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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
(RULE 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 4)1
Network-1 Security Solutions, Inc.
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(Name of Issuer)
Common Stock, $.01 Par Value
----------------------------
(Title of Class of Securities)
64121N 10 9
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(CUSIP Number)
SAM SCHWARTZ, ESQ.
EISEMAN LEVINE LEHRHAUPT & KAKOYIANNIS, P.C.
845 Third Avenue
New York, New York 10022
(212) 752-1000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 16, 2005
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box. [ ]
NOTE. Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. SEE Rule 13d-7
for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 20 Pages)
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1 The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, SEE THE NOTES).
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CUSIP No. 64121N 10 9 13D Page 2 of 20 Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Corey M. Horowitz
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[ ]
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3 SEC USE ONLY
----- --------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF, AF, OO
----- --------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
----- --------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
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7 SOLE VOTING POWER
NUMBER OF
8,230,770 (1)
SHARES ----- ----------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
103,511 (2)
OWNED BY ----- ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
8,230,770 (1)
REPORTING ----- ----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
103,511 (2)
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,334,281 (1)(2)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
----- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
36.9%
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14 TYPE OF REPORTING PERSON*
IN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 64121N 10 9 13D Page 3 of 20 Pages
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(1) Includes (a)(i) 475,053 shares of Common Stock, (ii) 85,220 shares of
Common Stock issuable upon exercise of warrants and (iii) 3,502,697 shares
of Common Stock issuable upon exercise of options, all of which are held by
Mr. Horowitz and (b)(i) 2,867,800 shares of Common Stock, (ii) 550,000
shares of Common Stock issuable upon exercise of warrants and (iii) 750,000
shares of Common Stock issuable upon exercise of options, all of which are
held by CMH Capital Management Corp.
(2) Includes (a) 78,720 shares of Common Stock held by Donna Slavitt, Mr.
Horowitz's spouse (b) 22,500 shares of Common Stock held by two trusts (the
"Trusts") and a custodian account for the benefit of Mr. Horowitz's three
children and (c) 2,291 shares of Common Stock held by Horowitz Partners, a
general partnership of which Mr. Horowitz is a partner. Mr. Horowitz
disclaims beneficial ownership of the shares held by the Trusts and
Horowitz Partners except to the extent of his pecuniary interest therein.
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CUSIP No. 64121N 10 9 13D Page 4 of 20 Pages
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1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
CMH Capital Management Corp.
----- --------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[ ]
----- --------------------------------------------------------------------------
3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
----- --------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
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7 SOLE VOTING POWER
NUMBER OF
0
SHARES ----- ----------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
4,167,800 (1)
OWNED BY ----- ----------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
0
REPORTING ----- ----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON WITH
4,167,800 (1)
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,167,800 (1)
----- --------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
----- --------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.9%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
(1) Includes (i) 2,867,800 shares of Common Stock, (ii) 550,000 shares of
Common Stock issuable upon exercise of warrants and (iii) 750,000 shares of
Common Stock issuable upon exercise of options.
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CUSIP No. 64121N 10 9 13D Page 5 of 20 Pages
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The following constitutes Amendment No.4 ("Amendment No.4") to the Schedule
13D filed by the undersigned. This Amendment No.4 amends the Schedule 13D as
specifically set forth.
