The information in this prospectus supplement is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion,Completion, dated November 6 , 2009.August 20, 2015.
PROSPECTUS SUPPLEMENT
Up to $35,000,000 of Shares
Common Stock
Our common stock is listed on the NYSE AmexMKT LLC under the symbol “VHC.” On November 5, 2009,August 18, 2015, the last reported salessale price of our common stock as reported on the NYSE AmexMKT LLC was $2.05$3.91 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF COMMON STOCK OR PASSED“RISK FACTORS” ON THE ADEQUACY OR ACCURACYPAGE S-6 OF THIS PROSPECTUS. ANY REPRESENTATION TOPROSPECTUS SUPPLEMENT AND IN THE CONTRARY IS A CRIMINAL OFFENSE.DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
Cowen and Company
The date of this prospectus supplement is , 20092015.
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This prospectus supplement is part of a registration statement that we have filed with the U.S. Securities and Exchange Commission, or the SEC,Commission, utilizing a “shelf” registration process. By using a shelf registration process.statement, we may offer shares of our common stock having an aggregate offering price of up to $35,000,000 from time to time under this prospectus supplement at prices and on terms to be determined by market conditions at the time of offering.
You should rely only on the information contained in, or incorporated by reference into, this prospectus and in any free writing prospectus that we may authorize for use in connection with this prospectus.offering. We have not, and Cowen has not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor any underwriter, dealer or agent will makeWe are not, and Cowen is not, making an offer to sell the common stockor soliciting an offer to buy our securities in any jurisdiction where thean offer or salesolicitation is not permitted.authorized or in which the person making that offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make an offer or solicitation. You should assume that the information appearing in this prospectus supplement, the accompanying base prospectus, the documents incorporated by reference into this prospectus, and in any free writing prospectus that we may authorize for use in connection with this offering, is accurate only as of the date on this cover.of those respective documents. Our business, financial condition, results of operations and prospects may have changed since that date.
We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where such offers and sales are permitted. The distribution of this prospectus supplement, the accompanying base prospectus, any free writing prospectus that we may authorize for use in this offering and the offering of the Private Securities Litigation Reform Actcommon stock in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of 1995,this prospectus supplement, the accompanying base prospectus must inform themselves about, and observe any restrictions relating to, the offering of the common stock and the distribution of this prospectus supplement, the accompanying base prospectus and any free writing prospectus that we may use in connection with this offering outside the United States. This prospectus supplement, the accompanying base prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, any securities offered by this prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.
When we refer to “VirnetX,” “we,” “our,” “us” and the “Company” in this prospectus, we mean VirnetX Holding Corporation and our consolidated subsidiaries unless otherwise specified. When we refer to “you,” we mean the holders of common stock of the Company.
VirnetXTM and GABRIEL Connection TechnologyTM are our trademarks in the United States. This prospectus includes product names, trade names and trademarks of other companies. All other product names, trade names and trademarks appearing in this prospectus are the property of their respective holders.
This summary provides a “safe harbor” for statements about future events, productsgeneral overview of selected information and future financial performance that are based on the beliefs of, estimates made by and information currently available to our management. Except for the historical information contained herein, the outcomedoes not contain all of the events describedinformation you should consider before buying our common stock. Therefore, you should read the entire prospectus supplement, accompanying base prospectus and any free writing prospectus that we have authorized for use in these forward-looking statements is subjectconnection with this offering carefully, including the information incorporated by reference, before deciding to risks and uncertainties. Seeinvest in our common stock. Investors should carefully consider the information set forth under “Risk Factors” for a discussion of these risksbeginning on page S-6 and uncertainties. The following discussion should be read in conjunction with and is qualified in its entiretyincorporated by reference to our consolidated financial statements included elsewhere in this prospectus. Actual resultsmost recent annual report on Form 10-K, quarterly reports on Form 10-Q and the outcome or timing of certain events may differ significantly from those stated or implied by these forward-looking statements due to the factors listed under “Risk Factors,” and from time to time in our other filings with the Securities and Exchange Commission, or SEC. For this purpose, using the terms “believe,” “expect,” “expectation,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “appear,” “based on,” “may,” “intended,” “potential,” “indicate,” “are emerging” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those stated or implied by these forward-looking statements. By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.
We are developing and commercializingdevelop software and technology solutions for securing real-time communications over the Internet. Our patented GABRIEL Connection TechnologytmTechnologyTM combines industry standard encryption protocols with our patented techniques for automated domain name system, or DNS, lookup mechanisms, enablingand enables users to create a secure communication link using secure domain names.names over wired or wireless (4G/LTE) networks. We are currently beta testing our GABRIEL Connection TechnologyTM as part of our Secure Domain Name Initiative, or (SDNI), on various platforms including PCs, smart phones and tablets. We also intend to establish the exclusive secure domain name registry in the United States and other key markets around the world.
Our portfolio of intellectual property is the foundation of our business model. Our patent portfolio is primarily focused on securing real-time communications over the Internet, as well as related services such as the establishment and maintenance of a secure domain name registry. Our patented methods also have additional applications in the key areas of device operating systems and network security for Cloud services, Mobile-to-Mobile (M2M) communications in areas of Smart City, Connected Car and Connected Home.
We have submitted a declaration with the 3rd Generation Partnership Project, or 3GPP, identifying a group of our patents and patent applications that we believe are or may become essential to certain developing specifications in the 3GPP LTE, SAE project. We have agreed to make available a non-exclusive patent license under fair, reasonable and non-discriminatory terms and conditions, with compensation, or FRAND, to 3GPP members desiring to implement the technical specifications identified by us. We believe that we are positioned to license our essential security patents to 3GPP members as they move into 4G.
