Common
Stock, the Warrants and the Warrant Shares are being offered and sold to such
Investor pursuant to one or more exemptions. Such Investor understands that it
must bear the economic risk of its investment in the Company for an indefinite
period of time, as the Common Stock, the Warrants and the Warrant Shares cannot
be sold unless subsequently registered under the Securities Act and qualified
under state securities laws, unless an exemption from such registration and
qualification is available. Such Investor acknowledges that no public market for
the Warrants of the Company presently exists and none may develop in the future.
Section 3.4 Transfer of Securities. Such Investor will not sell or
otherwise dispose of any shares of Common Stock, Warrants or Warrant Shares
unless (a) a registration statement with respect thereto has become effective
under the Securities Act and such Warrants and Warrant Shares have been
qualified under applicable state securities laws or (b) there is presented to
the Company notice of the proposed transfer and, if it so requests, a legal
opinion reasonably satisfactory to the Company that such registration and
qualification is not required; provided, however, that no such registration or
qualification or opinion of counsel shall be necessary for a transfer by such
Investor (i) to any entity controlled by, or under common control with, such
Investor, (ii) to a shareholder, partner or officer of such Investor, (iii) to a
shareholder, partner or officer of the general partner of such Investor, (iv) to
the spouse, lineal descendants, estate or a trust or for the benefit of any of
the foregoing or (v) by operation of law, provided the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he were such
Investor. Such Investor consents that any transfer agent of the Company may be
instructed not to transfer any Common Stock, Warrants or Warrant Shares unless
it receives satisfactory evidence of compliance with the foregoing provisions,
and that there may be endorsed upon any certificate (or other instrument)
representing such securities (and any certificates issued in substitution
therefor) the following legend calling attention to the foregoing restrictions
on transferability of such shares, stating in substance:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER SUCH ACT AND LAWS, IF APPLICABLE. THE
COMPANY, PRIOR TO PERMITTING A TRANSFER OF THESE
SECURITIES, MAY REQUIRE AN OPINION OF COUNSEL OR OTHER
ASSURANCES SATISFACTORY TO IT AS TO COMPLIANCE WITH OR
EXEMPTION FROM SUCH ACT AND LAWS"
The Company shall, upon the request of any holder of Common Stock, Warrants or
Warrant Shares and the surrender of such securities, issue a new stock
certificate and Warrants without such legend if (A) the Warrants or stock
evidenced by such certificate has been effectively registered under the
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Securities Act and qualified under any applicable state securities law and sold
by the holder thereof in accordance with such registration and qualification, or
(B) such holder shall have delivered to the Company a legal opinion reasonably
satisfactory to the Company to the effect that the restrictions set forth herein
are no longer required or necessary under the Securities Act or any applicable
state law.
Section 3.5 Authorization. All actions on the part of such Investor
necessary for the authorization, execution, delivery and performance by such
Investor of this Agreement have been taken. This Agreement has been duly
authorized, executed and delivered by such Investor, is the legal, valid and
binding obligations of such Investor, and are enforceable as to such Investor in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally or as rights to indemnification may be limited by applicable
securities laws.
Section 3.6 Finder or Broker. Neither such Investor nor any person
acting on behalf of such Investor has negotiated with any finder, broker,
intermediary or similar person in connection with the transactions contemplated
herein.
ARTICLE IV
Indemnification
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Section 4.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Investors, their officers and directors,
employees, agents, representatives and affiliates and each other person, if any,
who controls any thereof, against any loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any untruth, inaccuracy, or breach of any of the representations,
warranties, covenants or agreements of the Company contained in this Agreement
or in any other document furnished by the Company to any of the foregoing in
connection with this transaction.
Section 4.2 Indemnification by Investors. (a) Each Investor,
severally and not jointly, agrees to indemnify and hold harmless the Company,
its officers and directors, employees, agents and representatives and affiliates
and each other person, if any, who controls any thereof, against any loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any untruth, inaccuracy, or breach of
any of the representations, warranties, covenants or agreements of such Investor
contained in this Agreement or in any other document furnished by such Investor
to any of the foregoing in connection with this transaction.
Section 4.3 Notices of Claims. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 4.1 and 4.2,
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such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action; PROVIDED, HOWEVER, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under Article IV hereof, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; PROVIDED, HOWEVER, that if the indemnified party reasonably
believes it is advisable for it to be represented by separate counsel because
there exists a conflict of interest between its interests and those of the
indemnifying party with respect to such claim, or there exist defenses available
to such indemnified party which may not be available to the indemnifying party,
or if the indemnifying party shall fail to assume responsibility for such
defense, the indemnified party may retain counsel satisfactory to it and the
indemnifying party shall pay all fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation or which requires action
other than the payment of money by the indemnifying party. Each indemnified
party shall furnish such information regarding itself or the claim in question
as an indemnifying party may reasonably request in writing and as shall be
reasonably requested in connection with the defense of such claim and litigation
resulting therefrom.
Section 4.4 Contribution. If the indemnification provided for in
Section 4.1 and 4.2 shall for any reason be held by a court of competent
jurisdiction to be unavailable to an indemnified party in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 4.1 or 4.2 hereof, the indemnified
party and the indemnifying party shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating the same), (a) in such proportion as
is appropriate to reflect the relative fault of the Company and the Investors in
connection with the statement or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable consideration (the relative fault of the Company and such Investors to
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Investors
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission) or (b) if the
allocation provided by clause (a) above is not permitted by applicable law, in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Investors from the offering of the securities.
No person guilty of fraudulent misrepresentation (within the meaning of
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Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. In addition, no
person shall be obligated to contribute hereunder any amounts in payment of any
settlement of any action or claim effected without such person's consent, which
consent shall not be unreasonably withheld or delayed.
ARTICLE V
Additional Provisions
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Section 5.1 Legal Opinion. Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx &
Xxxxxxx LLP, counsel to the Company, will deliver at the Closing a legal opinion
covering the matters set forth in Exhibit D.
Section 5.2 Communications. All notices or other communications
hereunder shall be in writing and shall be given by registered or certified mail
(postage prepaid and return receipt requested), by an overnight courier service
which obtains a receipt to evidence delivery or by telex or facsimile
transmission (provided that written confirmation of receipt is provided),
addressed as set forth below:
If to the Company:
Network-1 Security Solutions, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Chairman and Chief Executive Officer
With a copy to:
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxxxxxx, Esq.
If to the Investors, at their respective addresses as set forth on
Schedule 1.1 hereto, or such other address as any party may designate to the
other in accordance with the aforesaid procedure. All notices and other
communications sent by overnight courier service shall be deemed to have been
given as of the next business day after delivery thereof to such courier
service, those given by telex or facsimile transmission shall be deemed given
when sent, and all notices and other communications sent by mail shall be deemed
given as of the third business day after the date of deposit in the United
States mail.
Section 5.3 Successors and Assigns. The Company may not sell,
assign, transfer or otherwise convey any of its rights or delegate any of its
duties under this Agreement, except to a
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corporation which has succeeded to substantially all of the business and assets
of the Company and has assumed in writing its obligations under this Agreement,
and this Agreement shall be binding on the Company and such successor. This
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the Investors and their successors and assigns.
Section 5.4 Amendments and Waivers. Neither this Agreement nor any
term hereof may be changed or waived (either generally or in a particular
instance and either retroactively or prospectively) absent the written consent
of the Investors owning a majority of the Common Stock then outstanding.
Section 5.5 Survival of Representations, etc. The representations,
warranties, covenants and agreements made herein or in any certificate or
document executed in connection herewith shall survive the Closing and any
Subsequent Closings for a period of 12 months and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
Section 5.6 Delays or Omissions; Waiver. No delay or omission to
exercise any right, power or remedy accruing to either the Company or the
Investors upon any breach or default by the other under this Agreement shall
impair any such right, power or remedy nor shall it be construed to be a waiver
of any such breach or default, or any acquiescence therein or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring.
Section 5.7 Entire Agreement. This Agreement (together with the
exhibits and schedules attached hereto) contains the entire understanding of the
parties with respect to their respective subject matter and all prior
negotiations, discussions, commitments and understandings heretofore had between
them with respect thereto are merged herein and therein.
Section 5.8 Expenses. Each party hereto shall pay its own expenses
(including legal fees) in connection with this Agreement and the transactions
contemplated hereby.
Section 5.9 Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York, without giving effect to conflict of laws.
Section 5.10 Further Actions. At any time and from time to time,
each party agrees, without further consideration, to take such actions and to
execute and deliver such documents as may be reasonably necessary to effectuate
the purposes of this Agreement.