Item 5(a) is hereby amended and restated to read as follows:
(a) The following list sets forth the aggregate number and percentage
(based on 17,697,572 Shares outstanding including 15,012,572 Shares as reported
in the Issuer's Form 10-QSB for the quarter ended September 30, 2004 plus an
additional 2,685,000 Shares outstanding as reflected in Current Reports on Form
8-K filed by the Company on December 28, 2004 and January 13, 2005) of Shares
beneficially owned by each Reporting Person, as of March 18, 2005:
Percentage of Shares
Shares of Common Stock of Common Stock
Name Beneficially Owned Beneficially Owned
---- ------------------ ------------------
Corey M. Horowitz 8,334,281 (1) 36.9%
CMH Capital Management Corp. 4,167,800 (2) 21.9%
(1) Includes (a)(i) 475,053 Shares, (ii) 85,220 Shares issuable upon
exercise of Warrants and (iii) 3,502,697 Shares issuable upon exercise
of options, all of which are held by Mr. Horowitz, (b)(i) 2,867,800
Shares, (ii) 550,000 Shares issuable upon exercise of warrants and
(iii) 750,000 Shares issuable upon exercise of options, all of which
are held by CMH Capital Management Corp. ("CMH"), (d) 78,720 Shares
held by Donna Slavitt, Mr. Horowtiz's wife (c) 22,500 shares of Common
Stock held by two trusts (the "Trusts") and a custodian account for
the benefit of Mr. Horowitz's three children and (d) 2,291 Shares held
by Horowitz Partners. Mr. Horowitz disclaims beneficial ownership of
the Shares held by the Trusts and Horowitz Partners, except to the
extent of his pecuniary interest therein.
(2) Includes (i) 2,867,800 Shares, (ii) 550,000 Shares issuable upon
exercise of warrants and (iii) 750,000 Shares issuable upon exercise
of options.
Item 5(b) is hereby amended and restated to read as follows:
(b) Mr. Horowitz has sole power to vote and dispose of 8,230,770 Shares
(consisting of the 4,062,970 Shares beneficially owned by him, constituting
approximately 19.1% of the Shares outstanding and, by virtue of his position as
sole stockholder, officer and director of CMH, of the 4,167,800 Shares
beneficially owned by CMH, constituting approximately 21.9% of the Shares
outstanding), constituting approximately 36.4% of the Shares outstanding.
By virtue of being her spouse, Mr. Horowitz may be deemed to have shared
power to vote and dispose of the 78,720 Shares beneficially owned by Donna
Slavitt, constituting less than 1% of the Shares outstanding. Ms. Slavitt
resides at 1085 Park Avenue,
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CUSIP No. 64121N 10 9 13D Page 6 of 20 Pages
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New York, New York 10128. She is the president of World Packaging Corp., a
manufacturer and distributor of promotional and licensed products. Ms. Slavitt
has not, in the last five years, been convicted in a criminal proceeding or a
party to a civil proceeding as described in Items 2(d) and (e). Ms. Slavitt is a
citizen of the United States of America.
By virtue of the Trusts and custodian account for his three children, Mr.
Horowitz may be deemed to have shared power to vote and dispose of the 22,500
shares beneficially owned by the Trusts and the custodian account, constituting
less than 1% of the shares outstanding. Gary Horowitz, the brother of Corey M.
Horowitz, is trustee of the Trusts. Gary Horowitz resides at 41 Lowell Drive,
Stow, Massachusetts 01775 and his principal occupation is a Clinical
Pathologist. In the last five years, Gary Horowitz has not been convicted in a
criminal proceeding or a party to a civil proceeding as described in Items 2(d)
and (e). Mr. Horowitz is a citizen of the United States of America.
By virtue of his position as a partner of Horowitz Partners ("HP"), Mr.
Horowitz may be deemed to have shared power to vote and dispose of the 2,291
Shares beneficially owned by HP, constituting less than 1% of the Shares
outstanding. HP is a general partnership with an address at 445 Park Avenue,
Suite 1028, New York, New York 10022. HP's principal business is investments and
it has not, in the last five years, been convicted in a criminal proceeding or a
party to a civil proceeding as described in Items 2(d) and (e). The other
partners of HP are Mr. Horowitz's mother, Syd Horowitz, his brother, Gary
Horowitz and his sister, Cindy Horowitz (the "Partners"). Syd Horowitz resides
at 56 Field Lane, Roslyn Heights, New York 11577 and is retired. Gary Horowitz
resides at 41 Lowell Drive, Stow, Massachusetts 01775 and his principal
occupation is a clinical pathologist. Cindy Horowitz resides at 173 West 78th
Street, New York, New York 10024 and her principal occupation is an elementary
school teacher. None of the Partners have, in the last five years, been
convicted in a criminal proceeding or a party to a civil proceeding as described
in Items 2(d) and (e). The Partners are all citizens of the United States of
America.