We believe that the market opportunity for our software and technology solutions is large and expanding as secure domain names are now an integral part of securing the next generation 4G/LTE Advanced wireless networks and Mobile-to-Mobile (M2M) communications in areas including Smart City, Connected Car and Connected Home. We also believe that all 4G/LTE Advanced mobile devices will require unique secure domain names and become part of a secure domain name registry.
We intend to license our patent portfolio, technology and software, including our secure domain name registry service, to domain infrastructure providers, communication service providers as well as to system integrators. We intend to seek further license of our technology, including our GABRIEL Connection TechnologyTM to enterprise customers, developers and original equipment manufacturers, or OEMs, of chips, servers, smart phones, tablets, e-Readers, laptops, net books and other devices, within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets including 4G/LTE. We have published our royalty rates and guidelines on our website. All forward moving licenses have adhered to these guidelines and have met or exceeded these rates and we will use these rates and guidelines in all future license negotiations.
Our software and technology solutions provide the security platform required by next-generation Internet-based applications such as instant messaging, or IM, voice over Internet protocol, or VoIP, mobile services, streaming video, file transfer, remote desktop and remote desktop.Mobile-to-Mobile (M2M) communications in areas including Smart City, Connected Car and Connected Home. Our technology generates secure connections on a “zero-click” or “single-click” basis, significantly simplifying the deployment of secure real-time communication solutions by eliminating the need for end usersend-users to enter any encryption information.
VirnetX, Inc., was incorporated in the State of Delaware in August 2005. In November 2006, VirnetX acquired certain patents from Leidos, Inc. In July 2007, we effected a reverse merger between PASW, Inc. and VirnetX, which became our principal operating subsidiary. As a result of this merger, the former security holders of VirnetX came to own a majority of our outstanding common stock. On October 29, 2007, we changed our name from PASW, Inc. to VirnetX Holding Corporation. Our principal executive offices are located at 308 Dorla Ct., Zephyr Cove, Nevada 89448, and our telephone number is (775) 548-1785.
| Common stock offered by us | Shares of our common stock having an aggregate offering price of up to $35,000,000. |
Common stock to be outstanding after this offering | Up to 8,951,406 shares, assuming sales at a price of $3.91 per share, which was the closing price which was the last reported sale price of our common stock on the NYSE MKT LLC on August 18, 2015. Actual number of shares issued will vary depending on the price at which shares may be sold from time to time under this offering. |
| Manner of offering | “At-the-market” offering that may be made from time to time through our sales agent, Cowen and Company, LLC. See “Plan of Distribution” on page S-10. |
| Use of Proceeds | We intend to use the net proceeds, if any, from this offering for Gabriel product development and marketing, and working capital and general corporate purposes. See “Use of Proceeds” on page S-8. |
| Risk Factors | You should read the “Risk Factors��� section of this prospectus supplement and in the documents incorporated by reference in this prospectus supplement for a discussion of factors to consider before deciding to purchase shares of our common stock. |
| Symbol on the NYSE MKT LLC | “VHC.” |
The number of shares of common stock to be outstanding after this offering is based on 52,363,585 shares of common stock outstanding as of August 4, 2015 and excludes the following:
| · | 4,599,928 shares of common stock issuable upon exercise of stock options outstanding as of August 4, 2015 at a weighted-average exercise price of $9.22 per share; |
| · | 359,956 shares of common stock issuable upon vesting of restricted stock units outstanding as of August 4, 2015; |
| · | 1,469,552 shares of common stock reserved for issuance pursuant to future awards under our 2013 Equity Incentive Award Plan; and |
| · | 25,000 shares of common stock issuable upon the exercise of warrants outstanding as of August 4, 2015 at a weighted-average exercise price of $7.00 per share. |
Unless otherwise stated, all information contained in this prospectus supplement reflects an assumed public offering price of $3.91 per share, which was the last reported sale price of our common stock on the NYSE MKT LLC on August 18, 2015.
You should consider carefully the risks described below and discussed under the section captioned “Risk Factors” contained in our most recent annual report on Form 10-K, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act, each of which is incorporated by reference in this prospectus supplement in their entirety, together with other information in this prospectus supplement, and the information and documents incorporated by reference in this prospectus supplement, and any free writing prospectus that we have authorized for use in connection with this offering before you make a decision to invest in our common stock. If any of the following events actually occur, our business, operating results, prospects or financial condition could be materially and adversely affected. This could cause the trading price of our common stock to decline and you may lose all or part of your investment. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business operations.
Risks Relating to this Offering
Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return.
Our management will have broad discretion over the use of proceeds from this offering. We intend to use the net proceeds, if any, from this offering to fund our planned registration program for working capital and general corporate purposes. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or enhance the value of our common stock.
You may experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.
The price per share of our common stock being offered may be higher than the net tangible book value per share of our common stock outstanding prior to this offering. The shares sold in this offering, if any, will be sold from time to time at various prices. After giving effect to the sale of shares of our common stock in the aggregate amount of $35,000,000 at an assumed offering price of $3.91 per share, the last reported sale price of our common stock on August 18, 2015 on the NYSE MKT LLC, and after deducting commissions and estimated offering expenses, our as adjusted net tangible book value as of June 30, 2015 would have been approximately $55,607,000 or approximately $0.91 per share. This represents an immediate increase in net tangible book value of approximately $0.50 per share to our existing stockholders and an immediate dilution in as adjusted net tangible book value of approximately $3.00 per share to purchasers of our common stock in this offering. See the section entitled “Dilution” below for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering.
You may experience future dilution as a result of future equity offerings.
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share in this offering. As of August 4, 2015, approximately 6,454,436 shares of common stock that are either subject to outstanding options, issuable upon vesting of outstanding restricted stock units, reserved for future issuance under our equity incentive plans or subject to outstanding warrants are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act.