Section 5.11 Gender. As the context so requires, terms herein in the
masculine form shall be construed to include the feminine form as well as
neuter.
11
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been duly executed on the
date herein above set forth.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
------------------------------------
Xxxxx X. Xxxxxxxx
Chairman and Chief Executive Officer
INVESTORS:
EMIGRANT CAPITAL CORPORATION
By: /s/ Xxxx X. Xxxx
------------------------------------
Xxxx X. Xxxx
/s/ Xxxxx X. Xxxxxx
----------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxx
----------------------------------------
Xxxxxxx X. Xxxxx
/s/ Xxxx X. Xxxx
----------------------------------------
Xxxx X. Xxxx
/s/ Xxxxx X. Xxxxxxxxx
----------------------------------------
Xxxxx X. Xxxxxxxxx
/s/ Xxxxxxx May
----------------------------------------
Xxxxxxx May
/s/ Xxxxxxx X. Xxxxxxx, Xx.
----------------------------------------
Xxxxxxx X. Xxxxxxx, Xx.
/s/ Xxxxxx Xxxxxxxx
----------------------------------------
Xxxxxx Xxxxxxxx
12
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
Singer Opportunity Fund LLC
By: /s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx
The Singer Fund LLC
By: /s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx
CGA Resources, LLC
By: /s/ Cass Xxxxxxx Xxxxxxx
------------------------------------
Cass Xxxxxxx Xxxxxxx, Sole Member
The Granite Bridge Fund, L.P.
By: /s/ Xxxxxx Xxxxx
------------------------------------
Xxxxxx Xxxxx
/s/ Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx
13
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
Dasa Xxxx, LLC
By: /s/ Xxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxxx
14
SCHEDULES AND EXHIBITS
----------------------
Schedule 1.1 Investors, Number of Common Stock, Number of Warrants and
Purchase Price
Schedule 1.2 Disclosure Schedule
Exhibit A: Form of Warrant
Exhibit B: Risk Factors
Exhibit C: Registration Rights Agreement
15
SCHEDULE 1.1
------------
NAME AND ADDRESS NUMBER OF SHARES NUMBER OF PURCHASE
OF INVESTOR OF COMMON STOCK WARRANTS PRICE
----------- --------------- -------- -----
Emigrant Capital Corporation 750,000 562,500 $750,000
0 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Singer Opportunity Funds, LLC 250,000 187,500 $250,000
000 Xxxxx Xxxxxx
Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Singer Fund, LLC 250,000 187,500 $250,000
000 Xxxxx Xxxxxx
Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Xxxxx X. Xxxxxx 215,000 161,250 $215,000
0000 Xxxxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Xxxxxx Xxxxxxxx 100,000 75,000 $100,000
00 Xxxxxxxxx Xxxx
Xxxxx Xxxxx, XX 00000
Xxxxxxx X. Xxxxx 100,000 75,000 $100,000
0 Xxxx Xxxxxx Xxxxx
Xxx Xxxxxxxxxx, Xxx Xxxx 00000
Xxxx X. Xxxx 100,000 75,000 $100,000
000 Xxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Granite Bridge Fund, L.P. 75,000 56,250 $75,000
0000 X. Xxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
CGA Resources, LLC 50,000 37,500 $50,000
00 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxxx X. Xxxxxxxxx 50,000 37,500 $50,000
000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx
16
NAME AND ADDRESS NUMBER OF SHARES NUMBER OF PURCHASE
OF INVESTOR OF COMMON STOCK WARRANTS PRICE
----------- --------------- -------- -----
Dasa Xxxx, LLC 50,000 37,500 $50,000
0000 Xxx Xxxxx Xxxxx Xxxx
Xxxxx Xxxxxxxxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxxxx 50,000 37,500 $50,000
0000 Xxx Xxxxx Xxxxx Xxxx
Xxxxx Xxxxxxxxxx, Xxx Xxxx 00000
Xxxxxxx May 25,000 18,750 $25,000
000 Xxx Xxxx Xxxx
Xxxxxx, Xxxxxxxxxxx 00000
Xxxxxxx Xxxx 10,000 7,500 $10,000
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Xxxxxxx X. Xxxxxxx, Xx. 10,000 7,500 $10,000
00 Xxxxx Xxxxx
Xxxx Xxxx Xxxxx 00000
Total 2,085,000 1,563,750 $2,085,000
17
SCHEDULE 1.2
DISCLOSURE SCHEDULE
This Disclosure Schedule (this "Schedule") is attached to and forms a part of
the Securities Purchase Agreement, dated as of December 21, 2004 (the
"Securities Purchase Agreement"), by and among Network-1 Security Solutions,
Inc., a Delaware corporation (the "Company"), and the investors named on
Schedule 1.1 thereto. Section references contained in this Schedule are for
reference purposes only and correspond to the same numbered sections of the
Securities Purchase Agreement, and the disclosure of any matter in any such
section of this Schedule is deemed to be disclosed in response to or in
connection with the other provisions of the Securities Purchase Agreement to the
extent that such disclosure relates or is responsive to such other provisions of
the Securities Purchase Agreement. Capitalized terms used and not defined in
this Schedule have the meanings ascribed to them in the Securities Purchase
Agreement.
2.3 Capitalization.
--------------
o On December 16, 2004, the Board of Directors (the "Board") of
the Company approved a one year extension of the term of five (5) year warrants
to purchase 1,275,469 shares of Common Stock, at an exercise price of $1.114 per
share, which were to expire on December 22, 2004 (the "Warrants"). The one year
extension of the Warrants is subject to the holders of the Warrants irrevocably
waiving anti-dilution price protection with respect to the offering of
securities in accordance with the Securities Purchase Agreement and any
subsequent offerings. The Board also authorized the filing of a registration
statement within the next 60 days registering for resale the 1,352,048 shares of
Common Stock underlying the Warrants. In addition, such Registration Statement
will also register for resale at least 6,500,000 shares of common stock
(including shares underlying options and warrants) owned by principal
stockholders of the Company including Xxxxx Xxxxxxxxxx, Xxxxxxxx Partners II,
L.P. and related parties as well as certain other additional holders.
o In accordance with Section 6(b) of the Employment Agreement,
dated November 26, 2004, between the Company and Xxxxx X. Xxxxxxxx, Chairman and
Chief Executive Officer, Xx. Xxxxxxxx has certain anti-dilution rights which
provide that if at anytime during the period ended December 31, 2005, in the
event that the Company completes a financing (either a single transaction or
series of transactions) consisting of the issuance of common stock or any other
securities convertible or exercisable into common stock, Xx. Xxxxxxxx shall
receive (at the closing of such financing) from the Company, at the same price
as the securities issued in the financing, such number of additional options to
purchase Common Stock so that he maintains the same derivative ownership
percentage (20.27%) of the Company (based upon options and warrants owned by Xx.
Xxxxxxxx and exclusive of his ownership of shares of Common Stock) as he owned
at the time of execution of his employment agreement. Accordingly, in connection
with the Closing pursuant to the Securities Purchase Agreement and assuming the
proceeds of $2.0 - $3.0 million, Xx. Xxxxxxxx will be issued a 8.5 year option
to purchase between 885,799 ($2.0 million proceeds) and 1,088,499 ($3.0 million
proceeds) shares of Common Stock at an exercise price of $1.18 per share.
18
2.6 Legal Proceedings.
-----------------
On March 31, 2004, PowerDsine Inc. ("PowerDsine") commenced an
action against the Company in the United District Court, Southern District of
New York (Civil Action No. 04 CV 2502) seeking a declaratory judgment that the
Company's Remote Power Patent (U.S. Patent No. 6,218,930) is not infringed by
PowerDsine and/or its customers. PowerDsine further seeks an order permanently
enjoining the Company (i) from making any claims to any person or entity that
PowerDsine's products infringe the Remote Power Patent or contributes to
infringement of the patent, (ii) from interfering with or threatening to
interfere with the importation, sale, license or use of PowerDsine's XxX
components or products, and (iii) from instituting or prosecuting any lawsuit or
proceeding placing at issue the right of PowerDsine, its customers, licensees,
successors, or assigns to import, use or sell PowerDsine's XxX components or
products. The Company believes its Remote Power Patent is valid and has
meritorious defenses to the action.
On December 1, 2004, the Company moved to dismiss the declaratory
judgment action asserting among, other things, that there is no actual case or
controversy because PowerDsine did not have reasonable apprehension of suit at
the time the case was filed, not does it today and therefore the court lacks
jurisdiction over the matter. The Company and PowerDsine have been engaged in
settlement discussions in an effort to resolve the litigation. In the event that
the settlement discussions are not successful, the Company intends to vigorously
defend the lawsuit and take whatever actions are necessary to protect it's
intellectual property. In the event, however, that the Court granted the
declaratory judgment and the patent was determined to be invalid, such a
determination would have a material adverse effect on the Company.
