STOCK OPTION AGREEMENT
EXHIBIT
4.2
STOCK
OPTION AGREEMENT, dated as of
[ ],
(this "Stock
Option Agreement")
by and
between Network-1 Security Solutions, Inc., a Delaware corporation with
principal executive offices at 000 Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000 ("Network-1"),
[ ].
WHEREAS,
[ ]
has served Network-1 as a
[ ];
and
WHEREAS,
the board of directors of Network-1 has approved the grant of an option to
purchase
shares
of its common stock to
[ ]
for his service
.
NOW
THEREFORE, in consideration of the premises and of the mutual covenants,
representations, warranties and agreements contained herein, and intending
to be
legally bound hereby, the parties hereto agree as follows:
1. Grant
of Option.
Network-1
hereby grants to
[ ]
an option (the "Option")
to
purchase, out of its authorized but unissued shares of Common Stock,
shares
of Common Stock (the shares of Common Stock purchased or purchasable pursuant
to
the Option, subject to adjustment as set forth herein, being referred to as
the
"Option
Shares"),
at an
exercise price per share equal to
(such
exercise price, subject to adjustment as set forth herein, being referred to
as
the "Exercise
Price",
or in
the aggregate, the "Aggregate Exercise Price").
[ ]
and/or his permitted transferees or assigns are hereinafter referred to as
"Holder".
2. Vesting;
Term and Exercise of Option.
(a) The
Option Shares shall vest .
(b) The
Option granted hereby may be exercised in whole or in part as to any or all
vested Option Shares at any time from [ ]
through
[ ]
(the "Expiration
Date")
by
Holder’s presentation of this Option, with the Exercise Form attached hereto
duly executed, at Network-1’s office (or such office or agent of Network-1 as it
may designate in writing to the Holder hereof by notice pursuant to Section
13
hereof), specifying the number of Option Shares as to which the Option is being
exercised.
3. Issuance
of Option Shares
(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) 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.
(c) 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.
(d) Prior
to
due presentment for registration of transfer of the Option, Network-1 shall
deem
and treat the Holder as the absolute owner of the Option (notwithstanding any
notation of ownership or other writing on this Option Agreement made by anyone
other than Network-1) for the purpose of any exercise hereof or any distribution
to the Holder and for all other purposes, and Network-1 shall not be affected
by
any notice to the contrary.
4. Lost,
Stolen, or Mutilated Option
In
case
this Option shall be mutilated, lost, stolen or destroyed, Network-1 shall
issue
and deliver, in exchange and substitution for and upon cancellation of the
mutilated Option, or in lieu of and substitution for the Option lost, stolen
or
destroyed, a new Option of like tenor and representing an equivalent number
of
Option Shares purchasable upon exercise, but only upon receipt of evidence
reasonably satisfactory to Network-1 of such mutilation, loss, theft or
destruction of such Option and reasonable indemnity, if requested, also
reasonably satisfactory to
2
Network-1.
No bond or other security shall be required from Holder in connection with
the
replacement by Network-1 of a lost, stolen or mutilated warrant
certificate.
5. Rights
Upon Expiration
Unless
the Option is surrendered and payment made for the Option Shares as herein
provided before the close of business on the Expiration Date, this Option will
become wholly void and all rights evidenced hereby will terminate after such
time.
6. Exchange
of Option
This
Option may be exchanged for a number of Options of the same tenor as this Option
for the purchase in the aggregate of the same number of Option Shares of
Network-1 as are purchasable upon the exercise of this Option, upon surrender
hereof at the office of Network-1 with written instructions as to the
denominations of the Options to be issued in exchange.