CMH has shared power to vote and dispose of 4,167,800 Shares, constituting
approximately 21.9% of the Shares outstanding.
Item 5(c) is hereby amended to add the following:
On March 16, 2004, the Issuer issued a 7 year stock option to Mr. Horowitz
to purchase 960,197 Shares at an exercise price of $1.18 per share (the
"Option"). The Option is immediately exercisable. The Option was issued to Mr.
Horowitz pursuant to Section 6(b) of his Employment Agreement, dated November
26, 2004 with the Issuer (the "Employment Agreement"), which provides that at
anytime during the period ended December 31, 2005, in the event that the Issuer
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, Mr. Horowitz shall receive, from the Issuer,
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 of Issuer (22.22%) as he beneficially owned
prior to such offering.
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CUSIP No. 64121N 10 9 13D Page 7 of 20 Pages
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On December 21, 2004 and January 13, 2005, the Issuer completed a private
offering of its securities consisting of an aggregate of 2,685,000 shares and
warrants to purchase up to 2,013,750 shares of common stock (plus a warrant to
purchase 50,000 shares of common stock issued to a finder) (the "Offering").
Accordingly, based upon the Offering and the anti-dilution provisions of the
Employment Agreement, Mr. Horowitz was issued the Option.
Item 7 is hereby amended to add the following:
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
--------------------------------
5. Option Agreement, dated March 16, 2005, between the Issuer and
Corey M. Horowitz.
SIGNATURES
After reasonable inquiry and to the best of his knowledge and belief, each
of the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: March 18, 2005
/s/Corey M. Horowitz
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Corey M. Horowitz
CMH CAPITAL MANAGEMENT CORP.
By: /s/Corey M. Horowitz
-----------------------------------
Name: Corey M. Horowitz
Title: President
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CUSIP No. 64121N 10 9 13D Page 8 of 20 Pages
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EXHIBIT INDEX
Document Page
-------- ----
1. Securities Purchase Agreement by and between CMH Capital
Management Corp. and FalconStor Software, Inc., dated
November 18, 2003 (previously filed). --
2. Joint Filing Agreement by and between Corey M. Horowitz and
CMH Capital Management Corp., dated November 26, 2003
(previously filed). --
3. Offer Letter, dated December 22, 2003, by and between the
Issuer and Corey M. Horowitz, including Incentive Stock
Option, dated December 22, 2003, by and between the Issuer
and Corey M. Horowitz, Non-Qualified Stock Option, dated
December 22, 2003, by and between the Issuer and Corey M.
Horowitz and Issuer Capitalization (previously filed). --
4. Exchange Agreement between the Issuer and its Preferred
Stockholders, dated April 13, 2004 (previously filed). --
5. Employment Agreement between the Issuer and Corey M.
Horowitz, dated November 26, 2004. --
6. Option Agreement, dated March 16, 2005, between the Issuer
and Corey M. Horowitz. 35-46
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 16, 2005, (this
"Stock Option Agreement") by and between Network-1 Security Solutions, Inc., a
Delaware corporation with principal executive offices a 445 Park Avenue, Suite
1028, New York, New York 10022 ("Network-1"), and Corey M. Horowitz, residing at
1085 Park Avenue, New York, New York 10128 ("Horowitz").
WHEREAS, in accordance with Section 6(b) of the Employment
Agreement, dated November 26, 2004, between the Company and Horowitz (the
"Employment Agreement"), Horowitz was granted a certain anti-dilution protection
in the event the Company consummated one or more offerings of its securities
prior to December 31, 2005; and
WHEREAS, on December 21, 2004 and January 13, 2005 the Company
completed the offering of an aggregate of $2,685,000 of its securities
consisting of 2,685,000 shares of Common Stock and warrants to purchase
2,013,750 shares of Common Stock, and Horowitz, therefore, is entitled to
receive a stock option in accordance with the terms hereof and the anti-dilution
provisions of his Employment Agreement.
NOW THEREFORE, in consideration of the premises and of the
mutual covenants, representations, warranties and agreements contained herein
and in the Employment Agreement, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Grant of Option.