2.8 Patents and Other Intellectual Property.
---------------------------------------
In connection with the Company's acquisition of its six patents (the
"Patent Portfolio") from Merlot Communications, Inc. ("Merlot") in November
2003, the Company agreed to pay Merlot contingent future payments equal to 20%
of the net income (as defined in the acquisition agreement) of the Company from
the sale or licensing of the Patent Portfolio after the Company achieves $4.0
million of net income for each patent comprising the Patent Portfolio ("Net
Profit Payments"). The Company has an option to terminate the Net Profit
Payments, at any time between January 1, 2007 through March 31, 2007, and from
January 1 through March 31 of each year thereafter, by making payments to Merlot
in an amount equal to the greater of (i) two times the payment due for the
twelve month period following the notice of termination or (ii) $3.0 million
plus 10% for each additional year starting January 1, 2008.
2.9 Finder or Broker.
----------------
In connection with the Closing, Laurent Ohana will be paid a
finder's fee by the Company in the amount of $50,000 and three (3) year warrants
to purchase 50,000 shares of Common Stock at an exercise price of $1.00 per
share.
19
EXHIBIT A
FORM OF WARRANT
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT OR LAWS, THE RULES AND REGULATIONS THEREUNDER OR THE
PROVISIONS OF THIS WARRANT CERTIFICATE
December __, 2004
WARRANTS TO PURCHASE AN AGGREGATE OF ______ SHARES
OF COMMON STOCK OF
NETWORK-1 SECURITY SOLUTIONS, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
ISSUED TO
_________________________
DATED: December __, 2004
THIS IS TO CERTIFY that, for value received, _________________ or its or
his registered assigns (herein collectively referred to as the "Warrantholder"),
is entitled to the number of Warrants (together with any subsequent Warrants
issued pursuant to the terms hereof, the "Warrants") set forth above, each of
which represents the right, upon the due exercise hereof, at any time commencing
on the date hereof (the "Commencement Date") and ending on the third anniversary
of the Commencement Date (the "Expiration Date"), to purchase from Network-1
Security Solutions, Inc., a Delaware corporation (the "Company"), one fully paid
and nonassessable share, free from tax liens and charges, of common stock, par
value $.01 per share (the "Common Stock"), of the Company upon surrender hereof,
with the form of election to purchase included herein (the "Election to
Purchase") completed and duly executed, at the office of the Company, and upon
simultaneous payment therefor of an exercise price per share equal to the
Purchase Price (as defined in Section 1 below) in cash and/or check payable to
the order of the Company. The number of shares of Common Stock issuable upon
exercise of the Warrants (individually, a "Share" and collectively, the
"Shares") and the Purchase Price therefor are subject to adjustment as provided
herein.
1. Purchase Price
The purchase price for each of the Shares purchasable hereunder (the
"Purchase Price") shall be equal to $[____] per Share, subject to adjustment as
hereinafter described.
2. Definition of Market Price
Unless otherwise provided herein, for purposes of any computations made
hereunder, "Market Price" per share of Common Stock on any date shall be: (i) if
the Common Stock is listed or admitted for trading on any national securities
exchange, the last reported sales price as reported on such national securities
exchange; (ii) if the Common Stock is not listed or admitted for trading on any
national securities exchange, the average of the last reported closing bid and
asked quotation for the Common Stock as reported on the Nasdaq Stock Market's
National Market ("NNM") or Nasdaq Stock Market's Small Cap Market ("NSM") or a
similar service if NNM or NSM are not reporting such information; (iii) if the
Common Stock is not listed or admitted for trading on any national securities
exchange, NNM or NSM or a similar service, the average of the last reported bid
and asked quotation for the Common Stock as quoted by a market maker in the
Common Stock (or if there is more than one market maker, the bid and asked
quotation shall be obtained from two market makers and the average of the lowest
bid and highest asked quotation shall be the "Market Price"); or (iv) if the
Common Stock is not listed or admitted for trading on any national securities
exchange or NNM or quoted by NSM and there is no market maker in the Common
Stock, the fair market value of such shares as determined in good faith by the
Board of Directors of the Company.
3. Transfer
The Warrants may be transferred, sold or assigned in whole or in part,
subject to the provisions of the Securities Act of 1933, as amended. Concurrent
with any transfer of the Warrants, the Warrantholder shall notify the Company of
such transfer, indicating the circumstances of the transfer and, upon request,
furnish the Company with an opinion of its counsel, in form and substance
reasonably satisfactory to counsel for the Company, to the effect that the
proposed transfer may be made without registration under the Securities Act or
qualification under any applicable state securities laws; provided, however, no
legal opinion shall be required if the transferee is an affiliate, stockholder
or limited partner of the Warrantholder.Transfer of the Warrants shall be made
by delivery of the warrant certificate accompanied by a duly executed notice of
assignment, in the form annexed hereto. In the event of the transfer of less
than all of the Warrants, a new warrant certificate shall be issued to the
Warrantholder for the remaining number of Warrants not transferred.
2
4. Issuance of Shares
Subject to the restrictions set forth in Section 5 below, upon surrender of
the Warrants and payment of the Purchase Price as aforesaid, the Company shall
issue and deliver with all reasonable dispatch the certificate(s) for the Shares
to or upon the written order of the Warrantholder and in such name or names as
the Warrantholder may designate. Such certificate(s) shall represent the number
of Shares issuable upon the exercise of the Warrants so surrendered, together
with a cash amount in respect of any fraction of a Share otherwise issuable upon
such exercise.
Certificates representing the Shares shall be deemed to have been issued
and the person so designated to be named therein shall be deemed to have become
a holder of record of such Shares as of the date of the surrender of the
Warrants and payment of the Purchase Price as aforesaid, notwithstanding that
the transfer books for the Shares or other classes of stock purchasable upon the
exercise of the Warrants shall then be closed or the certificate(s) for the
Shares in respect of which the Warrants is then exercised shall not then have
been actually delivered to the Warrantholder. As soon as practicable after each
such exercise of the Warrants, the Company shall issue and deliver the
certificate(s) for the Shares issuable upon such exercise, registered as
requested. The Warrants shall be exercisable, at the election of the registered
holder hereof, either as an entirety or from time to time for part of the number
of Shares specified herein, but in no event shall fractional Shares be issued
with regard to the exercise of the Warrants. In the event that only a portion of
the Warrants are exercised at any time prior to the close of business on the
Expiration Date, a new warrant certificate shall be issued to the Warrantholder
for the remaining number of Shares purchasable pursuant hereto.
Prior to due presentment for registration of transfer of the Warrants, the
Company shall deem and treat the Warrantholder as the absolute owner of the
Warrants (notwithstanding any notation of ownership or other writing on this
warrant certificate made by anyone other than the Company) for the purpose of
any exercise hereof or any distribution to the Warrantholder and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
5. Payment of Expenses, Taxes, etc. upon Exercise
The Company shall pay all documentary stamp taxes, if any, attributable to
the initial issuance of the Shares issuable upon the exercise of the Warrants;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any certificates for Shares in a name other than that of the
Warrantholder upon the exercise of the Warrants, and in such case the Company
shall not be required to issue or deliver any certificates for Shares until or
unless the person or persons requesting the issuance have paid to the Company
the amount of such tax or have established to the Company's satisfaction that
such tax has been paid or is not required to be paid.
3
6. Lost, Stolen or Mutilated Warrant Certificate
In case this warrant certificate shall be mutilated, lost, stolen or
destroyed, the Company shall issue and deliver, in exchange and substitution for
and upon cancellation of the mutilated warrant certificate, or in lieu of and
substitution for the warrant certificate lost, stolen or destroyed, a new
warrant certificate of like tenor and representing an equivalent number of
Shares purchasable upon exercise, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such warrant
certificate and reasonable indemnity, if requested, also reasonably satisfactory
to the Company. Upon providing an appropriate indemnification, no bond or other
security shall be required from the original Warrantholder in connection with
the replacement by the Company of a lost, stolen or mutilated warrant
certificate.
7. Covenants of Company
(a) The Company shall at all times through the Expiration Date reserve and
keep available, out of its aggregate authorized but unissued shares of Common
Stock, the number of Shares deliverable upon the exercise of the Warrants.