If we sell additional equity or debt securities to fund our operations, it may impose restrictions on our business.
In order to raise additional funds to support our operations, we may sell additional equity or debt securities, which may impose restrictive covenants that adversely impact our business. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to expand our operations or otherwise capitalize on o business opportunities due to such restrictions, our business, financial condition and results of operations could be materially adversely affected.
Future sales of our common stock in the public market or other financings could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market, the perception that these sales might occur or other financings, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. A substantial majority of the outstanding shares of our common stock are, all of the shares sold in this offering upon issuance will be, freely tradable without restriction or further registration under the Securities Act unless these shares are owned or purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act.
Because we do not intend to declare cash dividends on our shares of common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.
We do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of our existing debt agreements preclude us from paying dividends. As a result, we expect that only appreciation of the price of our common stock, if any, will provide a return to investors in the offering for the foreseeable future.
The common stock offered hereby will be sold in "at-the-market" offerings, and investors who buy shares at different times will likely pay different prices.
Investors who purchase shares in this offering at different times will likely pay different prices, and so may experience different outcomes in their investment results. We will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold, and there is no minimum or maximum sales price. Investors may experience a decline in the value of their shares as a result of share sales made at prices lower than the prices they paid.
The actual number of shares we will issue under the sales agreement, at any one time or in total, is uncertain.
Subject to certain limitations in the sales agreement and compliance with applicable law, we have the discretion to deliver a sales notice to Cowen at any time throughout the term of the sales agreement. The number of shares that are sold by Cowen after delivering a sales notice will fluctuate based on the market price of the common shares during the sales period and limits we set with Cowen. Because the price per share of each share sold will fluctuate based on the market price of our common stock during the sales period, it is not possible at this stage to predict the number of shares that will be ultimately issued.
We expect to use the net proceeds from the sale of securities for Gabriel product development and marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Our management team will have broad discretion to allocate the net proceeds of the offering. Pending their ultimate use, we intend to invest the net proceeds in short-term investment-grade, interest-bearing instruments.
We do not expect for the foreseeable future to pay dividends on our common stock. Instead, we anticipate that all of our earnings, if any, in the foreseeable future will be used for working capital and other general corporate purposes. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.
If you invest in our common stock, your interest will be diluted to the extent of the difference between the price per share of our common stock you pay in this offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.
Our net tangible book value as of June 30, 2015 was approximately $21,657,000, or $0.41 per share. Net tangible book value per share is determined by dividing our total tangible assets, less total liabilities, by the number of shares of our common stock outstanding as of June 30, 2015. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the as adjusted net tangible book value per share of our common stock immediately after giving effect to this offering.
After giving effect to the sale of our common stock in the aggregate amount of $35,000,000 in this offering at an assumed offering price of $3.91, the last reported sale price of our common stock on the NYSE MKT LLC on August 18, 2015, and after deducting commissions and estimated aggregate offering expenses payable by us, our as adjusted net tangible book value as of August 18, 2015 would have been approximately $55,607,000, or $0.91 per share. This represents an immediate increase in net tangible book value of $0.50 per share to existing stockholders and immediate dilution in net tangible book value of $3.00 per share to new investors purchasing our common stock in this offering.
The following table illustrates this dilution on a per share basis. The as adjusted information is illustrative only and will adjust based on the actual price to the public, the actual number of shares sold and other terms of the offering determined at the time shares of our common stock are sold pursuant to this prospectus. The shares sold in this offering, if any, will be sold from time to time at various prices.
| Assumed public offering price per share | $ | 3.91 | ||||||
| Net tangible book value per share as of June 30, 2015 | $ | 0.41 | ||||||
| Increase per share attributable to new investors | 0.50 | |||||||
| As adjusted net tangible book value per share after this offering | 0.91 | |||||||
| Dilution per share to new investors | 3.00 | |||||||
A $1.00 increase (decrease) in the assumed offering price of $3.91 per share, which was the last reported sale price of our common stock on the NYSE MKT LLC on August 18, 2015, would increase (decrease) dilution per share to purchasers by approximately $0.97 ($0.96), after deducting commissions and estimated offering expenses payable by us.
To the extent that outstanding options or warrants are exercised or outstanding restricted stock units vest, investors purchasing our common stock in this offering will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
We have entered into a sales agreement with Cowen under which we may issue and sell shares of our common stock having an aggregate gross sales price of up to $35,000,000 from time to time through Cowen acting as agent. The sales agreement has been filed as an exhibit to our registration statement on Form S-3 of which this prospectus supplement forms a part.
Upon delivery of a placement notice and subject to the terms and conditions of the sales agreement, Cowen may sell our common stock by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act, including sales made directly on the NYSE MKT LLC on any other existing trading market for our common stock or to or through a market maker. Cowen may also sell our common stock by any other method permitted by law, including in privately negotiated transactions. We may instruct Cowen not to sell common stock if the sales cannot be effected at or above the price designated by us from time to time. We or Cowen may suspend the offering of common stock upon notice and subject to other conditions.
Each time we planwish to leverageissue and sell common stock under the sales agreement, we will notify Cowen of the number of shares to be issued, the dates on which such sales are anticipated to be made, any minimum price below which sales may not be made and other sales parameters as we deem appropriate. Once we have so instructed Cowen, unless Cowen declines to accept the terms of the notice, Cowen has agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such shares up to the amount specified on such terms. The obligations of Cowen under the sales agreement to sell our common stock are subject to a number of conditions that we must meet.
We will pay Cowen commissions, in cash, for its services in acting as agent in the sale of our common stock. Cowen will be entitled to compensation at a fixed commission rate of up to 3.0% of the gross sales price per share sold. Because there is no minimum offering amount required as a condition to close this portfoliooffering, the actual total public offering amount, commissions and proceeds to developus, if any, are not determinable at this time. We have also agreed to reimburse Cowen for certain specified expenses, including the fees and disbursements of its legal counsel, in an amount not to exceed $125,000. We estimate that the total expenses for the offering, excluding discounts and commissions payable to Cowen under the terms of the sales agreement, will be approximately $606,000.