Network-1 hereby grants to Horowitz an irrevocable option (the
"Option") to purchase, out of its authorized but unissued shares of Common
Stock, 960,197 shares of Common Stock (the shares of Common Stock purchased or
purchasable pursuant to the Option, subject to adjustment as set forth herein,
being referred to as the "Option Shares"), at an exercise price per share equal
to $ 1.18 (such exercise price, subject to adjustment as set forth herein, being
referred to as the "Exercise Price", or in the aggregate, the "Aggregate
Exercise Price"). Horowitz and/or his transferees or assigns are hereinafter
referred to as "Holder".
2. Term and Exercise of Option.
The Option granted hereby may be exercised in whole or in part
at any time from the date hereof through March 16, 2012 (the "Expiration Date")
by Holder's presentation of this Option, with the Exercise Form attached hereto
duly executed, at Network-1's office (or such office or agent of Network-1 as it
may designate in writing to the Holder hereof by notice pursuant to Section 13
hereof), specifying the number of Option Shares as to which the Option is being
exercised.
3. Issuance of Option Shares; Cashless Exercise
(a) Upon surrender of the Option and payment of the Exercise
Price as provided herein, Network-1 shall issue and deliver with all reasonable
dispatch the certificate(s) for the Option Shares to or upon the written order
of the Holder and in such name or names as the Holder may designate. Such
certificate(s) shall represent the number of Option Shares
issuable upon the exercise of the Option, together with a cash amount in respect
of any fraction of a share otherwise issuable upon such exercise.
(b) In lieu of paying the Aggregate Exercise Price in cash
and/or upon exercise of the Option, the Holder may elect a "cashless exercise"
in which event the Holder will receive upon exercise a reduced number of Option
Shares equal to (i) the number of Option Shares that would be issuable pursuant
to the Option upon payment of the Aggregate Exercise Price minus (ii) the number
of Option Shares that have an aggregate Market Price (as defined below) equal to
the Aggregate Exercise Price.
(c) Unless otherwise provided herein, for purposes of any
computations made in this Stock Option Agreement, "Market Price" per share of
shares of Common Stock on any date shall be: (i) if the shares of Common Stock
are listed or admitted for trading on any national securities exchange, the last
reported sales price as reported on such national securities exchange; (ii) if
the shares of Common Stock are not listed or admitted for trading on any
national securities exchange, the average of the last reported closing bid and
asked quotation for the shares of Common Stock as reported on the Nasdaq Stock
Market's National Market ("NNM") or Nasdaq Stock Market's Small Cap Market
("NSM") or a comparable service if NNM or NSM are not reporting such
information; (iii) if the shares of Common Stock are not listed or admitted for
trading on any national securities exchange, NNM or NSM or a comparable system,
the average of the last reported bid and asked quotation for the shares of
Common Stock as quoted by a market maker in the shares of Common Stock (or if
there is more than one market maker, the bid and asked quotation shall be
obtained from two market makers and the average of the lowest bid and highest
asked quotation shall be the "Market Price"); or (iv) if the shares of Common
Stock are not listed or admitted for trading on any national securities exchange
or NNM or quoted by NSM and there is no market maker in the shares of Common
Stock, the fair market value of such shares as determined in good faith by the
Board of Directors of Network-1.
(d) Certificates representing the Option Shares shall be
deemed to have been issued and the person so designated to be named therein
shall be deemed to have become a holder of record of such Option Shares as of
the date of the surrender of the Option and payment of the Aggregate Exercise
Price as provided herein; notwithstanding that the transfer books for the Option
Shares or other classes of stock purchasable upon the exercise of the Option
shall then be closed or the certificate(s) for the Option Shares in respect of
which the Option is then exercised shall not then have been actually delivered
to the Holder. As soon as practicable after each such exercise of the Option,
Network-1 shall issue and deliver the certificate(s) for the Option Shares
issuable upon such exercise, registered as requested. In the event that only a
portion of the Option is exercised at any time prior to the close of business on
the Expiration Date, a new option shall be issued to the Holder for the
remaining number of Option Shares purchasable pursuant hereto. Network-1 shall
cancel the Option when they are surrendered upon exercise.