(b) Before taking any action which would cause an adjustment pursuant to
the terms set forth herein reducing the portion of the Purchase Price
attributable to the Shares below the then par value (if any) of such Shares, the
Company shall take any corporate action which may, in the opinion of its counsel
(which may be counsel regularly engaged by the Company), be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Shares at the Purchase Price as so adjusted.
(c) The Company covenants that all Shares issued upon exercise of the
Warrants shall, upon issuance in accordance with the terms hereof, be fully paid
and nonassessable and free from all pre-emptive rights and taxes, liens,
encumbrances, charges and security interests created by the Company with respect
to the issuance and holding thereof.
8. Rights Upon Expiration
Unless the Warrants are surrendered and payment made for the Shares as
herein provided before the close of business on the Expiration Date, this
warrant certificate will become wholly void and all rights evidenced hereby will
terminate after such time.
9. Exchange of Warrant Certificate
Subject to the provisions of Section 3 above, this warrant certificate may
be exchanged for a number of warrant certificates of the same tenor as this
warrant certificate for the purchase in the aggregate of the same number of
Shares of the Company as are purchasable upon the exercise of this warrant
certificate, upon surrender hereof at the office of the Company with written
instructions as to the denominations of the warrant certificates to be issued in
exchange.
4
10. Adjustment for Certain Events
(a) In case the Company shall at any time after the date the Warrants are
first issued (i) declare a dividend on the Common Stock payable in shares of the
Company's capital stock (whether in shares of Common Stock or of capital stock
of any other class), (ii) subdivide the outstanding Common Stock, (iii) reverse
split the outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of the Company's capital stock in a reclassification of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, reverse split or
reclassification, and/or the number and kind of shares of capital stock issuable
upon exercise of the Warrants on such date, shall be proportionately adjusted so
that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of securities which, if such Warrant had
been exercised immediately prior to such date, such holder would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, reverse split or reclassification. Any such adjustment shall become
effective immediately after the record date of such dividend or the effective
date of such subdivision, reverse split or reclassification made successively
whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of earnings, consolidated earnings,
if the Company shall have one or more subsidiaries, or earned surplus, or
dividends payable in Common Stock for which adjustment is made under Section
10(a) above) or rights, options or warrants to subscribe for or purchase Common
Stock, then, in each case, the Purchase Price per Share to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, of which the numerator
shall be the current Market Price for a share of Common Stock on such record
date less the fair market value of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights, options or
warrants applicable to one share of Common Stock, and of which the denominator
shall be the current Market Price for a share of Common Stock. In the event that
the Company and the Warrantholder cannot agree as to such fair market value,
such determination of fair market value shall be made by an appraiser who shall
be mutually selected by the Company and the Warrantholder, and the reasonable
costs of such appraiser shall be borne by the Company. Any such adjustment shall
become effective immediately after the record date for such distribution and
shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not
5
so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) No adjustment in the Purchase Price shall be required unless such
adjustment would require a decrease of at least one cent ($0.01) in such price;
provided, however, that any adjustment which by reason of this Section 10(c) is
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 10 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be,
but in no event shall the Company be obligated to issue fractional shares of
Common Stock or fractional portions of any securities upon the exercise of the
Warrants.
(d) In the event that at any time, as a result of an adjustment made
pursuant to Section 10 hereof, the holder of any Warrant thereafter exercised
shall become entitled to receive any shares of capital stock or warrants or
other securities of the Company other than the Shares, thereafter the number of
such other shares of capital stock or warrants or other securities so receivable
upon exercise of this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Shares contained in this Section 10, and the provisions of
this warrant certificate with respect to the Shares shall apply, to the extent
applicable, on like terms to any such other shares of capital stock or warrants
or other securities.
(e) Upon each adjustment of the Purchase Price as a result of calculations
made in this Section 10, each Warrant outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase, at
the adjusted Purchase Price, that number of Shares (calculated to the nearest
hundredth), obtained by (i) multiplying the number of Shares purchasable upon
exercise of a Warrant immediately prior to such adjustment of the Purchase Price
by the Purchase Price in effect immediately prior to such adjustment and (ii)
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(f) In case of any capital reorganization of the Company or of any
reclassification of the Common Stock (other than a change in par value or from a
specified par value to no par value or from no par value to a specified par
value or as a result of subdivision or combination) or in case of the
consolidation of the Company with, or the merger of the Company into, any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation) or of the sale of the properties and assets of the
Company as, or substantially as, an entirety, each Warrant shall, after such
reorganization, reclassification, consolidation, merger or sale, be exercisable,
upon the terms and conditions specified herein, for the number of shares of
Common Stock or other capital stock or warrants or other securities or property
to which a holder of the number of shares of Common Stock purchasable (at the
time of such reorganization, reclassification, consolidation, merger or sale)
upon exercise of such Warrant would have been entitled upon such reorganization,
reclassification, consolidation, merger or sale; and in any such case, if
necessary, the provisions set
6
forth in this Section 10(f) with respect to the rights and interests thereafter
of the registered holders of all Warrants shall be appropriately adjusted so as
to be applicable, as nearly as may reasonably be, to any shares of Common Stock
or other capital stock or warrants or other securities or property thereafter
deliverable on the exercise of the Warrants. The subdivision, reverse split or
combination of shares of Common Stock at any time outstanding into a greater or
lesser number of shares shall not be deemed to be a reclassification of the
Common Stock for the purposes of this Section 10(f).
(g) In any case in which this Section 10 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event issuing
to the Warrantholder, if such Warrantholder exercised any Warrant after such
record date, shares of capital stock or warrant or other securities of the
Company, if any, issuable upon such exercise over and above the Shares issuable,
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the holder a due xxxx or other
appropriate instrument evidencing such holder's right to receive such shares of
capital stock or warrants or other securities upon the occurrence of the event
requiring such adjustment.
(h) The Shares and any other shares of capital stock or warrants or other
securities now or hereafter receivable upon exercise of this Warrant shall be
entitled to registration under the Securities Act of 1933 pursuant to the terms
of the Registration Rights Agreement attached to the Purchase Agreement as
Exhibit C thereto.
11. Fractional Shares
Upon exercise of the Warrants the Company shall not be required to issue
fractional shares of Common Stock or other capital stock. In lieu of such
fractional shares, the Warrantholder shall receive an amount in cash equal to
the same fraction of the (i) current Market Price of one whole Share if clause
(i), (ii) or (iii) in the definition of Market Price in Section 2 above is
applicable or (ii) book value of one whole Share as reported in the Company's
most recent audited financial statements if clause (iv) in the definition of
Market Price in Section 2 above is applicable. All calculations under this
Section 11 shall be made to the nearest cent.
12. Securities Act Legend
The Warrantholder shall not be entitled to any rights of a stockholder of
the Company with respect to any Shares purchasable upon the exercise hereof,
including voting, dividend or dissolution rights, until such Shares have been
paid for in full. As soon as practicable after such exercise, the Company shall
deliver a certificate or certificates for the securities issuable upon such
exercise, all of which shall be fully paid and nonassessable, to the person or
persons entitled to receive the same; provided, however, that, if applicable,
such certificate or certificates delivered to the holder of the surrendered
Warrant shall bear a legend reading substantially as follows:
7
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER SUCH ACT AND LAWS, IF APPLICABLE. THE COMPANY, PRIOR TO
PERMITTING A TRANSFER OF THESE SECURITIES, MAY REQUIRE AN OPINION OF
COUNSEL OR OTHER ASSURANCES SATISFACTORY TO IT AS TO COMPLIANCE WITH OR
EXEMPTION FROM SUCH ACT AND LAWS."
13. Notice of Adjustment
(a) Upon any adjustment of the Purchase Price, the number of Shares
issuable, or the securities or other property deliverable, upon exercise of this
Warrant, pursuant to Section 10 above, the Company, within 30 calendar days
thereafter, shall have on file for inspection by the Warrantholder a certificate
of the Board of Directors of the Company setting forth the Purchase Price after
such adjustment, the method of calculation thereof in reasonable detail, the
facts upon which such calculations were based and the number of Shares issuable,
or the securities or other property deliverable, upon exercise of the Warrants
after such adjustment in the Purchase Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) send a copy of such certificate to the Warrantholder.