Settlement for sales of common stock will generally occur on the third business day following the date on which any sales are made, or on some other date that is agreed upon by us and Cowen in connection with a product suite that canparticular transaction, in return for payment of the net proceeds to us. Sales of our common stock as contemplated in this prospectus supplement will be soldsettled through the facilities of The Depository Trust Company or by such other means as we and Cowen may agree upon. There is no arrangement for funds to enterprise customersbe received in an escrow, trust or similar arrangement.
Cowen will use its commercially reasonable efforts, consistent with its sales and developers.trading practices, to solicit offers to purchase the common stock shares under the terms and subject to the conditions set forth in the sales agreement. In connection with the sale of the common stock on our behalf, Cowen may, and will with respect to sales effected in an “at the market” offering, be deemed to be an “underwriter” within the meaning of the Securities Act and the compensation of Cowen will be deemed to be underwriting commissions or discounts. We have agreed to provide indemnification and contribution to Cowen against certain civil liabilities, including liabilities under the Securities Act.
The Internet is increasingly evolving into a rich medium usedoffering of our common stock pursuant to the sales agreement will terminate upon the earlier of (1) the sale of all shares of our common stock subject to the sales agreement, or (2) termination of the sales agreement as permitted therein. We and Cowen may each terminate the sales agreement at any time upon 10 days’ prior notice.
Cowen and its affiliates may in the future provide various investment banking, commercial banking and other financial services for us and our affiliates, for which services they may in the future receive customary fees. To the extent required by individuals and businesses to conduct commerce, share information andRegulation M, Cowen will not engage in real-time communications including email, text messaging, IM,any market making activities involving our common stock while the offering is ongoing under this prospectus supplement.
The validity of the securities offered by this prospectus will be passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Cowen is being represented in connection with this offering by Proskauer Rose LLP, New York, New York.
Our consolidated financial statements appearing in the VirnetX Holding Corporation Annual Report on Form 10-K for the year ended December 31, 2014 (including the schedule appearing therein), and voicethe effectiveness of our internal control over financial reporting as of December 31, 2014 have been audited by Farber Hass Hurley LLP, independent registered public accounting firm, as set forth in their reports thereon, included therein, and video calls. This communications experience is richerincorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and more complex than ever before. Session initiation protocol, or SIP, was developedauditing.
We file annual, quarterly and other reports, proxy statements and other information with the Commission. Our Commission filings are available to enable the convergence of voice and data networks and today is the predominant industry standard for establishing multimedia communicationspublic over the Internet such as voice, video, instant messaging, presenceat the Commission’s website at http://www.sec.gov. You may also read and copy any document we file at the Commission’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the Public Reference Room. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including any amendments to those reports, and other information that we file transfer. SIP as well as other real-time collaboration-protocols such as XMPP, use DNS lookup as their primary means of connecting Internet devices but is an open architecture that remains inherently unsecure. Aswith or furnish to the workforce becomes increasingly dispersed, mobile features enabled by Internet protocol-based communications such as presence, unified messaging, find me/follow me, white-boarding and document sharing have become more commonplace. However, the developmentCommission pursuant to Section 13(a) or 15(d) of the security infrastructure forExchange Act can also be accessed free of charge through the Internet. These filings will be available as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission.
We have filed with the Commission a registration statement under the Securities Act relating to the offering of these applications has lagged behindsecurities. The registration statement, including the adoption of next-generation networks, leaving them vulnerable to a multitude of threats including man-in-middle, eavesdropping, domain hijacking, distributed denial of service, or DDoS, spam over Internet telephony, or SPIT, and spam over instant messaging, or SPIM. These threats continue to highlight the need for securing these next-generation networks. We believe that accessing a diversity of services from a single device, anytime and anywhere,attached exhibits, contains additional relevant information about us and the abilitysecurities. This prospectus does not contain all of the information set forth in the registration statement. You can obtain a copy of the registration statement, at prescribed rates, from the Commission at the address listed above.
The Commission allows us to access these same services fromincorporate by reference into this prospectus certain information we file with it, which means that we can disclose important information by referring you to those documents. The information incorporated by reference is considered to be a rangepart of devices, are emerging as key market requirements. Thethis prospectus, and information that we file later with the Commission will automatically update and supersede information contained in this prospectus and any accompanying prospectus supplement. We incorporate by reference the documents listed below that we have previously filed with the Commission (excluding any portions of any Form 8-K that are not deemed “filed” pursuant to the IP-telephony, mobility, fixed-mobile convergence and unified communications markets that could benefit from our software and technology solutions are forecasted to grow from approximately $59 billion in total revenues in 2006 to approximately $162 billion in total revenues by 2011, representing a compound annual growth rate, or CAGR,General Instructions of approximately 23%. This growing trend represents a significant opportunity for VirnetX to license its patent portfolio, technology and software, and establish its secure domain name registry.Form 8-K):
| · | our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed on March 2, 2015; |
| · | our Quarterly Reports on Form 10-Q, filed on May 11, 2015 and August 10, 2015; |
| · | our Current Reports on Form 8-K, filed on January 2, 2015 and May 20, 2015 (excluding any information furnished in such reports under Item 2.02, Item 7.01 or Item 9.01); and |
| · | the description of our common stock contained in our Registration Statement filed with the Commission on Form 8-A on November 21, 2007, together with Amendment No. 1 on Form 8-A filed with the Commission on December 21, 2007, and including any other amendments or reports filed for the purpose of updating such description. |
We also incorporate by reference into this prospectus additional documents that we may file with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the completion or termination of the offering, including all such documents we may file with the Commission after the date of the initial registration statement and prior to the effectiveness of the registration statement, but excluding any information deemed furnished and not filed with the Commission. Any statements contained in a previously filed document incorporated by reference into this prospectus is deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus, or in a subsequently filed document also incorporated by reference herein, modifies or supersedes that statement.
