STOCK OPTION AGREEMENT
EXHIBIT
4.1
STOCK
OPTION AGREEMENT, dated as of
[ ],
(this "Stock Option
Agreement") by and between Network-1 Security Solutions, Inc., a Delaware
corporation with principal executive offices at 000 Xxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxx, Xxx Xxxx 00000 ("Network-1"), and
[ ].
WHEREAS,
[ ];
and
NOW
THEREFORE, in consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Grant of
Option.
Network-1
hereby grants to
[ ]
an option (the "Option") to purchase,
out of its authorized but unissued shares of Common Stock,
shares of Common Stock (the shares of Common Stock purchased or purchasable
pursuant to the Option, subject to adjustment as set forth herein, being
referred to as the "Option Shares"), at
an exercise price per share equal to
(such exercise price, subject to adjustment as set forth herein, being referred
to as the "Exercise
Price", or in the aggregate, the "Aggregate Exercise Price").
[ ]
and/or his permitted transferees or assigns are hereinafter referred to as
"Holder".
2. Vesting;
Term and Exercise of Option.
(a) The Option Shares shall vest
.
(b) The Option granted hereby may be
exercised in whole or in part as to any or all vested Option Shares at any time
from [ ] through
[ ]
(the "Expiration
Date") by Holder’s
presentation of this Option, with the Exercise Form attached hereto duly
executed, at Network-1’s office (or such office or agent of Network-1 as it may
designate in writing to the Holder hereof by notice pursuant to Section 13
hereof), specifying the number of Option Shares as to which the Option is being
exercised.
3. Issuance of
Option Shares[; Cashless Exercise]
(a) Upon surrender of
the Option and payment of the Exercise Price as provided herein, Network-1 shall
issue and deliver with all reasonable dispatch the certificate(s) for the Option
Shares to or upon the written order of the Holder and in such name or names as
the Holder may designate. Such certificate(s) shall represent the number of
Option Shares issuable upon the exercise of the Option, together with a cash
amount in respect of any fraction of a share otherwise issuable upon such
exercise.
[(b) In lieu of paying
the Aggregate Exercise Price in cash and/or upon exercise of the Option, the
Holder may elect a “cashless exercise” in which event the Holder will receive
upon exercise a reduced number of Option Shares equal to (i) the number of
Option Shares that would be issuable pursuant to the Option upon payment of the
Aggregate Exercise Price minus (ii) the number of Option Shares that have an
aggregate Market Price (as defined below) equal to the Aggregate Exercise
Price.]
(c) Unless otherwise provided herein, for
purposes of any computations made in this Stock Option Agreement, "Market Price"
per share of shares of Common Stock on any date shall be: (i) if the shares of
Common Stock are 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 shares of Common Stock are not listed or admitted for
trading on any national securities exchange, the average of the last reported
closing bid and asked
quotation for the shares of Common
Stock as reported on the Nasdaq Stock Market’s National Market ("NNM") or Nasdaq
Stock Market’s Small Cap Market ("NSM") or a comparable service if NNM or NSM
are not reporting such information; (iii) if the shares of Common Stock are not
listed or admitted for trading on any national securities exchange, NNM or NSM
or a comparable system, the average of the last reported bid and asked quotation
for the shares of Common Stock as quoted by a market maker in the shares of
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
shares of Common Stock are 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
shares of Common Stock, the fair market value of such shares as determined in
good faith by the Board of Directors of Network-1.
(d) Certificates representing the Option
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 Option
Shares as of the date of the surrender of the Option and payment of the
Aggregate Exercise Price as provided herein; notwithstanding that the transfer
books for the Option Shares or other classes of stock purchasable upon the
exercise of the Option shall then be closed or the certificate(s) for the Option
Shares in respect of which the Option is then exercised shall not then have been
actually delivered to the Holder. As soon as practicable after each such
exercise of the Option, Network-1 shall issue and deliver the certificate(s) for
the Option Shares issuable upon such exercise, registered as requested. In the
event that only a portion of the Option is exercised at any time prior to the
close of business on the Expiration Date, a new option shall be issued to the
Holder for the remaining number of Option Shares purchasable pursuant hereto.
Network-1 shall cancel the Option when they are surrendered upon
exercise.
(e) Prior to due presentment for
registration of transfer of the Option, Network-1 shall deem and treat the
Holder as the absolute owner of the Option (notwithstanding any notation of
ownership or other writing on this Option Agreement made by anyone other than
Network-1) for the purpose of any exercise hereof or any distribution to the
Holder and for all other purposes, and Network-1 shall not be affected by any
notice to the contrary.