(b) In case:
(i) the Company shall authorize the issuance to any holders of Common
Stock of rights, options or warrants to subscribe for or purchase capital stock
of the Company or of any other subscription rights, options or warrants; or
(ii) the Company shall authorize the payment of cash or stock
dividends to any holders of Common Stock, or other outstanding securities of the
Company, or the distribution to any holders of Common Stock, or other
outstanding securities of the Company, of evidences of its indebtedness or
assets; or
(iii) of any consolidation or merger to which the Company is a party
or the conveyance or transfer of all or substantially all of the properties and
assets of the Company or any capital reorganization or any reclassification of
the Common Stock (other than a change in par value or from a specified par value
to no par value or from no par value to a specified par value or as a result of
a subdivision or combination); or
8
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(v) the Company proposes to take any other action, which would require
an adjustment of the Purchase Price pursuant to Section 10 above or require the
vote of any of the Company's stockholders;
then, in each such case, the Company shall give to the Warrantholder at its
address appearing below at least 20 calendar days prior to the applicable record
date hereinafter specified in (A), (B), or (C) below, by first class mail,
postage prepaid, a written notice stating (A) the date as of which the holders
of record of shares of Common Stock entitled to receive any such rights,
options, warrants or distribution are to be determined or (B) the date on which
any such consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such consolidation, merger,
conveyance, transfer, reorganization, reclassification, dissolution, liquidation
or winding up or (C) the date of such action which would require an adjustment
of the Purchase Price or the vote of the Company's stockholders. The failure to
give the notice required by this Section 13(b) or any defect therein shall not
affect the legality or validity of any such issuance, distribution,
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation, winding up or other action or the vote upon any such
action.
Except as provided herein, nothing contained herein shall be construed as
conferring upon the Warrantholder the right to vote on any matter submitted to
the stockholders of the Company for their vote or to receive notice of meetings
of stockholders or the election of directors of the Company or any other
proceedings of the Company, or any rights whatsoever as a stockholder of the
Company.
14. Notices
Any notice, request, demand or other communication pursuant to the terms of
the Warrants shall be in writing and shall be sufficiently given or made when
delivered or mailed by first class or registered mail, postage-prepaid, to the
following addresses:
If to the Company:
Network-1 Security Solutions, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx, Chairman and Chief Executive Officer
9
with a copy to:
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxx Xxxxxxxx, Esq.
If to the Warrantholder, to the address of such Warrantholder provided to
the Company by such Warrantholder for the purpose of notices, or to such other
address or such other counsel as the Company or the Warrantholder may designate
by written notice to the other party.
15. Amendment and Modification
Unless otherwise provided herein, this warrant certificate may not be
amended, modified or supplemented in any respect unless by a written agreement
executed by the Company and a majority-in-interest of the Warrantholders issued
warrants pursuant to the Securities Purchase Agreement, dated December __, 2004
(based upon the aggregate number of Warrants held), provided that no such
amendment or modification shall unfairly discriminate against a particular
Warrantholder relative to other Warrantholders.
16. Miscellaneous
(a) All the covenants and provisions herein by or for the benefit of the
Company shall bind and inure to the benefit of its successors or assigns and all
of the covenants and provisions herein for the benefit of the Warrantholder
hereof shall inure to the benefit of its successors or assigns.
(b) This warrant certificate shall be deemed to be a contract made under
the laws of the State of New York for all purposes and shall be construed in
accordance with the laws of such State.
(c) Nothing in this warrant certificate shall be construed to give any
person or corporation other than the Company and the Warrantholder and its
permitted transferees any legal or equitable right, remedy or claim under this
warrant certificate; but this warrant certificate shall be for the sole and
exclusive benefit of the Company and the Warrantholder and its permitted
transferees.
10
IN WITNESS WHEREOF, an authorized office of the Company has signed and
delivered to the Warrantholder this warrant certificate as of the date first
written above.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: __________________________________
Xxxxx X. Xxxxxxxx, Chairman and
Chief Executive Officer
11
ELECTION TO PURCHASE
(To be executed by the registered holder if such holder desires to exercise the
within Warrants)
To: NETWORK-1 SECURITY SOLUTIONS, INC.
000 Xxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Chairman and Chief Executive Officer
The undersigned hereby (1) irrevocably elects to exercise his or its rights to
purchase _____ shares of Common Stock covered by the within Warrants, (2) makes
payment in full of he Purchase Price by enclosure of a certified check, (3)
requests that certificates for such shares be issued in the name of:
Please print name, address and Social Security or Tax Identification Number:
________________________________________________
________________________________________________
________________________________________________
and (4) if said number of shares shall not be all the shares evidenced by the
within Warrants, requests that a new warrant certificate for the balance of the
shares covered by the within Warrants be registered in the name of, and
delivered to:
Please print name and address:
________________________________________________
________________________________________________
________________________________________________
In lieu of receipt of a fractional share of Common Stock, the
undersigned will receive a check representing payment therefor.
Dated: _____________________ _________________________________
By: _____________________________
_____________________________
12
ASSIGNMENT
FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers unto
___________________________________________________________________________
[Please print or typewrite name, address and federal tax identification
___________________
number of Assignee] the within Warrants representing the right to purchase
___________ shares of common stock of Network-1 Security Solutions, Inc. (the
"Company"), and does hereby irrevocably constitute and appoint its attorney to
transfer the within Warrants on the books of the within named Company with full
power of substitution in the premises. In the event that less than all of the
within Warrants are assigned hereby, the Company is directed to issue in the
name of the undersigned a certificate for the Warrants not so assigned.
Dated: _____________________
_________________________________
In the Presence of: _______________________
13
EXHIBIT B
RISK FACTORS
We operate in a highly competitive environment that involves a number of
risks, some of which are beyond our control. The following discussion highlights
the most material of the risks. Capitalized terms herein have the same meaning
as set forth in the Securities Purchase Agreement except as otherwise provided.
WE HAVE A HISTORY OF LOSSES AND NO REVENUE FROM CURRENT OPERATIONS.
We have incurred substantial operating losses since our inception, which
has resulted in an accumulated deficit of $(41,897,000) as of September 30,
2004. For the years ended December 31, 2003 and 2002, we incurred net losses of
$(614,000) and $(5,905,000), respectively. For the quarter ended September 30,
2004, we incurred a net loss of ($280,000). We have financed our operations
primarily from the balance of funds from sales of equity and convertible debt
securities as well as the sale of our CyberWall PLUS security software
technology in May 2003. Since December 2002, when we discontinued our offering
of security software products and following the commencement of our new
technology licensing business in November 2003, we have not had material revenue
from operations and for the quarter ended September 30, 2004 we had no revenue
from operations. Our ability to achieve revenue and profitable operations is
dependent upon consummating licensing agreements with respect to our patented
technology. We may not be successful in achieving licensing agreements with
third parties and our failure to do so would have a material adverse effect on
our business, financial condition and results of operations. We may not be able
to achieve revenue or profitable operations from our new licensing business.
WE ARE DEPENDENT UPON THE PROCEEDS OF THIS OFFERING TO CONTINUE OUR
OPERATIONS.
We are dependent upon the proceeds of this offering to continue our
operations. We anticipate, based on our currently proposed plans and assumptions
relating to our operations (including the timetable of, costs and expenses
associated with our continued operations), that the proceeds of this offering
(assuming a minimum of $1.5 million of proceeds) will more likely than not be
sufficient to satisfy our operations and capital requirements for the next 12-18
months. There can be no assurance, however, that such funds will not be expended
prior thereto. In the event our plans change, or our assumptions change or prove
to be inaccurate (due to unanticipated expenses, difficulties, delays or
otherwise), we could have insufficient funds to support our operations prior to
12-18 months. Our inability to obtain additional financing when needed, absent
generating sufficient cash from licensing arrangements, would have a material
adverse effect on the Company, requiring us to curtail or possibly cease our
operations. In addition, any additional equity financing may involve substantial
dilution to the interests of our then existing stockholders.
OUR NEW LICENSING BUSINESS MAY NOT BE SUCCESSFUL.
In November 2003, we entered the technology licensing business as a result
of our acquisition of six patents relating to various telecommunications and
data networking technologies including, among others, patents covering the
transmission of audio, video and data over computer and telephony networks and
the delivery of remote power over Ethernet. Accordingly, we have a very limited
history in the technology licensing business upon which an evaluation of our
prospects and future performance can be made. Our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the
development, operation and expansion of a new business based on patented
technologies in a highly specialized and competitive market. We may not be able
to achieve revenue or profitable operations from our new licensing business.
OUR FUTURE SOURCE OF LICENSING REVENUE IS UNCERTAIN.
In February 2004, we initiated our first licensing efforts relating to the
technologies in our remote power patent (U.S. Patent No. 6,212,930) (the "Remote
Power Patent"). To date, we have not entered into any licensing agreements with
third parties with respect to our Remote Power Patent or our other patented
technologies. Our inability to consummate licensing agreements and achieve
revenue from our patented technologies would have a material adverse effect on
our operations and our ability to continue our business. In addition, in the
event we consummate license arrangements with third parties, such arrangements
are not likely to produce a stable or predictable stream of revenue in the
foreseeable future. Furthermore, the success of our licensing efforts depends
upon the strength of our intellectual property rights.
