EXHIBIT 10.2
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SECURITIES PURCHASE AGREEMENT
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AGREEMENT, dated as of January 13, 2005, 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, on December 21, 2004, the Company completed the initial closing
(the "Initial Closing") of 2,085,000 shares of common stock and warrants to
purchase an aggregate of 1,563,750 shares of Common Stock for an aggregate
purchase price of $2,085,000 pursuant to a Securities Purchase Agreement, dated
December 21, 2004 (the "Purchase Agreement").
WHEREAS, in accordance with Section 1.2(b) of the Purchase Agreement, the
Company has the right to offer up to $915,000 of additional shares of common
stock and warrants for a period of sixty (60) days from the Initial Closing upon
the same terms and conditions set forth in the Purchase Agreement; and
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 915,000
shares of common stock, par value $.01 per share (the "Common Stock") at a
purchase price of $1.00 per share (equal to the same purchase price paid by
Investors in the Initial Closing as defined below) (the "Purchase Price"), and
(ii) warrants to purchase up to an aggregate of 686,250 shares of common stock
(the "Warrants"), consisting of warrants to purchase 457,500 shares of common
stock at an exercise price of $1.25 per share and warrants to purchase 228,750
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
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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 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 17,097,572 shares of Common Stock outstanding (including 2,085,000
shares of Common Stock issued at the Initial Closing) 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
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Shares upon exercise of the Warrants, (b) upon the exercise of the options and
warrants that are currently outstanding to purchase an aggregate of 5,323,755
shares of Common Stock (including warrants to purchase 1,563,750 shares of
Common Stock issued to investors at the Initial Closing and warrants to purchase
50,000 shares of Common Stock issued as a finder's fee with respect to the
Initial Closing but 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 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.
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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.
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. 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
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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.
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
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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 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"
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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
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
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
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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, 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
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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 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
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
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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 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.
11
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.
12
[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:
XXX INVESTMENT LTD.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Xxxxx X. Xxxxxx, President
XXX PARTNERS, L.P.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Xxxxx X. Xxxxxx, President
MANCHESTER EXPLORER LIMITED PARTNERSHIP
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Xxxxx X. Xxxxxx, President
/s/ Xxxxx Xxxxxxxx
------------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxxx Eng
------------------------------------
Xxxxx Eng
/s/ Xxxx Xxxxxxx
------------------------------------
Xxxx Xxxxxxx
/s/ Xxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxxx
13
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
/s/ Xxxxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxx
/s/ Xxxxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxx
------------------------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxx Xxxxx
------------------------------------
Xxxxxx Xxxxx
/s/ Xxxx Xxxxxxxx
------------------------------------
Xxxx Xxxxxxxx
/s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx
14
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
15
SCHEDULES AND EXHIBITS
----------------------
Schedule1.1 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
Exhibit D Form of Legal Opinion
16
SCHEDULE 1.1
Name and Address Number of Shares Number of Purchase
of Investor of Common Stock Warrants Price
----------- --------------- -------- -----
Xxx Investment Ltd. 95,000 71,250 $95,000
Mechanics Building
00 Xxxxxx Xxxxxx
Xxxxxxxx XX 11
Bermuda
Xxx Partners, L.P. 95,000 71,250 $95,000
c/o Manchester Management Company
0 Xxxxxxxxxxxxx Xxxxx
00xx Xxxxx
Xxxxxx, XX 00000
Manchester Explorer Limited Partnership 60,000 45,000 $60,000
c/o Manchester Management Company
0 Xxxxxxxxxxxxx Xxxxx
00xx Xxxxx
Xxxxxx, XX 00000
Xxxxx Xxxxxxxx 100,000 75,000 $100,000
000 Xxxxx Xxxx Xxxx
Xxxx Xxxxxx Xxxxxx, XX 00000
Xxxxx X. Xxxxxx 45,000 33,750 $45,000
0000 Xxxxxxxxx Xxxxx
Xxxxxx Xxxxx, XX 00000
Xxxxx Eng 50,000 37,500 $50,000
0 Xxxxxxx Xxxxx, Xxx. 0X
Xxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxxxxx 7,500 5,625 $7,500
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
Xxxxxx Xxxxxxxx 5,000 3,750 $5,000
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Xxxxxx Xxxxxxx 7,500 5,625 $7,500
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
17
Xxxxxx Xxxxxxx 10,000 7,500 $10,000
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Xxxxxxx Xxxxxx 60,000 45,000 $60,000
00X Xxxxxx Xxxxxx
Xxxx Xxxxxxxxxx, XX 00000
Xxxxxx Xxxxx 20,000 15,000 $20,000
00 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxx Xxxxxxxx 20,000 15,000 $20,000
00 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Xxxx Xxxxxx 25,000 18,750 $25,000
0 Xxxx Xxxxxx Xxxx
Xxx, XX 00000
------- ------- --------
Total 600,000 450,000 $600,000
18
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 January 13, 2005 (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 prices of $1.114 per share and
$1.00 per share, which were to expire on December 22, 2004 (the "Warrants"). As
a condition to the one year extension of the Warrants, holders of the Warrants
irrevocably waived 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 Initial Closing
and this Closing 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.