(e) Prior to due presentment for registration of transfer of
the Option, Network-1 shall deem and treat the Holder as the absolute owner of
the Option (notwithstanding any notation of ownership or other writing on this
Option Agreement made by anyone other than Network-1) for the purpose of any
exercise hereof or any distribution to the Holder and for all other purposes,
and Network-1 shall not be affected by any notice to the contrary.
2
4. Lost, Stolen, or Mutilated Option
In case this Option shall be mutilated, lost, stolen or
destroyed, Network-1 shall issue and deliver, in exchange and substitution for
and upon cancellation of the mutilated Option, or in lieu of and substitution
for the Option lost, stolen or destroyed, a new Option of like tenor and
representing an equivalent number of Option Shares purchasable upon exercise,
but only upon receipt of evidence reasonably satisfactory to Network-1 of such
mutilation, loss, theft or destruction of such Option and reasonable indemnity,
if requested, also reasonably satisfactory to Network-1. No bond or other
security shall be required from Holder in connection with the replacement by
Network-1 of a lost, stolen or mutilated warrant certificate.
5. Rights Upon Expiration
Unless the Option is surrendered and payment made for the
Option Shares as herein provided before the close of business on the Expiration
Date, this Option will become wholly void and all rights evidenced hereby will
terminate after such time.
6. Exchange of Option
This Option may be exchanged for a number of Options of the
same tenor as this Option for the purchase in the aggregate of the same number
of Option Shares of Network-1 as are purchasable upon the exercise of this
Option, upon surrender hereof at the office of Network-1 with written
instructions as to the denominations of the Options to be issued in exchange.
7. Adjustment for Certain Events
(a) In case Network-1 shall at any time after the date hereof
(i) declare a dividend on its shares of Common Stock payable in shares of
Network-1's capital stock (whether in shares of Common Stock or of capital stock
of any other class), (ii) subdivide its outstanding shares of Common Stock,
(iii) reverse split its outstanding shares of Common Stock into a smaller number
of shares, or (iv) issue any shares of Network-1's capital stock in a
reclassification of shares of Common Stock (including any such reclassification
in connection with a consolidation or merger in which Network-1 is the
continuing corporation), then, in each case, the Exercise Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, reverse split or reclassification, and/or the number and kind of
shares of capital stock issuable upon exercise of the Option on such date, shall
be proportionately adjusted so that the holder of the Option exercised after
such time shall be entitled to receive the aggregate number and kind of
securities which, if such Option had been exercised immediately prior to such
date, such Holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, reverse split or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case Network-1 shall fix a record date for the making
of a distribution to all holders Common Stock (including any such distribution
made in connection with a consolidation or merger in which Network-1 is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of earnings, consolidated earnings,
if Network-1 shall have one or more subsidiaries, or earned surplus, or
dividends payable in Common Stock) or rights, options or warrants to subscribe
for or purchase
3
Common Stock, then, in each case, the Exercise Price to be in effect after such
record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, of which the numerator
shall be the current Market Price for one share of Common Stock on such record
date less the fair market value of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights, options or
warrants applicable to one share of Common Stock, and of which the denominator
shall be the current Market Price for one share of Common Stock. In the event
that Network-1 and the Holder cannot agree as to such fair market value, such
determination of fair market value shall be made by an appraiser who shall be
mutually selected by Network-1 and the Holder, and the reasonable costs of such
appraiser shall be borne by Network-1. Such adjustment shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Exercise Price shall again be adjusted to be
the Exercise Price which would then be in effect if such record date had not
been fixed.
(c) No adjustment in the Exercise Price shall be required
unless such adjustment would require a decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustment which by reason of this
Section 7(c) is not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 7
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be, but in no event shall Network-1 be obligated to issue
fractional shares of Common Stock or fractional portions of any securities
issuable upon the exercise of the Option.