WE ARE CURRENTLY RELYING UPON THE EFFORTS OF THINKFIRE SERVICES USA, LTD.
TO CONSUMMATE LICENSING AGREEMENTS FOR OUR REMOTE POWER PATENT WITH CERTAIN
SELECT POTENTIAL LICENSEES.
On November 30, 2004, we entered into a Master Services Agreement (the
"Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which
ThinkFire has been granted the exclusive (except for us and related companies)
worldwide rights to negotiate license agreements for the Remote Power Patent
with respect to certain potential licenses agreed between the parties. Either we
or ThinkFire can terminate the Agreement upon 60 days notice for any reason or
upon 30 days notice in the event of a material breach. We have agreed to pay
ThinkFire a fee not to exceed 20% of the royalty payments received from license
agreements consummated by ThinkFire on our behalf. There is no assurance that
ThinkFire will be successful in consummating license agreements on our behalf or
that such agreements will result in significant royalty payments to us. Although
under the terms of the Agreement we have the right to seek potential licensees
for our Remote Power Patent on our own, we are currently relying upon the
efforts of ThinkFire to consummate license agreements for our Remote Power
Patent.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR PROPRIETARY
TECHNOLOGIES.
Our success is substantially dependent upon our proprietary technologies
and our ability to protect our intellectual property rights. We currently hold 6
patents issued by the U.S. Patent Office that relate to various
telecommunications and data networking technologies and include among other
things, patents covering the transmission of audio, voice and data over computer
2
and telephony networks and the delivery of remote XxX networks. We rely upon our
patents and trade secret laws, non-disclosure agreements with our employees,
consultants and third parties to protect our intellectual property rights. The
complexity of patent and common law, combined with our limited resources, create
risk that our efforts to protect our proprietary technologies may not be
successful. We cannot assure you that our patents will be upheld or that third
parties will not invalidate our patent rights. In the event our intellectual
property rights are not upheld, such an event would have a material adverse
effect on our company. In addition, there is a risk that third parties may
independently develop substantially equivalent or superior technologies.
ANY LITIGATION TO PROTECT OUR INTELLECTUAL PROPERTY OR ANY THIRD PARTY
CLAIMS TO INVALIDATE OUR PATENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS.
Our success depends on our ability to protect our intellectual property
rights. Accordingly, we may be subject to third-party claims seeking to
invalidate our patents, as is the case with the action commenced by PowerDsine
relating to our Remote Power Patent as discussed below. These types of claims,
with or without merit, may subject us to costly litigation and diversion of
management's focus. In addition, based on our limited financial resources, we
may not be able to pursue litigation as aggressively as competitors with
substantially greater financial resources. Based on our limited financial
resources, it may be necessary to engage third party professionals on a
contingency basis pursuant to which such parties would be entitled to share in
the proceeds of any successful enforcement of our intellectual property rights.
If third parties making claims against us seeking to invalidate our patent are
successful, they may be able to obtain injunctive or other equitable relief,
which effectively could block our ability to license or otherwise capitalize on
our proprietary technologies. Successful litigation against us resulting in a
determination that our patents are invalid would have a material adverse effect
on our company.
WE FACE UNCERTAINTY AS TO THE OUTCOME OF LITIGATION WITH POWERDSINE.
On March 31, 2004, PowerDsine Inc. ("PowerDsine") commenced an action
against us in the United District Court, Southern District of New York (Civil
Action No. 04 CV 2502) seeking a declaratory judgment that our Remote Power
Patent is invalid and is not infringed by PowerDsine and/or its customers.
PowerDsine further seeks an order permanently enjoining us (i) from making any
claims to any person or entity that PowerDsine's products infringe the Remote
Power Patent or contributes to infringement of the patent, (ii) from interfering
with or threatening to interfere with the importation, sale, license or use of
PowerDsine's XxX components or products, and (iii) from instituting or
prosecuting any lawsuit or proceeding placing at issue the right of PowerDsine,
its customers, licensees, successors, or assigns to import, use or sell
PowerDsine's XxX components or products. We believe our Remote Power Patent is
valid and that we have meritorious defenses to the action. On December 1, 2004,
we moved to dismiss the declaratory judgment action asserting, among other
things, that there is no actual case or controversy because PowerDsine did not
have reasonable apprehension of suit at the time the case was filed, nor does it
today, and therefore, the court lacks jurisdiction over the matter. We have
engaged in settlement discussions with PowerDsine in an effort to resolve the
litigation. In the event that we are unable to settle the litigation, we intend
to vigorously defend the lawsuit and take whatever actions are necessary to
protect our intellectual property. In the event, however, that the Court granted
the declaratory judgment and our patent was determined
3
to be invalid, such a determination would have a material adverse effect on us.
Regardless of the outcome, this litigation may subject us to significant costs
and diversion of management time.
MATERIAL LICENSING REVENUES FROM OUR REMOTE POWER PATENT MAY BE DEPENDENT
UPON THE APPLICABILITY OF THE IEEE STANDARD.
The Institute of Electrical and Electronic Engineers (IEEEE) is a
non-profit, technical professional association of more than 360,000 individual
members in approximately 175 countries. The Standards Association of the IEEE is
responsible for the creation of global industry standards for a broad range of
technology industries. In 1999, at the urging of several industry venders, the
IEEE formed a task force to facilitate the adoption of a standardized
methodology for the delivery of remote power over Ethernet networks which would
insure interoperability among vendors of switches and terminal devices. In June
2003, the IEEE Standards Association approved the 802.3af Power Over Ethernet
standard (the "Standard"), which covers technologies deployed in delivering
power over Ethernet cables including whether deployed in switches or as
standalone midspan hubs both of which provide power to remote devices including
wireless access points, IP phones and network based cameras. The technology is
commonly referred to as Power Over Ethernet ("XxX"). We believe our Remote Power
Patent covers several of the key technologies covered by the Standard. However,
there is a risk that as a result of litigation a court may determine otherwise
and such a determination would limit our ability to enter into license
agreements and achieve revenue and profits from our Remote Power Patent.
WE FACE INTENSE COMPETITION AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE.
The telecommunications and data networking market is characterized by
intense competition and rapidly changing business conditions, customer
requirements and technologies. Our current and potential competitors have longer
operating histories, greater name recognition and possess substantially greater
financial, technical, marketing and other competitive resources than us.
Although we believe that we have rights to enforceable patents relating to
telecommunications and data networking, there can be no assurance that third
parties will not invalidate any or all of our patents. In addition, the
telecommunications and data networking industries may develop technologies that
may be more effective than our proprietary technologies or that render our
technologies less marketable or obsolete.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND OUR TECHNOLOGIES
FACE POTENTIAL TECHNOLOGY OBSOLESCENCE.
The telecommunications and data networking technology market including,
transmission of audio, video and data over computer and telephony networks and
the delivery of remote power over Ethernet markets, are characterized by rapid
technological changes, changing customer requirements, frequent new product
introductions and enhancements, and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards may render our technologies obsolete or less marketable. To
the extent we are able to achieve revenue in the future, such revenue will be
derived from licensing our technologies based on existing and evolving industry
standards.
4
DEPENDENCE UPON CEO AND CHAIRMAN.
Our success will largely be dependent upon the personal efforts of Xxxxx X.
Xxxxxxxx, Chairman and Chief Executive Officer and Chairman of the Board of
Directors. On November 26, 2004, we entered into a two (2) year employment
agreement with Xx. Xxxxxxxx pursuant to which he will continue to serve as our
Chairman and Chief Executive Officer. We do not maintain key man life insurance
on the life of Xx. Xxxxxxxx. The loss of the services of Xx. Xxxxxxxx could have
a material adverse effect on our business and prospects.
RISKS RELATED TO LOW PRICED STOCKS.
Our common stock currently trades on the OTC Bulletin Board under the
symbol NSSI.OB. Since the trading price of our common stock is below $5.00 per
share, our common stock is considered a xxxxx stock. SEC regulations generally
define a xxxxx stock to be an equity security that is not listed on Nasdaq or a
national securities exchange and that has a market value of less than $5.00 per
share, subject to certain exceptions. SEC regulations require broker-dealers to
deliver to a purchaser of our common stock a disclosure schedule explaining the
xxxxx stock market and the risks associated with it. Various sales practice
requirements are also imposed on broker-dealers who sell xxxxx stocks to persons
other than established customers and accredited investors (generally
institutions). Broker-dealers must also provide the customer with current bid
and offer quotations for the xxxxx stock, the compensation of the broker-dealer
and monthly account statements disclosing recent price information for the xxxxx
stock held in the customer's account.