This prospectus may contain information that updates, modifies or is contrary to information in one or more of the documents incorporated by reference in this prospectus. You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus or the date of the documents incorporated by reference in this prospectus.
We will provide to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request, at no cost to the requester, a copy of any and all of the information that is incorporated by reference in this prospectus.
Requests for such documents should be directed to:
VirnetX Holding Corporation Attn:
Investor Relations
308 Dorla Ct.
Zephyr Cove, NV 89448
(775) 548-1785
S-13
The information in this prospectus is not complete and may be changed. We may not sell the securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED August 20, 2015
PROSPECTUS
$100,000,000
VirnetX Holding Corporation
By this prospectus, VirnetX Holding Corporation may offer, from time to time:
| · | Common stock |
| · | Preferred stock |
| · | Depositary Shares |
| · | Warrants |
| · | Debt securities |
| · | Units |
VirnetX Holding Corporation (“VirnetX”) may offer and sell from time to time, in one or more series or issuances and on terms that VirnetX will determine at the time of the offering, any combination of the securities described in this prospectus, up to an aggregate amount of $100,000,000.
We will provide specific terms of any offering in a supplement to this prospectus. Any prospectus supplement may also add, update, or change information contained in this prospectus. You should carefully read this prospectus and the applicable prospectus supplement as well as the documents incorporated or deemed to be incorporated by reference in this prospectus before you purchase any of the securities offered hereby.
These securities may be offered and sold in the same offering or in separate offerings; to or through underwriters, dealers, and agents; or directly to purchasers. The names of any underwriters, dealers, or agents involved in the sale of our securities, their compensation and any over-allotment options held by them will be described in the applicable prospectus supplement. See “Plan of Distribution.”
Our Solutionscommon stock is listed on the NYSE MKT LLC under the symbol “VHC.” We will provide information in any applicable prospectus supplement regarding any listing of securities other than shares of our common stock on any securities exchange.
INVESTING IN OUR SECURITIES INVOLVES SIGNIFICANT RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 7 OF THIS PROSPECTUS AND IN THE APPLICABLE PROSPECTUS SUPPLEMENT BEFORE INVESTING IN ANY SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2015
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This prospectus is part of a registration statement on Form S‑3 that we filed with the United States Securities and Exchange Commission, or the Commission, using a “shelf” registration process. Under this shelf registration statement, we may, from time to time, offer or sell any combination of the securities described in this prospectus in one or more offerings up to a total aggregate amount of $100,000,000.
This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add to, update or change information contained in the prospectus and, accordingly, to the extent inconsistent, information in this prospectus is superseded by the information in the prospectus supplement.
The prospectus supplement will describe, as applicable: the terms of the securities offered; the initial price to the public; the price paid for the securities; net proceeds; and the other specific terms related to the offering of the securities.
We have not authorized any person to provide you with different information. No person has been authorized to give any information or make any representations in connection with this offering other than those contained or incorporated by reference in this prospectus, any accompanying prospectus supplement and any related issuer free writing prospectus in connection with the offering described herein and therein, and, if given or made, such information or representations must not be relied upon as having been authorized by us. Neither this prospectus nor any prospectus supplement nor any related issuer free writing prospectus shall constitute an offer to sell or a solicitation of an offer to buy offered securities in any jurisdiction in which it is unlawful for such person to make such an offering or solicitation. This prospectus does not contain all of the information included in the registration statement. For a more complete understanding of the offering of the securities, you should refer to the registration statement, including its exhibits.
You should read the entire prospectus, the applicable prospectus supplement and any related issuer free writing prospectus, as well as the information and documents incorporated by reference into this prospectus and the additional information under the heading "where you can find more information." before making an investment decision. We do not imply or represent by delivering this prospectus that VirnetX, or our business, is unchanged after the date on the front of this prospectus or any prospectus supplement or any issuer free writing prospectus nor any sale made hereunder shall under any circumstances imply that the information contained or incorporated by reference herein or in any prospectus supplement or issuer free writing prospectus is correct as of any date subsequent to the date hereof or of such prospectus supplement or issuer free writing prospectus, as applicable. You should assume that the information appearing in this prospectus, any prospectus supplement, any issuer free writing prospectus or any document incorporated by reference is accurate only as of the date of the applicable documents, regardless of the time of delivery of this prospectus or any sale of securities. Our business, financial condition, results of operations and prospects may have changed since that date.
In this prospectus, unless otherwise indicated or unless the context otherwise requires, all references to:
| · | “we,” “us,” “company,” “VirnetX,” or “our” are to VirnetX Holding Corporation, a Delaware corporation; |
| · | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
| · | “Securities Act” are to the Securities Act of 1933, as amended; |
| · | “$” are to the legal currency of the United States. |
This summary description about us and our business highlights selected information contained elsewhere in this prospectus or incorporated in this prospectus by reference. This summary does not contain all of the information you should consider before buying securities in this offering. You should carefully read this entire prospectus and any applicable prospectus supplement, including each of the documents incorporated herein or therein by reference, before making an investment decision.