7. Adjustment
for Certain Events
(a) In
case
Network-1 shall at any time after the date hereof (i) declare a dividend on
its
shares of Common Stock payable in shares of Network-1's capital stock (whether
in shares of Common Stock or of capital stock of any other class), (ii)
subdivide its outstanding shares of Common Stock, (iii) reverse split its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue any shares of Network-1's capital stock in a reclassification of shares
of
Common Stock (including any such reclassification in connection with a
consolidation or merger in which Network-1 is the continuing corporation),
then,
in each case, the Exercise Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, reverse split or
reclassification, and/or the number and kind of shares of capital stock issuable
upon exercise of the Option on such date, shall be proportionately adjusted
so
that the holder of the Option exercised after such time shall be entitled to
receive the aggregate number and kind of securities which, if such Option had
been exercised immediately prior to such date, such Holder would have owned
upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, reverse split or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In
case
Network-1 shall fix a record date for the making of a distribution to all
holders Common Stock (including any such distribution made in connection with
a
consolidation or merger in which Network-1 is the continuing corporation) of
evidences of indebtedness or assets (other than cash dividends or cash
distributions payable out of earnings, consolidated earnings, if Network-1
shall
have one or more subsidiaries, or earned surplus, or dividends payable in Common
Stock) or rights, options or warrants to subscribe for or purchase Common Stock,
then, in each case, the Exercise Price to be in effect after such record date
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
current Market Price for one share of Common Stock on such record date less
the
fair market value of the portion of the assets or evidences of indebtedness
so
to be distributed or of such subscription rights, options or warrants applicable
to one share of Common Stock, and of which the denominator shall be the current
Market Price for one share of Common Stock. In the event that Network-1 and
the
Holder cannot agree as to such
3
fair
market value, such determination of fair market value shall be made by an
appraiser who shall be mutually selected by Network-1 and the Holder, and the
reasonable costs of such appraiser shall be borne by Network-1. Such adjustment
shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not so made, the Exercise Price shall again
be
adjusted to be the Exercise Price which would then be in effect if such record
date had not been fixed.
(c) No
adjustment in the Exercise Price shall be required unless such adjustment would
require a decrease of at least one cent ($0.01) in such price; provided,
however, that any adjustment which by reason of this Section 7(c) is not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 7 shall be made
to
the nearest cent or to the nearest one-hundredth of a share, as the case may
be,
but in no event shall Network-1 be obligated to issue fractional shares of
Common Stock or fractional portions of any securities issuable upon the exercise
of the Option.
(d) In
the
event that at any time, as a result of an adjustment made pursuant to Section
7
hereof, the Holder of the Option thereafter exercised shall become entitled
to
receive any shares of capital stock, options, warrants or other securities
of
Network-1 other than the shares of Common Stock, thereafter the number of such
other shares of capital stock, options, warrants or other securities so
receivable upon exercise of this Option shall be subject to adjustment from
time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Common Stock contained in this Section
7, and the provisions of this Option Agreement with respect to the shares of
Common Stock shall apply, to the extent applicable, on like terms to any such
other shares of capital stock, options or warrants or other
securities.
(e) Upon
each
adjustment of the Exercise Price as a result of calculations made in this
Section 7, the Option outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of Option Shares (calculated to the nearest
hundredth), obtained by (i) multiplying the number of Option Shares purchasable
upon exercise of the Option immediately prior to such adjustment of the Exercise
Price by the Exercise Price in effect immediately prior to such adjustment
and
(ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(f) In
case
of any capital reorganization of Network-1 or of any reclassification of shares
of Common Stock (other than as a result of subdivision or combination) or in
case of the consolidation of Network-1 with, or the merger of Network-1 into,
any other corporation (other than a consolidation or merger in which Network-1
is the continuing corporation) or of the sale of the properties and assets
of
Network-1 as, or substantially as, an entirety, the Option shall, after such
reorganization, reclassification, consolidation, merger or sale, be exercisable,
upon the terms and conditions specified herein, for the number of shares of
Common Stock or other capital stock, options or warrants or other securities
or
property to which a Holder (at the time of such reorganization,
reclassification, consolidation, merger or sale) upon exercise of such Option
would have been entitled upon such reorganization, reclassification,
consolidation, merger or sale; and in any such case, if necessary, the
provisions set forth in this Section 7(f) with respect to the rights and
interests thereafter of the Holder shall be appropriately adjusted so as to
be
4
applicable,
as nearly as may reasonably be, to any shares of Common Stock or other capital
stock or options, warrants or other securities or property thereafter
deliverable upon the exercise of the Option. The subdivision, reverse split
or
combination of shares of Common Stock at any time outstanding into a greater
or
lesser number of shares shall not be deemed to be a reclassification of the
Common Stock for the purposes of this Section 7(f).
(g) In
any
case in which this Section 7 shall require that an adjustment in the Exercise
Price be made effective as of a record date for a specified event, Network-1
may
elect to defer until the occurrence of such event issuing to the Holder, if
such
Holder exercised any portion of this Option after such record date, shares
of
capital stock or other securities of Network-1, if any, issuable upon such
exercise over and above the shares of Common Stock or other securities issuable,
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that Network-1 shall deliver to the holder a due xxxx or other
appropriate instrument evidencing such Holder's right to receive such shares
of
Common Stock or other securities upon the occurrence of the event requiring
such
adjustment.