(d) In the event that at any time, as a result of an
adjustment made pursuant to Section 7 hereof, the Holder of the Option
thereafter exercised shall become entitled to receive any shares of capital
stock, options, warrants or other securities of Network-1 other than the shares
of Common Stock, thereafter the number of such other shares of capital stock,
options, warrants or other securities so receivable upon exercise of this Option
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Section 7, and the provisions of this Option
Agreement with respect to the shares of Common Stock shall apply, to the extent
applicable, on like terms to any such other shares of capital stock, options or
warrants or other securities.
(e) Upon each adjustment of the Exercise Price as a result of
calculations made in this Section 7, the Option outstanding immediately prior to
the making of such adjustment shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of Option Shares (calculated to the
nearest hundredth), obtained by (i) multiplying the number of Option Shares
purchasable upon exercise of the Option immediately prior to such adjustment of
the Exercise Price by the Exercise Price in effect immediately prior to such
adjustment and (ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment of the Exercise Price.
(f) In case of any capital reorganization of Network-1 or of
any reclassification of shares of Common Stock (other than as a result of
subdivision or combination) or in case of the consolidation of Network-1 with,
or the merger of Network-1 into, any other corporation (other than a
consolidation or merger in which Network-1 is the continuing corporation) or of
the sale of the properties and assets of Network-1 as, or substantially as, an
4
entirety, the Option shall, after such reorganization, reclassification,
consolidation, merger or sale, be exercisable, upon the terms and conditions
specified herein, for the number of shares of Common Stock or other capital
stock, options or warrants or other securities or property to which a Holder (at
the time of such reorganization, reclassification, consolidation, merger or
sale) upon exercise of such Option would have been entitled upon such
reorganization, reclassification, consolidation, merger or sale; and in any such
case, if necessary, the provisions set forth in this Section 7(f) with respect
to the rights and interests thereafter of the Holder shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to any shares
of Common Stock or other capital stock or options, warrants or other securities
or property thereafter deliverable upon the exercise of the Option. The
subdivision, reverse split or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares shall not be deemed to be
a reclassification of the Common Stock for the purposes of this Section 7(f).
(g) In any case in which this Section 7 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, Network-1 may elect to defer until the occurrence of such event
issuing to the Holder, if such Holder exercised any portion of this Option after
such record date, shares of capital stock or other securities of Network-1, if
any, issuable upon such exercise over and above the shares of Common Stock or
other securities issuable, on the basis of the Exercise Price in effect prior to
such adjustment; provided, however, that Network-1 shall deliver to the holder a
due bill or other appropriate instrument evidencing such Holder's right to
receive such shares of Common Stock or other securities upon the occurrence of
the event requiring such adjustment.
8. Fractional Shares
Upon exercise of the Option, Network-1 shall not be required
to issue fractional shares of Common Stock or other capital stock. In lieu of
such fractional shares, the Holder shall receive an amount in cash equal to the
same fraction of the (i) current Market Price of one whole share of Common Stock
if clause (i), (ii) or (iii) in the definition of Market Price in Section 3(c)
hereof is applicable or (ii) book value of one whole shares of Common Stock as
reported in Network-1's most recent audited financial statements if clause (iv)
in the definition of Market Price in Section 3 above is applicable. All
calculations under Section 7 shall be made to the nearest cent.
9. Securities Act Legend
The Holder shall not be entitled to any rights of a
stockholder of Network-1 with respect to any Option Shares purchasable upon the
exercise of this Option, including voting, dividend or dissolution rights, until
such Option Shares have been paid for in full. As soon as practicable after such
exercise, Network-1 shall deliver a certificate or certificates for the
securities issuable upon such exercise, all of which shall be fully paid and
nonassessable, to the person or persons entitled to receive the same; provided,
however, that, if the Option Shares are not registered under the Securities Act,
such certificate or certificates delivered to the Holder of the surrendered
Option shall bear a legend reading substantially as follows:
"These securities have not been registered under the
Securities Act of 1933, as amended, or the securities laws of any state and may
not be sold or transferred in the absence of
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such registration or any exemption therefrom under such Act and laws, if
applicable. Network-1, prior to permitting a transfer of these securities, may
require an opinion of counsel or other assurances satisfactory to it as to
compliance with or exemption from such Act and laws."