VirnetX Holding Corporation
Overview
We are an Internet security software and technology company with patented technology for 4G LTE security. Our software and technology solutions, including GABRIEL Connection Technologytm, our secure domain name registry and our patentsGabriel Connection Technology™, are designed to facilitate secure all types of real-time communications over the Internet. Our patented GABRIEL Connection Technologytm combines industry standard encryption protocols with our patented techniques for automated DNS lookup mechanisms, enabling usersand to create a secure communication link using secure domain names. Our technology can be built into network infrastructure, operating systems or silicon chips developedenvironment for areal-time communication or computing device to secure real-time communications over the Internet between any number of devices. Our technology automatically encrypts data allowing organizations and individuals to establish communities of secure, registered users and transmit information between multiple devices, networks and operating systems. These secure network communities, which we call secure private domains, or SPDs, are designed to be fully-customizable and support rich content applications such as IM,instant messaging, VoIP, mobile services, streamingsmart phones, eReaders and video file transferconferencing. Our patent portfolio includes over 112 U.S. and remote desktop in a secure environment. Our approach is a unique and patented solution that provides the robust security platform required by these rich content applications and real-time communicationsinternational patents with over the Internet. The key benefits and features of our technology include the following:75 pending applications.
Corporate Information
Our principal executive offices are located at 5615 Scotts Valley Drive,308 Dorla Court, Suite 110, Scotts Valley, California 95066,206, Zephyr Cove, Nevada 89448, and our phonetelephone number at that address is (831) 438-8200.(775) 548-1785. We maintain a website on the Internet at www.virnetx.com. Informationwww.virnetx.com. Our website, and the information contained on our website doestherein, is not comprise a part of this prospectus.
VirnetX, Inc., was incorporated in the State of Delaware in August 2005. In November 2006, weVirnetX acquired certain patents from SAIC.Leidos, Inc. In July 2007, we effected a reverse merger between PASW, Inc., a publicly traded company with limited operations, and VirnetX, which became our principal operating subsidiary. As a result of this merger, the former security holders of VirnetX came to own a majority of our outstanding common stock. On October 29, 2007, we changed our name from PASW, Inc. to VirnetX Holding Corporation.
VirnetXtm and GABRIEL Connection Technologytm are our trademarks in the United States. This prospectus includes product names, trade names and trademarks of other companies. All other product names, trade names and trademarks appearing in this prospectus are the property of their respective holders.
We have commenced legal proceedings against Microsoft,may offer up to $100,000,000 of common stock, preferred stock, depositary shares, warrants, debt securities and units in one or more offerings and in any combination. This prospectus provides you with a general description of the securities we expect such litigation to be time-consuming and costly, which may adversely affect our financial condition and our ability to operate our business.
We believe that Microsoft infringes on threemay sell the securities to or through underwriters, dealers or agents or directly to purchasers or as otherwise set forth below under “Plan of our patents, but obtaining and collecting a judgment against Microsoft may be difficult or impossible. Patent litigation is inherently risky and the outcome is uncertain. Microsoft is a large, well-financed company with substantially greater resources than us.Distribution.” We, believe that Microsoft will devote a substantial amount of resources in an attempt to prove that either their products do not infringe our patents or that our patents are not valid and are unenforceable. At this time, we cannot predict the outcome of this litigation.
| Securities Beneficially Owned Prior to Offering | Beneficial Ownership After the Offering | ||||||||
Name of selling security holder | Shares of Common Stock being registered | Shares of Common Stock Underlying Warrants being registered+ | Other Shares and Shares Underlying other Warrants | Total Shares Beneficially Owned+ | Number of Total Shares Being Registered | Total Shares Owned After Offering (1) | Percent (2) | ||
| Albert James Poliak (26) | - | 37,906 | - | 30,575 | 37,906 | - | * | ||
| Anthony Athanas | 39,682 | 129,195 | 22,500(3) | 181,862 | 168,877 | 22,500 | * | ||
| Bret Marc Shapiro (27) | - | 15,965 | - | 12,877 | 15,965 | - | * | ||
| Capital Ventures International (4) | 496,032 | 1,614,956 | - | 1,992,064 | 2,110,988 | - | * | ||
| Chad K. Kirby | 55,555 | 180,874 | 43,945(5) | 267,053 | 236,429 | 43,945 | * | ||
| Charles Curtis | 39,682 | 129,195 | 5,500(6) | 164,862 | 168,877 | 5,500 | * | ||
| Dawson James Securities, Inc. (7) | - | 57,997 | - | 46,781 | 57,997 | - | * | ||
| Douglas F. Kaiser (28) | - | 37,906 | - | 30,575 | 37,906 | - | * | ||
| Drs. Robert F. & Qin C. Ryan | 19,841 | 64,598 | 18,750(8) | 98,431 | 84,439 | 18,750 | * | ||
| Frank Salvatore (29) | - | 37,906 | - | 30,575 | 37,906 | - | * | ||
| Gregory A. Harrison | 39,682 | 129,195 | 36,000(9) | 195,362 | 168,877 | 36,000 | * | ||
| Gregory J. Wood (10) | 63,492 | 206,715 | 1,008,000(11) | 1,262,983 | 270,207 | 1,008,000 | * | ||
| Gus Blass II | 59,523 | 193,793 | 359,900(12) | 598,944 | 253,316 | 359,900 | * | ||
| Hudson Bay Fund LP (13) | 178,572 | 581,387 | - | 717,145 | 759,959 | - | * | ||
| Hudson Bay Overseas Fund Ltd. (14) | 317,459 | 1,033,568 | - | 1,274,915 | 1,351,027 | - | * | ||
| Jay R. Angle | 95,238 | 310,072 | 10,000 (24) | 392,475 | 405,310 | 10,000 | * | ||
| Jay R. Kuhne | 79,365 | 258,393 | - | 318,729 | 337,758 | - | * | ||
| John Baleno | 11,904 | 38,757 | - | 47,806 | 50,661 | - | * | ||
| John J. Blum Jr. | 59,523 | 193,793 | 30,000 (25) | 269,044 | 253,316 | 30,000 | * | ||
| John R. Rogers | 43,650 | 142,114 | 7,500(15) | 182,798 | 185,764 | 7,500 | * | ||
| Joseph Thomas Watters, III | 39,682 | 129,195 | 11,900(16) | 171,262 | 168,877 | 11,900 | * | ||
| Kenneth J. Licht | 39,682 | 129,195 | 100,000(17) | 259,362 | 168,877 | 100,000 | * | ||
| Nancy L. Schmid | 59,523 | 193,793 | 516,574(18) | 755,618 | 253,316 | 516,574 | * | ||
| Peter Wardenburg, Trustee, Wardenburg 2009 Family Trust (19) | 39,682 | 129,195 | - | 159,362 | 168,877 | - | * | ||