THE SIGNIFICANT NUMBER OF OPTIONS AND WARRANTS OUTSTANDING MAY ADVERSELY
EFFECT THE MARKET PRICE FOR OUR COMMON STOCK.
As of December 15, 2004, there are outstanding (i) options and warrants to
purchase an aggregate of 7,452,375 shares of our common stock at exercise prices
ranging from $.12 to $10.13, and (ii) 257,630 additional shares of our common
stock which may be issued in the future under our stock option plan. To the
extent that outstanding options and warrants are exercised, your percentage
ownership will be diluted and any sales in the public market of the common stock
underlying such options may adversely affect prevailing market prices for our
common stock.
WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK,
WHICH MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.
Our Board of Directors has the authority, without further action by the
stockholders, to issue 10,000,000 shares of preferred stock on such terms and
with such rights, preferences and designations as our Board of Directors may
determine. Such terms may include restricting dividends on our common stock,
dilution of the voting power of our common stock or impairing the liquidation
rights of the holders of our common stock. Issuance of such preferred stock,
depending on the rights, preferences and designations thereof, may have the
effect of delaying, deterring or preventing a change in control. In addition,
certain "anti-takeover" provisions in Delaware law may restrict the ability of
our stockholders to authorize a merger, business combination or change of
control.
5
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December __,
2004, among Network-1 Security Solutions, Inc., a Delaware corporation (the
"Company"), and the Persons (as hereinafter defined) identified on Schedule 1
hereto (the "Investors"). This Agreement is made pursuant to the Securities
Purchase Agreement dated December 21, 2004, by and among the Company and the
Investors (the "Securities Purchase Agreement"). The Company has agreed to
provide the Investors and any transferees and subsequent purchasers of
Registrable Securities (as hereinafter defined) that may be issued, from time to
time, the registration rights with respect to the Registrable Securities, as set
forth in this Agreement. Capitalized terms used herein without definition shall
have the meanings set forth in the Securities Purchase Agreement.
The parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized terms shall have the
following meanings:
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Effectiveness Period" shall have the meaning ascribed thereto in Section 3
hereof.
"Filing Date" means, with respect to the Registration Statement required to
be filed hereunder, on or before June 21, 2005.
"Holder" shall mean an Investor or its respective transferee, who is the
owner of Registrable Securities.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint state company trust, unincorporated
organization, joint venture, a government authority or other entity of whatever
nature.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments to the Registration
Statement of which such Prospectus is a part, and all material incorporated by
reference in such Prospectus.
"Registrable Securities" shall mean (i) the Securities as defined in this
Section 1, or (ii) stock issued in respect of securities referred to in clause
(i) in any reorganization; or (iii) stock issued in respect of the securities
referred to in clauses (i) or (ii) as a result of a stock split, stock dividend,
recapitalization or combination.
"Registration Expenses" shall have the meaning ascribed thereto in Section
5 hereof.
"Registration Statement" means any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits, and
all material incorporated by reference in such Registration Statement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean any and all shares of Common Stock, issued or to be
issued, to Investors pursuant to the Securities Purchase Agreement including
shares of Common Stock to be issued upon the exercise of Warrants.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
2. Securities Subject to this Agreement. The Securities entitled to the
benefits of this Agreement are the Registrable Securities.
3. Registration.
(a) On or prior to the Filing Date, the Company shall prepare and file with
the SEC the Registration Statement covering the resale of all of the Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement required hereunder shall be on Form S-3 (except
if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case the Registration shall be on another
appropriate form in accordance herewith). Subject to the terms of this
Agreement, the Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, and shall use its best efforts to keep the
Registration Statement continuously effective under the Securities Act until the
date when all Registrable Securities covered by the Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion to such
effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "Effectiveness Period").
4. Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:
(a) In accordance with the Securities Act and the rules and regulations of
the SEC, prepare and file with the SEC a Registration Statement in the form of
an appropriate registration statement with respect to the Registrable Securities
and use its best efforts to cause such Registration Statement to become and
remain continuously effective for the Effectiveness Period;
2
(b) Furnish to each Holder participating in such registration (each of such
Persons being referred to herein as a "Participant" in such registration) such
reasonable number of copies of the Registration Statement and Prospectus and
such other documents as such Participant may reasonably request in order to
facilitate the public offering of the Registrable Securities;
(c) Use its best efforts to register or qualify the Securities covered by
such Registration Statement under such state securities or blue sky laws of such
jurisdictions as such Participants may reasonably request; provided, however,
that the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation in any jurisdiction in which
it is not so qualified or to subject itself to taxation in connection with any
such registration or qualification of such Securities;
(d) Notify the Participants in such registration, promptly after it shall
receive notice thereof, of the date and time when such Registration Statement
and each post-effective amendment thereto has become effective or a supplement
to any Prospectus forming a part of such Registration Statement has been filed;
(e) Notify the Participants in such registration promptly of any request by
the SEC for the amending or supplementing of such Registration Statement or
Prospectus or for additional information;
(f) Prepare and file with the SEC, promptly upon the request of any
Participant in such registration, the Registration Statement and any amendments
or supplements to such Registration Statement or Prospectus that, in the
reasonable opinion of counsel for such Participants, is required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of the Securities by such Participants or to otherwise comply with
the requirements of the Securities Act and such rules and regulations;
(g) Prepare and promptly file with the SEC and promptly notify the
Participants in such registration of the filing of such amendments or
supplements to such Registration Statement or Prospectus as may be necessary to
correct any statements or omissions if, at the time when a Prospectus relating
to such Securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such Prospectus or any other
Prospectus then in effect may include an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(h) Advise the Participants in such registration, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(i) Otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make generally available to the Company's security
holders earnings
3
statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than forty-five (45) days after the end of any twelve (12) month period
(or ninety (90) days, if such a period is a fiscal year) beginning with the
first month of the Company's first fiscal quarter commencing after the effective
date of a Registration Statement;
(j) Not file any amendment or supplement to such Registration Statement or
Prospectus to which a majority in interest of the Participants in such
registration has reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of the
Securities Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least three (3) business days prior to the
filing thereof unless the Company shall have been advised in writing by its
counsel that such amendment is required under the Securities Act or the rules or
regulations adopted thereunder in connection with the distribution of Securities
by the Company or the Participants.
5. Expenses of Registration. Except as provided in the following sentence,
all expenses of the Company incident to the Company's performance of or
compliance with the provisions of Sections 3 and 4 of this Agreement shall be
borne by the Company including without limitation:
(a) All registration and filing fees (exclusive of underwriting discounts
and commissions);
(b) Fees and expenses of compliance with all securities or blue sky laws
(including fees and disbursements of counsel for the Company in connection with
blue sky qualifications of the Registrable Securities), provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation in any jurisdiction in which it
is not so qualified or to subject itself to taxation in connection with any such
registration or qualification of such Registrable Securities;
(c) Printing, messenger, telephone and delivery expenses; and
(d) Fees and disbursements of the Company's counsel and independent
auditors; and
(e) All other expenses of registration, including fees and disbursements of
one counsel for the Holders of the Registrable Shares with respect to each
registration of such securities pursuant to this Agreement.
Nothing in this Section 8 shall be deemed to require the Company to pay or
bear any expenses of more than one counsel for the Participants or accountants
for the Participants or any other personal expenses or any underwriting
discounts, selling commissions or similar fees of the Participants, except as
otherwise set forth herein.
6. Indemnification and Contribution.
(a) Indemnification by the Company. Whenever, pursuant to Section 3 a
Registration Statement relating to the Registrable Securities is filed under the
Securities Act, the
4
Company will (except as to matters covered by Section 10(b) hereof) indemnify
and hold harmless each Participant in the registration, each of their partners,
members, shareholders, officers, directors and employees, each underwriter of
Registrable Securities, and each Person, if any, who controls any such Person
(collectively, the "Participant Indemnitees" and, individually, a "Participant
Indemnitee"), against any losses, claims, damages or liabilities, joint or
several, to which such Participant Indemnitees may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or Prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless any such
statement or omission is based on written information provided by the
Participant Indemnitee, or a representation of a Participant Indemnitee made in
writing, that such Participant Indemnitee has requested be included in such
Registration Statement or Prospectus, and will reimburse each Participant
Indemnitee for all legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action.