10. Transfer
All or a portion of this Option may be transferred, sold or
assigned by Holder without the consent of Network-1 provided, that, Holder
provides Network-1 with evidence reasonably satisfactory to it that such
transfer is not in violation of the Securities Act of 1933, as amended (the
"Act"). With respect to any such transfer, sale or assignment, Holder shall
execute and deliver to Network-1 the Form of Assignment attached hereto.
11. Taxes; Expenses
Network-1 shall pay all taxes and expenses that may be payable
in connection with the preparation, issuance and delivery of Options Shares
under this Stock Option Agreement.
12. Notice of Adjustment
(a) Upon any adjustment of the Exercise Price pursuant to
Section 7 hereof, Network-1, within 30 calendar days thereafter, shall have on
file for inspection by the Holder a certificate of the Board of Directors of
Network-1 setting forth the Exercise Price after such adjustment, the method of
calculation thereof in reasonable detail, the facts upon which such calculations
were based and the number of Option Shares issuable upon exercise of the Option
after such adjustment in the Exercise Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein.
(b) In case:
(i) Network-1 shall authorize the issuance to all
holders of shares of Common Stock of rights, options, warrants or other
securities to subscribe for or purchase capital stock of Network-1 or of any
other subscription rights, options, warrants or other securities; or
(ii) Network-1 shall authorize the distribution to
all holders of shares of Common Stock of evidences of its indebtedness or
assets; or
(iii) of any consolidation or merger to which
Network-1 is a party and for which approval of any stockholders of Network-1 is
required, of the conveyance or transfer of the properties and assets of
Network-1 substantially as an entirety or of any capital reorganization or any
reclassification of the shares of Common Stock (; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of Network-1; or
(v) Network-1 proposes to take any other action which
would require an adjustment of the Exercise Price pursuant to Section 7 above;
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then, in each such case, Network-1 shall give to the Holder at its address
appearing below at least 20 calendar days prior to the applicable record date
hereinafter specified in (A), (B), or (C) below, by first class mail, postage
prepaid, a written notice stating (A) the date as of which the holders of record
of shares of Common Stock entitled to receive any such rights, options, warrants
or distribution are to be determined or (B) the date on which any such
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange such shares for securities or other property, if
any, deliverable upon such consolidation, merger, conveyance, transfer,
reorganization, reclassification, dissolution, liquidation or winding up or (C)
the date of such action which would require an adjustment of the Exercise Price.
The failure to give the notice required by this Section 12 or any defect therein
shall not affect the legality or validity of any such issuance, distribution,
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation, winding up or other action or the vote upon any such
action.
Except as provided herein, nothing contained herein shall be
construed as conferring upon Holder the right to vote on any matter submitted to
the stockholders of Network-1 for their vote or to receive notice of meetings of
stockholders or the election of directors of Network-1 or any other proceedings
of Network-1, or any rights whatsoever as a stockholder of Network-1.
13. Notices
Any notice, request, demand or other communication pursuant to
the terms of this Stock Option Agreement shall be in writing and shall be
sufficiently given or made when delivered or mailed by first class or registered
mail, postage-prepaid, to the following addresses:
If to Network-1:
Network-1 Security Solutions, Inc.
445 Park Avenue, Suite 1028
New York, New York 10022
with a copy to:
Eiseman Levine Lehrhaupt & Kakoyiannis, P.C.
845 Third Avenue
8th Floor
New York, NY 10022
Attn: Sam Schwartz, Esq.
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If to Holder:
Corey M. Horowitz.
1085 Park Avenue
New York, New York 10128
14. Miscellaneous
(a) Waiver. At any time the parties hereto may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and warranties
contained herein by the other party or (c) waive compliance with any of the
agreements or conditions contained herein. No failure on the part of any party
to exercise any power, right, privilege or remedy under this Stock Option
Agreement, and no delay on the part of any party in exercising any power, right,
privilege or remedy under this Stock Option Agreement, shall operate as a waiver
of such power, right, privilege or remedy; and no single or partial exercise of
any such power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy. No party
shall be deemed to have waived any claim arising out of this Stock Option
Agreement, or any power, right, privilege or remedy under this Stock Option
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such party; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
(b) Entire Agreement. Except as otherwise set forth in this
Stock Option Agreement and the other documents referred to herein, collectively
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and supersede all prior agreements and
understandings, oral and written, with respect thereto.