4. Lost,
Stolen, or Mutilated Option
In case
this Option shall be mutilated, lost, stolen or destroyed, Network-1 shall issue
and deliver, in exchange and substitution for and upon cancellation of the
mutilated Option, or in lieu of and substitution for the Option lost, stolen or
destroyed, a new Option of like tenor and representing an equivalent number of
Option Shares purchasable upon exercise, but only upon receipt of evidence
reasonably satisfactory to Network-1 of such mutilation, loss, theft or
destruction of such Option and reasonable indemnity, if requested, also
reasonably satisfactory to Network-1. No bond or other security shall be
required from Holder in connection with the replacement by Network-1 of a lost,
stolen or mutilated warrant certificate.
5. Rights Upon
Expiration
Unless
the Option is surrendered and payment made for the Option Shares as herein
provided before the close of business on the Expiration Date, this Option will
become wholly void and all rights evidenced hereby will terminate after such
time.
6. Exchange of
Option
This
Option may be exchanged for a number of Options of the same tenor as this Option
for the purchase in the aggregate of the same number of Option Shares of
Network-1 as are purchasable upon the exercise of this Option, upon surrender
hereof at the office of Network-1 with written instructions as to the
denominations of the Options to be issued in exchange.
7. Adjustment
for Certain Events
(a) In case Network-1 shall at any time
after the date hereof (i) declare a dividend on its shares of Common Stock
payable in shares of Network-1's capital stock (whether in shares of Common
Stock or of capital stock of any other class), (ii) subdivide its outstanding
shares of Common Stock, (iii) reverse split its outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue any shares of Network-1's
capital stock in a reclassification of shares of Common Stock (including any
such reclassification in connection with a consolidation or merger in which
Network-1 is the continuing corporation), then, in each case, the Exercise 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 Option on such
date, shall be proportionately adjusted so that the holder of the Option
exercised after such time shall be entitled to receive the aggregate number and
kind of securities which, if such Option 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. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case Network-1
shall fix a record date for the making of a distribution to all holders Common
Stock (including any such distribution made in connection with a consolidation
or merger in which Network-1 is the continuing corporation) of evidences of
indebtedness or assets (other than cash dividends or cash distributions payable
out of earnings, consolidated earnings, if Network-1 shall have one or more
subsidiaries, or earned surplus, or dividends payable in Common Stock) or
rights, options or warrants to subscribe for or purchase Common Stock, then, in
each case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, of which the numerator shall be the current Market
Price for one 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 one share of Common Stock. In the event that Network-1 and the
Holder 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
Network-1 and the Holder, and the reasonable costs of such appraiser shall be
borne by Network-1. Such adjustment shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Exercise Price shall again be adjusted to be the Exercise Price which would
then be in effect if such record date had not been fixed.
(c) No adjustment in the Exercise 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 7(c) is not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 7 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 Network-1 be obligated to issue
fractional shares of Common Stock or fractional portions of any securities
issuable upon the exercise of the Option.
(d) In the event that at any time, as a
result of an adjustment made pursuant to Section 7 hereof, the Holder of the
Option thereafter exercised shall become entitled to receive any shares of
capital stock, options, warrants or other securities of Network-1 other than the
shares of Common Stock, thereafter the number of such other shares of capital
stock, options, warrants or other securities so receivable upon exercise of this
Option 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
of Common Stock contained in this Section 7, and the provisions of this Option
Agreement with respect to the shares of Common Stock shall apply, to the extent
applicable, on like terms to any such other shares of capital stock, options or
warrants or other securities.
(e) Upon each adjustment
of the Exercise Price as a result of calculations made in this Section 7, the
Option outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of Option Shares (calculated to the nearest hundredth), obtained by (i)
multiplying the number of Option Shares purchasable upon exercise of the Option
immediately prior to such adjustment of the Exercise Price by the Exercise Price
in effect immediately prior to such adjustment and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment of
the Exercise Price.
(f) In
case of any capital reorganization of Network-1 or of any reclassification of
shares of Common Stock (other than as a result of subdivision or combination) or
in case of the consolidation of Network-1 with, or the merger of Network-1 into,
any other corporation (other than a consolidation or merger in which Network-1
is the continuing corporation) or of the sale of the properties and assets of
Network-1 as, or substantially as, an entirety, the Option 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, options or warrants or other securities or
property to which a Holder (at the time of such reorganization,
reclassification, consolidation, merger or sale) upon exercise of such Option
would have been entitled upon such reorganization, reclassification,
consolidation, merger or sale; and in any such case, if necessary, the
provisions set forth in this Section 7(f) with respect to the rights and
interests thereafter of the Holder 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 options, warrants or other securities or property
thereafter deliverable upon the exercise of the Option. 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 7(f).