8. Fractional
Shares
Upon
exercise of the Option, Network-1 shall not be required to issue fractional
shares of Common Stock or other capital stock. In lieu of such fractional
shares, the Holder shall receive an amount in cash equal to the same fraction
of
the (i) current Market Price of one whole share of Common Stock if clause (i),
(ii) or (iii) in the definition of Market Price in Section 3(c) hereof is
applicable or (ii) book value of one whole shares of Common Stock as reported
in
Network-1's most recent audited financial statements if clause (iv) in the
definition of Market Price in Section 3 above is applicable. All calculations
under this Section 8 shall be made to the nearest cent.
9. Securities
Act Legend
The
Holder shall not be entitled to any rights of a stockholder of Network-1 with
respect to any Option Shares purchasable upon the exercise of this Option,
including voting, dividend or dissolution rights, until such Option Shares
have
been paid for in full. As soon as practicable after such exercise, Network-1
shall deliver a certificate or certificates for the securities issuable upon
such exercise, all of which shall be fully paid and nonassessable, to the person
or persons entitled to receive the same; provided, however, that, if the Option
Shares are not registered under the Securities Act, such certificate or
certificates delivered to the Holder of the surrendered Option shall bear a
legend reading substantially as follows:
"These
securities have not been registered under the Securities Act of 1933, as
amended, or the securities laws of any state and may not be sold or transferred
in the absence of such registration or any exemption therefrom under such Act
and laws, if applicable. Network-1, prior to permitting a transfer of these
securities, may require an opinion of counsel or other assurances satisfactory
to it as to compliance with or exemption from such Act and laws."
10. Transfer
This
Option is not transferable except to a permitted transferee as provided in
Network-1’s 1996 Stock Option Plan, as amended, or by will or the laws of
descent and
5
distribution.
With respect to any such transfer, sale or assignment, Holder shall execute
and
deliver to Network-1 the Form of Assignment attached hereto.
11. Taxes;
Expenses
Network-1
shall pay all taxes and expenses that may be payable in connection with the
preparation, issuance and delivery of Options Shares under this Stock Option
Agreement.
12. Notice
of Adjustment
(a) Upon
any
adjustment of the Exercise Price pursuant to Section 7 hereof, Network-1, within
30 calendar days thereafter, shall have on file for inspection by the Holder
a
certificate of the Board of Directors of Network-1 setting forth the Exercise
Price after such adjustment, the method of calculation thereof in reasonable
detail, the facts upon which such calculations were based and the number of
Option Shares issuable upon exercise of the Option after such adjustment in
the
Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein.
(b) In
case:
(i) Network-1
shall authorize the issuance to all holders of shares of Common Stock of rights,
options, warrants or other securities to subscribe for or purchase capital
stock
of Network-1 or of any other subscription rights, options, warrants or other
securities; or
(ii) Network-1
shall authorize the distribution to all holders of shares of Common Stock of
evidences of its indebtedness or assets; or
(iii) of
any
consolidation or merger to which Network-1 is a party and for which approval
of
any stockholders of Network-1 is required, of the conveyance or transfer of
the
properties and assets of Network-1 substantially as an entirety or of any
capital reorganization or any reclassification of the shares of Common Stock;
or
(iv) of
the
voluntary or involuntary dissolution, liquidation or winding up of Network-1;
or
(v) Network-1
proposes to take any other action which would require an adjustment of the
Exercise Price pursuant to Section 7 above;
then,
in
each such case, Network-1 shall give to the Holder at its address appearing
below at least 20 calendar days prior to the applicable record date hereinafter
specified in (A), (B), or (C) below, by first class mail, postage prepaid,
a
written notice stating (A) the date as of which the holders of record of shares
of Common Stock entitled to receive any such rights, options, warrants or
distribution are to be determined or (B) the date on which any such
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation or winding up is expected to become effective, and
the
date as of which it is expected that holders of record of shares of Common
Stock
shall be entitled to exchange such shares for securities or other
6
property,
if any, deliverable upon such consolidation, merger, conveyance, transfer,
reorganization, reclassification, dissolution, liquidation or winding up or
(C)
the date of such action which would require an adjustment of the Exercise Price.