(b) Indemnification by Participants. Each Participant in such registration
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement and each other Person, if
any, who controls the Company, within the meaning of the Securities Act, each
underwriter of Registrable Securities and each Person, if any, who controls any
such underwriter within the meaning of the Securities Act (collectively, the
"Company Indemnitees" and, individually, a "Company Indemnitee") and each other
Participant Indemnitee against all losses, claims, damages or liabilities, joint
or several, to which any of the Company Indemnitees or the other Participant
Indemnitees may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement, or Prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only if, and to the extent that, such statement or omission was
in reliance upon and in conformity with written information furnished to the
Company by such participant specifically for use in the preparation thereof.
Notwithstanding the foregoing, the indemnification obligation of each
Participant herein shall be limited to the net proceeds received by such
Participant in the offering of the Registrable Securities effected by the
Registration Statement.
5
(c) Indemnification Procedures. Promptly after receipt by a Participant
Indemnitee or a Company Indemnitee (collectively, "Indemnitees" and,
individually, an "Indemnitee") under Section 6(a) or 6(b) hereof of notice of
the commencement of any action, such Indemnitee will, if a claim in respect
thereof is to be made against the indemnifying party under such clause, notify
the indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve the indemnifying party from
any liability that it may have to any Indemnitee except to the extent such
omission resulted in actual detriment to the indemnifying party, nor shall such
omission relieve the indemnifying party from any liability it may have to any
Indemnitee otherwise than under such clauses. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party a release from all liability in
respect of such claim or litigation. In case any such action shall be brought
against any Indemnitee, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such Indemnitee, and after notice from the indemnifying party to
such Indemnitee of its election to assume the defense thereof, the indemnifying
party shall not be liable to such Indemnitee under such clause for any legal or
other expenses subsequently incurred by such Indemnitee in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that the Indemnitee shall have the right to employ one counsel to represent such
Indemnitee if, in the reasonable judgment of such Indemnitee, it is advisable
for such party to be represented by separate counsel because separate defenses
are available, or because a conflict of interest exists between such indemnified
and indemnifying party in respect of such claim, and in that event the fees and
expenses of such separate counsel shall be paid by the indemnifying party.
Notwithstanding the foregoing, if the Company is an Indemnitee, the Company
shall designate the one counsel, and in all other circumstances, the one counsel
shall be designated by a majority in interest based upon the aggregate amount of
Registrable Securities of the Indemnitees. For purposes of this Section 6 the
terms "control," and "controlling person" have the meanings that they have under
the Securities Act.
(d) Contribution. If for any reason the foregoing indemnity is unavailable,
or is insufficient to hold harmless an Indemnitee, then the indemnifying party
shall contribute to the amount paid or payable by the Indemnitee as a result of
such losses, claims, damages, liabilities or expenses (i) in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the Indemnitee on the other from the registration or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, or provides a lesser sum to the Indemnitee than the amount
hereinafter calculated, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand and the
Indemnitee on the other but also the relative fault of the indemnifying party
and the Indemnitee as well as any other relevant equitable considerations. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
6
(e) Survival of Indemnification Obligations. The indemnification provided
by this Section 6 shall be a continuing right to indemnification and shall
survive the registration and sale of any Registrable Securities by any person
entitled to indemnification hereunder and the expiration or termination of this
Agreement.
7. Amendment and Modification. This Agreement may be amended, modified or
supplemented in any respect only by written agreement by the Company and Holders
owning a majority of the issued and outstanding Registrable Securities (provided
that no such amendment shall unfairly discriminate against a particular Holder
relative to the other Holders).
8. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York, without giving effect to the
choice of law principles thereof.
9. Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
10. Notices. All notices and other communications hereunder shall be in
writing and, unless otherwise provided herein, shall be deemed duly given if
delivered personally or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses or (at such other address
for the party as shall be specified by like notice):
(a) If to the Company:
Network-1 Security Solutions, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Chairman and Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxx Xxxxxxxx, Esq.
or as the Company shall designate to the Investors in writing,
(b) If to a Holder, as listed on the signature pages attached hereto or as
such Holder shall designate to the Company in writing,
11. Headings; Execution in Counterparts. The headings and captions
contained herein are for convenience of reference only and shall not control or
affect the meaning or construction of
7
any provision hereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
12. Entire Agreement. This Agreement, including any exhibits hereto and the
documents and instruments referred to herein and therein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
13. Attorneys' Fees. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover such reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled, as may be ordered in connection with such
proceeding.
14. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their successors and assigns.
[Signatures begin on the following page.]
8
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
herein above set forth.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: _______________________________
Xxxxx X. Xxxxxxxx
Chairman and Chief Executive Officer
INVESTORS:
EMIGRANT CAPITAL CORPORATION
By: _______________________________
____________________________________
Xxxxx X. Xxxxxx
____________________________________
Xxxxxxx X. Xxxxx
____________________________________
Xxxx X. Xxxx
____________________________________
Xxxxx X. Xxxxxxxxx
____________________________________
Xxxxxxx May
____________________________________
Xxxxxxx X. Xxxxxxx, Xx.
____________________________________
Xxxxxx Xxxxxxxx
9
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
Singer Opportunity Fund LLC
By: ________________________________
The Singer Fund LLC
By: ________________________________
CGA Resources, LLC
By: ________________________________
Cass Xxxxxxx Xxxxxxx, Sole Member
The Granite Fund, L.P.
By: __________________________________
_____________________________________
Xxxxxxx Xxxx
10
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
Dasa Xxxx, LLC
By: _______________________________
Xxxxxx Xxxxxxxx
____________________________________
Xxxxxx Xxxxxxxx
11
SCHEDULE 1
NAME AND ADDRESS OF INVESTOR
----------------------------
Emigrant Capital Corporation
0 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Singer Opportunity Funds, LLC
000 Xxxxx Xxxxxx
Xxxxx 000
XX, XX 00000
Singer Fund, LLC
000 Xxxxx Xxxxxx
Xxxxx 000
XX, XX 00000
Xxxxx X. Xxxxxx
0000 Xxxxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Xxxxxx Xxxxxxxx
00 Xxxxxxxxx Xxxx
Xxxxx Xxxxx, XX 00000
Xxxxxxx X. Xxxxx
0 Xxxx Xxxxxx Xxxxx
Xxx Xxxxxxxxxx, Xxx Xxxx 00000
Xxxx X. Xxxx
000 Xxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Granite Fund, L.P.
0000 X. Xxxxxxxx Xxxx.
Xxxxxxxxxx, Xxxxxxx 00000
CGA Resources, LLC
00 Xxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Xxxxx X. Xxxxxxxxx
000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx
12
Dasa Xxxx, LLC
0000 Xxx Xxxxx Xxxxx Xxxx
Xxxxx Xxxxxxxxxx, Xxx Xxxx 00000
Xxxxxx Xxxxxxxx
0000 Xxx Xxxxx Xxxxx Xxxx
Xxxxx Xxxxxxxxxx, Xxx Xxxx 00000
Xxxxxxx May
000 Xxx Xxxx Xxxx
Xxxxxx, Xxxxxxxxxxx 00000
Xxxxxxx Xxxx
000 Xxxx 00xx Xx
Xxx Xxxx, Xxx Xxxx
Xxxxxxx X. Xxxxxxx, Xx.
00 Xxxxx Xxxxx
Xxxx Xxxx Xxxxx 00000
13
EXHIBIT D
FORM OF LEGAL OPINION
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP, counsel to the Company,
will provide a legal opinion substantially covering the following matters:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
2. The Common Stock has been duly authorized, and when issued and paid for,
will be validly issued, fully paid and non-assessable. The Warrants have been
duly authorized, and when issued and paid for, will be validly issued and the
Company has reserved the Warrant Shares for issuance upon exercise of the
Warrants. Upon issuance and delivery and payment therefor of the Warrant Shares
upon exercise of the Warrants, the Warrant Shares will be duly authorized,
validly issued, fully paid and non-assessable.
3. The Company has the corporate power and authority to execute, deliver
and perform its obligations under the Transaction Documents. Each of the
Transaction Documents has been duly authorized, executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms.
4. The execution, delivery and performance of the Transaction Documents and
issuance of the Common Stock, Warrants and Warrant Shares by the Company will
not: (a) violate any federal or state law or regulation applicable to the
Company; (b) violate or be in conflict with the Certificate of Incorporation or
Bylaws of the Company; or (c) to the best of counsel's knowledge, (i) violate
any order of any court or other agency of government binding on the Company,
(ii) violate or constitute (with or without due notice and/or lapse of time) a
default under the terms of any agreement, indenture, or other instrument to
which the Company is a party or by which it or its property is bound, or (iii)
result in the creation or imposition of any lien, charge or encumbrance of any
nature upon any of the property or assets of the Company.