(c) Binding Effect; Benefit. This Stock Option Agreement shall
inure to the benefit of and be binding upon the parties hereto and nothing in
this Stock Option Agreement, expressed or implied, is intended to confer on any
person or entity other than the parties hereto or their respective successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Stock Option Agreement.
(d) Amendment and Modification. Subject to applicable law,
this Stock Option Agreement may only be amended, modified and supplemented by a
written agreement duly executed the parties hereto.
(e) Further Actions. Network-1 shall use its best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereunder and to carry out the interest and purposes of this Stock Option
Agreement, including, without limitation, using its reasonable best efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities.
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(f) Applicable Law. This Stock Option Agreement and the legal
relations between the parties hereto shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
(g) Dispute Resolution. The parties hereto will use their best
efforts to resolve by mutual agreement any disputes, controversies or
differences that may arise from, under, out of or in connection with this
Agreement. If any such disputes, controversies or differences cannot be settled
between the parties hereto, they will be finally settled by final and binding
arbitration to be conducted by an arbitration tribunal in New York City, New
York, pursuant to the rules of the American Arbitration Association. The
arbitration tribunal will consist of three arbitrators. The decision or award of
the arbitration tribunal will be final, and judgment upon such decision or award
may be entered in any competent court or application may be made to any
competent court for judicial acceptance of such decision or award and an order
of enforcement. In the event of any procedural matter not covered by the
aforesaid rules, the procedural law of New York will govern. The prevailing
party in arbitration shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
(h) Severability. Any term or provision of this Stock Option
Agreement that is invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the parties hereto agree that the
court making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration or area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Stock Option Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be appealed.
(i) Non-exclusivity. The rights and remedies of Network-1 and
Holder under this Stock Option Agreement are not exclusive of or limited by any
other rights or remedies which either of them may have, whether at law, in
equity, by contract or otherwise, all of which shall be cumulative and not
alternative.
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IN WITNESS WHEREOF, an authorized officer of Network-1 has
signed and delivered this Option as of the date first written above.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: ___________________________
David C. Kahn, Chief Financial Officer
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ELECTION TO EXERCISE
(To be executed by the registered holder if such holder desires to exercise the
within Option)
To: NETWORK-1 SECURITY SOLUTIONS, INC.
445 Park Avenue, Suite 1028
New York, New York 10022
The undersigned hereby (1) irrevocably elects to exercise its right to exercise
_____ shares of Common Stock covered by the within Option, (2) makes payment in
full of the Exercise Price by enclosure of a certified check or (3) elects a
cashless exercise, (4) requests that certificates for such shares be issued in
the name of:
Please print name, address and Social Security or Tax Identification Number:
________________________________________________
________________________________________________
________________________________________________
and (5) if said number of shares shall not be all the shares evidenced by the
within Option, requests that a new Option Agreement for the balance of the
shares covered by the within Option be registered in the name of, and delivered
to:
Please print name and address:
________________________________________________
________________________________________________
________________________________________________
In lieu of receipt of a fractional shares of Common Stock, the undersigned will
receive a check representing payment therefor.
Dated: _____________________
By: ______________________________
______________________________
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FORM OF ASSIGNMENT
FOR VALUE RECEIVED ______________________ , hereby sells,
assigns and transfers to _______________(Social Security or I.D. No.___________)
the within Option, or that portion of this Option purchasable for ______ shares
of Common Stock together with all rights, title and interest therein, and does
hereby irrevocably constitute and appoint ______________ attorney to transfer
such Option on the register of Network-1 Security Solutions, Inc., with full
power and substitution.
_________________________________
(Signature)
Dated: ___________, 20__
Signature Guaranteed:
____________________
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