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. warrants to purchase 50,000 shares of
Common Stock at an exercise price of $1.00 per share.
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
January __, 2005
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: January __, 2005
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
4
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.
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 January __, 2005
(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
(including the proceeds from the Initial Closing of $2,085,000) 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
2
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 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
3
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 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.
4
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.
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 January 1, 2005, there are outstanding (i) options and warrants to
purchase an aggregate of 9,066,125 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 January __,
2005, 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 January __, 2005, 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
2
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;
(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
3
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 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
4
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 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
5
proceeds received by such Participant in the offering of the Registrable
Securities effected by the Registration Statement.
(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
6
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.
(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.
7
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 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:
NETWORK-1 SECURITY SOLUTIONS, INC.
By:____________________________________
Xxxxx X. Xxxxxxxx
Chairman and Chief Executive Officer
INVESTORS:
XXX INVESTMENT LTD.
By:_________________________________
Xxxxx X. Xxxxxx, President
XXX PARTNERS, L.P.
By:_________________________________
Xxxxx X. Xxxxxx, President
MANCHESTER EXPLORER LIMITED PARTNERSHIP
By:_________________________________
Xxxxx X. Xxxxxx, President
9
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
------------------------------------
Xxxxx Xxxxxxxx
------------------------------------
Xxxxx Eng
------------------------------------
Xxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxxx
------------------------------------
Xxxxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxx
------------------------------------
Xxxxxxx Xxxxxx
------------------------------------
Xxxxxx Xxxxx
------------------------------------
Xxxx Xxxxxxxx
------------------------------------
Xxxx Xxxxxx
10
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
------------------------------------
Xxxxx X. Xxxxxx
11
SCHEDULE 1
----------
Name and Address of Investors
-----------------------------
Xxx Investment Ltd.
Mechanics Building
12 Church Street
Xxxxxxxx XX 11
Bermuda
Xxx Partners, L.P.
c/o Manchester Management Company
0 Xxxxxxxxxxxxx Xxxxx
00xx Xxxxx
Xxxxxx, XX 00000
Manchester Explorer Limited Partnership
c/o Manchester Management Company
0 Xxxxxxxxxxxxx Xxxxx
00xx Xxxxx
Xxxxxx, XX 00000
Xxxxx Xxxxxxxx
000 Xxxxx Xxxx Xxxx
Xxxx Xxxxxx Xxxxxx, XX 00000
Xxxxx X. Xxxxxx
0000 Xxxxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Xxxxx Eng
0 Xxxxxxx Xxxxx, Xxx. 0X
Xxx Xxxx, Xxx Xxxx 00000
Xxxx Xxxxxxx
000 Xxxxxxxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
12
Name and Address of Investors
-----------------------------
Xxxxxx Xxxxxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Xxxxxx Xxxxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Xxxxxx Xxxxxxx
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Xxxxxxx Xxxxxx
00X Xxxxxx Xxxxxx
Xxxx Xxxxxxxxxx, XX 00000
Xxxxxx Xxxxx
00 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxx Xxxxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Xxxx Xxxxxx
0 Xxxx Xxxxxx Xxxx
Xxx, XX 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.