The failure to give the notice required by this Section 12 or any defect therein
shall not affect the legality or validity of any such issuance, distribution,
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation, winding up or other action or the vote upon any such
action.
Except
as
provided herein, nothing contained herein shall be construed as conferring
upon
Holder the right to vote on any matter submitted to the stockholders of
Network-1 for their vote or to receive notice of meetings of stockholders or
the
election of directors of Network-1 or any other proceedings of Network-1, or
any
rights whatsoever as a stockholder of Network-1.
13. Notices
Any
notice, request, demand or other communication pursuant to the terms of this
Stock Option Agreement shall be in writing and shall be sufficiently given
or
made when delivered or mailed by first class or registered mail,
postage-prepaid, to the following addresses:
If
to
Network-1:
Network-1
Security Solutions, Inc.
000
Xxxx
Xxxxxx, Xxxxx 0000
Xxx
Xxxx,
Xxx Xxxx 00000
with
a
copy to:
Xxxxxxx
Xxxxxx Xxxxxxxxx & Kakoyiannis, P.C.
000
Xxxxx
Xxxxxx, 00xx Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxx
Xxxxxxxx, Esq.
If
to
Holder:
[
|
|
]
|
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
7
Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. No party shall be deemed to have waived any claim arising
out of this Stock Option Agreement, or any power, right, privilege or remedy
under this Stock Option Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written instrument duly
executed and delivered on behalf of such party; and any such waiver shall not
be
applicable or have any effect except in the specific instance in which it is
given.
(b) Entire
Agreement.
Except
as otherwise set forth in this Stock Option Agreement and the other documents
referred to herein, collectively contain the entire understanding of the parties
hereto with respect to the subject matter contained herein and supersede all
prior agreements and understandings, oral and written, with respect
thereto.
(c) Binding
Effect; Benefit.
This
Stock Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and nothing in this Stock Option Agreement, expressed or implied,
is intended to confer on any person or entity other than the parties hereto
or
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Stock Option Agreement.
(d) Amendment
and Modification.
Subject
to applicable law, this Stock Option Agreement may only be amended, modified
and
supplemented by a written agreement duly executed the parties hereto.
(e) Further
Actions.
Network-1 shall use its best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereunder and to carry out the interest
and purposes of this Stock Option Agreement, including, without limitation,
using its reasonable best efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental entities.
(f) Applicable
Law.
This
Stock Option Agreement and the legal relations between the parties hereto shall
be governed by, and construed in accordance with, the laws of the State of
New
York, without regard to the conflicts of laws rules thereof.
(g) Dispute
Resolution.
The
parties hereto will use their best efforts to resolve by mutual agreement any
disputes, controversies or differences that may arise from, under, out of or
in
connection with this Agreement. If any such disputes, controversies or
differences cannot be settled between the parties hereto, they will be finally
settled by final and binding arbitration to be conducted by an arbitration
tribunal in New York City, New York, pursuant to the rules of the American
Arbitration Association. The arbitration tribunal will consist of three
arbitrators. The decision or award of the arbitration tribunal will be final,
and judgment upon such decision or award may be entered in any competent court
or application may be made to any competent court for judicial acceptance of
such decision or award and an order of enforcement. In the event of any
procedural matter not covered by the aforesaid rules, the procedural law of
New
York will
8
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.
9
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: | ||
Xxxxx X.
Xxxxxxxx, Chief Executive Officer
|
||
10
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.
|
000
Xxxx
Xxxxxx, Xxxxx 0000
Xxx
Xxxx,
Xxx Xxxx 00000
The
undersigned hereby (1) irrevocably elects to exercise its right to exercise
_____ shares of Common Stock covered by the within Option, (2) makes payment
in
full of the Exercise Price by enclosure of a certified check or (3) requests
that certificates for such shares be issued in the name of:
Please
print name, address and Social Security or Tax Identification
Number:
and
(5)
if said number of shares shall not be all the shares evidenced by the within
Option, requests that a new Option Agreement for the balance of the shares
covered by the within Option be registered in the name of, and delivered
to:
Please
print name and address:
In
lieu
of receipt of fractional shares of Common Stock, the undersigned will receive
a
check representing payment therefor.
Dated:
|
|
By:
|
11
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:
____________________
12