(g) In
any case in which this Section 7 shall require that an adjustment in the
Exercise Price be made effective as of a record date for a specified event,
Network-1 may elect to defer until the occurrence of such event issuing to the
Holder, if such Holder exercised any portion of this Option after such record
date, shares of capital stock or other securities of Network-1, if any, issuable
upon such exercise over and above the shares of Common Stock or other securities
issuable, on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that Network-1 shall deliver to the holder a due xxxx or
other appropriate instrument evidencing such Holder's right to receive such
shares of Common Stock or other securities upon the occurrence of the event
requiring such adjustment.
8. Fractional
Shares
Upon
exercise of the Option, Network-1 shall not be required to issue fractional
shares of Common Stock or other capital stock. In lieu of such fractional
shares, the Holder shall receive an amount in cash equal to the same fraction of
the (i) current Market Price of one whole share of Common Stock if clause (i),
(ii) or (iii) in the definition of Market Price in Section 3(c) hereof is
applicable or (ii) book value of one whole shares of Common Stock as reported in
Network-1's most recent audited financial statements if clause (iv) in the
definition of Market Price in Section 3 above is applicable. All calculations
under this Section 8 shall be made to the nearest cent.
9. Securities
Act Legend
The
Holder shall not be entitled to any rights of a stockholder of Network-1 with
respect to any Option Shares purchasable upon the exercise of this Option,
including voting, dividend or dissolution rights, until such Option Shares have
been paid for in full. As soon as practicable after such exercise, Network-1
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 the Option
Shares are not registered under the Securities Act, such certificate or
certificates delivered to the Holder of the surrendered Option shall bear a
legend reading substantially as follows:
"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. Network-1, 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."
10. Transfer
This
Option is not transferable except to a permitted transferee as provided in
Network-1’s 1996 Stock Option Plan, as amended, or by will or the laws of
descent distribution. With respect to any such transfer, sale or assignment,
Holder shall execute and deliver to Network-1 the Form of Assignment attached
hereto.
11. Taxes;
Expenses
Network-1
shall pay all taxes and expenses that may be payable in connection with the
preparation, issuance and delivery of Options Shares under this Stock Option
Agreement.
12. Notice of
Adjustment
(a) Upon any adjustment of the Exercise
Price pursuant to Section 7 hereof, Network-1, within 30 calendar days
thereafter, shall have on file for inspection by the Holder a certificate of the
Board of Directors of Network-1 setting forth the Exercise Price after such
adjustment, the method of calculation thereof in reasonable detail, the facts
upon which such calculations were based and the number of Option Shares issuable
upon exercise of the Option after such adjustment in the Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein.
(b) In case:
(i) Network-1 shall authorize the issuance
to all holders of shares of Common Stock of rights, options, warrants or other
securities to subscribe for or purchase capital stock of Network-1 or of any
other subscription rights, options, warrants or other securities;
or
(ii) Network-1 shall authorize the
distribution to all holders of shares of Common Stock of evidences of its
indebtedness or assets; or
(iii) of any consolidation or merger to which
Network-1 is a party and for which approval of any stockholders of Network-1 is
required, of the conveyance or transfer of the properties and assets of
Network-1 substantially as an entirety or of any capital reorganization or any
reclassification of the shares of Common Stock; or
(iv) of the voluntary or involuntary
dissolution, liquidation or winding up of Network-1; or
(v) Network-1 proposes to take any other
action which would require an adjustment of the Exercise Price pursuant to
Section 7 above;
then, in
each such case, Network-1 shall give to the Holder 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 Exercise Price.
The failure to give the notice required by this Section 12 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
Holder the right to vote on any matter submitted to the stockholders of
Network-1 for their vote or to receive notice of meetings of stockholders or the
election of directors of Network-1 or any other proceedings of Network-1, or any
rights whatsoever as a stockholder of Network-1.
13. Notices
Any
notice, request, demand or other communication pursuant to the terms of this
Stock Option Agreement 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
Network-1:
Network-1
Security Solutions, Inc.
000 Xxxx
Xxxxxx, Xxxxx 0000
Xxx Xxxx,
Xxx Xxxx 00000
with a
copy to:
Xxxxxxx
Xxxxxx Xxxxxxxxx & Kakoyiannis, P.C.