| Ramius Advisors, LLC (20) | 595,237 | 1,937,943 | - | 2,390,471 | 2,533,180 | - | * | ||
| Ramius Enterprise Master Fund Ltd. (21) | 178,571 | 581,383 | - | 717,141 | 759,954 | - | * | ||
| RCG PB Ltd. (22) | 416,666 | 1,356,560 | - | 1,673,330 | 1,773,226 | - | * | ||
| Robert D. Keyser, Jr. (30) | - | 37,906 | - | 30,575 | 37,906 | - | * | ||
| Scott E. Schalk (31) | - | 40,171 | - | 32,402 | 40,171 | - | * | ||
| Thomas Russell Curtis | - | 25,705 | 46,400(32) | 67,134 | 25,705 | 46,400 | * | ||
| Thomas W. Hands (33) | - | 3,720 | - | 3,000 | 3,720 | - | * | ||
| Vestal Venture Capital (23) | 7,936 | 25,838 | - | 31,870 | 33,774 | - | * | ||
Common Stock
All outstanding shares of our common stock are of the same class and have equal rights and attributes.
Voting. The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. Our common stock does not have cumulative voting rights. Persons who hold a majority of the outstanding shares of our common stock entitled to vote on the election of directors can elect all of the directors who are eligible for election.
Dividends. Subject to the preferential dividend rights and consent rights of any series of preferred stock that we may from time to time designate, holders of our common stock are entitled to share equally in dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available.
Liquidation and Dissolution. In the event of our liquidation, dissolution or winding up, subject to the preferential liquidation rights of any series of preferred stock that we may from time to time designate, the holders of our common stock are entitled to share ratably in all of our assets remaining after payment of all liabilities and preferential liquidation rights.
Preferred Stock and Depositary Shares
We may also issue fractional shares of preferred stock that will be represented by depositary shares and depositary receipts.
Each series of preferred stock, depositary shares or depositary receipts, if issued, will be more fully described in the particular prospectus supplement that will accompany this prospectus, including redemption provisions, rights in the event of our liquidation, dissolution or winding up, voting rights and preferences determinedrights to convert into common stock. We have no present plans to issue any shares of preferred stock, depositary shares or depositary receipts nor are any shares of our preferred stock, depositary shares or depositary receipts presently outstanding.
Warrants
We may issue warrants for the purchase of common stock, preferred stock or debt securities. We may issue warrants independently or together with other securities.
Debt Securities
We may offer secured or unsecured obligations in the form of one or more series of senior or subordinated debt. The senior debt securities and the subordinated debt securities are together referred to in this prospectus as the “debt securities.” The subordinated debt securities generally will be entitled to payment only after payment of our senior debt. Senior debt generally includes all debt for money borrowed by us, except debt that is stated in the instrument governing the terms of that debt to be not senior to, or to have the same rank in right of payment as, or to be expressly junior to, the subordinated debt securities. We may issue debt securities that are convertible into shares of our common stock.
The senior and subordinated debt securities will be issued under separate indentures between us and a trustee. We have summarized the general features of the debt securities to be governed by the indentures. These indentures have been filed as exhibits to the registration statement of which this prospectus forms a part. We encourage you to read these indentures. Instructions on how you can get copies of these documents are provided under the heading “Where You Can Find More Information.”
Units
We may issue units comprised of one or more of the other classes of securities issued by us as described in this prospectus in any combination. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit.
This prospectus may not be used to consummate a sale of any securities unless it is accompanied by a prospectus supplement.
An investment in our securities involves a high degree of risk. The prospectus supplement applicable to each offering of our securities will contain a discussion of the risks applicable to an investment in our securities. Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the heading “Risk Factors” in the applicable prospectus supplement, together with all of the other information contained or incorporated by reference in the prospectus supplement or appearing or incorporated by reference in this prospectus. You should also consider the risks, uncertainties and assumptions discussed under Item 1A, “Risk Factors,” in our most recent Annual Report on Form 10-K and all amendments thereto, and any updates described in our subsequent Quarterly Reports on Form 10-Q, each of which is incorporated herein by reference, and may be amended, supplemented or superseded from time to time by other reports we file with the Commission in the future and any prospectus supplement related to a particular offering. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our Boardoperations. The occurrence of Directors. Accordingly, our Boardany of Directors is empowered, without stockholder approval,these known or unknown risk might cause you to issue preferred stock with dividend, liquidation, conversion, voting,lose all or other rights which could adversely affectpart of your investment in the voting power or other rightsoffered securities.
This prospectus, each prospectus supplement and the information incorporated by reference in this prospectus and each prospectus supplement contain certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the holdersSecurities Act and Section 21E of the common stock. InExchange Act. The words “anticipate,” “expect,” “believe,” “goal,” “plan,” “intend,” “estimate,” “may,” “will,” and similar expressions and variations thereof are intended to identify forward-looking statements, but are not the eventexclusive means of issuance,identifying such statements. Those statements appear in this prospectus, any accompanying prospectus supplement and the preferred stockdocuments incorporated herein and therein by reference, particularly in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and include statements regarding the intent, belief or current expectations of our Company and management that are subject to known and unknown risks, uncertainties and assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed in the documents incorporated by reference under the caption “Risk Factors.”