000 Xxxxx
Xxxxxx, 00xx Xxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attn: Xxx
Xxxxxxxx, Esq.
If to
Holder:
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14. Miscellaneous
(a) Waiver.
At any time the parties hereto may (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein by the other
party or (c) waive compliance with any of the agreements or conditions contained
herein. No failure on the part of any party to exercise any power, right,
privilege or remedy under this Stock Option Agreement, and no delay on the part
of any party in exercising any power, right, privilege or remedy under this
Stock Option
Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. No party shall be deemed to have waived any claim arising
out of this Stock Option Agreement, or any power, right, privilege or remedy
under this Stock Option Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of such party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
(b) Entire
Agreement. Except as
otherwise set forth in this Stock Option Agreement and the other documents
referred to herein, collectively contain the entire understanding of the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings, oral and written, with respect
thereto.
(c) Binding
Effect; Benefit. This
Stock Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and nothing in this Stock Option Agreement, expressed or implied,
is intended to confer on any person or entity other than the parties hereto or
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Stock Option
Agreement.
(d) Amendment
and Modification. Subject
to applicable law, this Stock Option Agreement may only be amended, modified and
supplemented by a written agreement duly executed the parties
hereto.
(e) Further
Actions. Network-1 shall
use its best efforts to take, or cause to be taken, all appropriate action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereunder and to carry out the interest and purposes
of this Stock Option Agreement, including, without limitation, using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental
entities.
(f) Applicable
Law. This Stock Option
Agreement and the legal relations between the parties hereto shall be governed
by, and construed in accordance with, the laws of the State of New York, without
regard to the conflicts of laws rules thereof.
(g) Dispute
Resolution. The parties
hereto will use their best efforts to resolve by mutual agreement any disputes,
controversies or differences that may arise from, under, out of or in connection
with this Agreement. If any such disputes, controversies or differences cannot
be settled between the parties hereto, they will be finally settled by final and
binding arbitration to be conducted by an arbitration tribunal in New York City,
New York, pursuant to the rules of the American Arbitration Association. The
arbitration tribunal will consist of three arbitrators. The decision or award of
the arbitration tribunal will be final, and judgment upon such decision or award
may be entered in any competent court or application may be made to any
competent court for judicial acceptance of such decision or award and an order
of enforcement. In the event of any procedural matter not covered by the
aforesaid rules, the procedural law of New York will govern. The prevailing
party in arbitration shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
(h) Severability. Any term or provision of this Stock
Option Agreement that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction. If the
final judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the parties hereto agree that the
court making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration or area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Stock Option Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be
appealed.
(i) Non-exclusivity. The rights and remedies of Network-1
and Holder under this Stock Option Agreement are not exclusive of or limited by
any other rights or remedies which either of them may have, whether at law, in
equity, by contract or otherwise, all of which shall be cumulative and not
alternative.
IN WITNESS WHEREOF, an
authorized officer of Network-1 has signed and delivered this Option as of the
date first written above.
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NETWORK-1
SECURITY SOLUTIONS, INC.
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By:
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______________________________________ | ||
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ELECTION
TO EXERCISE
(To be
executed by the registered holder if such holder desires to exercise the within
Option)
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To:
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NETWORK-1
SECURITY SOLUTIONS, INC.
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000 Xxxx
Xxxxxx, Xxxxx 0000
Xxx Xxxx,
Xxx Xxxx 00000
The
undersigned hereby (1) irrevocably elects to exercise its right to exercise
_____ shares of Common Stock covered by the within Option, (2) makes payment in
full of the Exercise Price by enclosure of a certified check or (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 (5)
if said number of shares shall not be all the shares evidenced by the within
Option, requests that a new Option Agreement for the balance of the shares
covered by the within Option be registered in the name of, and delivered
to:
Please
print name and address:
_______________________________________________
_______________________________________________
_______________________________________________
In lieu
of receipt of fractional shares of Common Stock, the undersigned will receive a
check representing payment therefor.
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Dated:
_________________________________
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By:
________________________________
________________________________
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FORM OF
ASSIGNMENT
FOR VALUE
RECEIVED ,
hereby sells, assigns and transfers to
(Social
Security or I.D. No.
) the within Option, or that portion of this Option purchasable for ________
shares of Common Stock together with all rights, title and interest therein, and
does hereby irrevocably constitute and appoint ______________ attorney to
transfer such Option on the register of Network-1 Security Solutions, Inc., with
full power and substitution.
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_______________________________
(Signature)
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Dated:
___________, 20__
Signature
Guaranteed:
____________________