This prospectus, the applicable prospectus supplement and any related issuer free writing prospectus, as well as the information and documents incorporated by reference into this prospectus, contain statements that are based on management’s current expectations and believes, including estimates and projections about of our Company, industry, financial condition, results of operations and other matters. These statements are not guarantees of future performance and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be utilized, under certainpredicted or quantified, you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Commission, we do not plan to publicly update or revise any forward-looking statements contained herein after we distribute this prospectus, whether as a methodresult of discouraging, delayingany new information, future events or preventingotherwise.
The following table sets forth our ratio of earnings to fixed charges on a changehistorical basis for the periods indicated. The following should be read in controlconjunction with our consolidated financial statements, including the notes thereto, and the other financial information included or incorporated by reference herein. For purposes of determining the ratios, earnings consist of the Company.total of the following: (i) pre-tax income from continuing operations before adjustment for income or loss from equity investees, (ii) fixed charges, (iii) amortization of capitalized interest, and (iv) distributed income of equity investees. Fixed charges are defined as the sum of the following: (a) interest expensed and capitalized and (b) amortization of debt issuance costs and discounts.
| Year ended December 31, | Six months ended June 30, | |||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
| Ratio of earnings to fixed charges | 9,909% | N/A (1) | N/A (1) | N/A (1) | N/A (1) | N/A (1) |
| (1) | Ratio of earnings to fixed charges could not be calculated because the Company did not have any fixed charges during the period. |
Unless otherwise indicated in the prospectus supplement, we expect to use the net proceeds from the sale of securities offered by us pursuant to this prospectus for Gabriel product development and marketing, and general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. As a result, unless otherwise indicated in the prospectus supplement, our management will have broad discretion to allocate the net proceeds of the offerings. Pending their ultimate use, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing instruments.
The descriptionsspecific allocations of the proceeds we receive from the sale of our securities will be described in the applicable prospectus supplement.
The following information describes our common stock and preferred stock, aboveas well as certain provisions of our Amended and Restated Certificate of Incorporation and Bylaws. This description is only a summary. You should also refer to our Amended and Restated Certificate of Incorporation and Bylaws, which have been filed with the Commission as exhibits to our registration statement, of which this prospectus forms a part.
General
Our authorized capital stock consists of 100,000,000 shares of common stock with a $0.0001 par value per share, and 10,000,000 shares of preferred stock with a $0.0001 par value per share, all of which shares of preferred stock are only summariesundesignated. Our board of directors may establish the rights and preferences of the preferred stock from time to time. As of August 4, 2015 there were 52,363,585 shares of common stock issued and outstanding, held of record by 103 stockholders, although we believe that there may be a significantly larger number of beneficial owners of our common stock. We derived the number of stockholders by reviewing the listing of outstanding common stock recorded by our transfer agent as of August 4, 2015.
The following is a summary of the material provisions of the common stock and preferred stock provided for in our certificate of incorporation and Bylaws. For additional detail about our capital stock, please refer to our certificate of incorporation and Bylaws, each as amended.
Common Stock
Each holder of our common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative rights. Subject to any preferential rights of any outstanding preferred stock, holders of our common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. If there is a liquidation, dissolution or winding up of our company, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred stock.
Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are fully paid and non-assessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Our common stock is listed on the NYSE MKT LLC under the symbol “VHC.” The transfer agent and registrar for the common stock is Corporate Stock Transfer, Inc. Its address is 3200 Cherry Creek South Drive, Suite 430, Denver, Colorado 80209, and its telephone number is (303) 282-4800.
Preferred stock
The following description of preferred stock and the description of the terms of any particular series of preferred stock that we choose to issue hereunder and that will be set forth in the related prospectus supplement are not complete. These descriptions are qualified in their entirety by reference to our Amended and Restated Certificate of Incorporation and the certificate of designation relating to any series. The rights, preferences, privileges and restrictions of the preferred stock of each series will be fixed by the certificate of designation relating to that series. The applicable prospectus supplement also will contain a description of certain United States federal income tax consequences relating to the purchase and ownership of the series of preferred stock that is described in the prospectus supplement.
Under the terms of our Amended and Restated Certificate of Incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. There are no restrictions presently on the repurchase or redemption of any shares of our preferred stock.
The prospectus supplement for a series of preferred stock will specify:
| · | the maximum number of shares; |
| · | the designation of the shares; |
| · | the annual dividend rate, if any, whether the dividend rate is fixed or variable, the date or dates on which dividends will accrue, the dividend payment dates, and whether dividends will be cumulative; |
| · | the price and the terms and conditions for redemption, if any, including redemption at our option or at the option of the holders, including the time period for redemption, and any accumulated dividends or premiums; |
| · | the liquidation preference, if any, and any accumulated dividends upon the liquidation, dissolution or winding up of our affairs; |
| · | any sinking fund or similar provision, and, if so, the terms and provisions relating to the purpose and operation of the fund; |
| · | the terms and conditions, if any, for conversion or exchange of shares of any other class or classes of our capital stock or any series of any other class or classes, or of any other series of the same class, or any other securities or assets, including the price or the rate of conversion or exchange and the method, if any, of adjustment; |
| · | the voting rights; and |
| · | any or all other preferences and relative, participating, optional or other special rights, privileges or qualifications, limitations or restrictions. |
The issuance of preferred stock will affect, and may adversely affect, the rights of holders of common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following:
| · | restricting dividends on the common stock; |
| · | diluting the voting power of the common stock; |
| · | impairing the liquidation rights of the common stock; or |
| · | delaying or preventing changes in control or management of our company. |
We have no present plans to issue any shares of preferred stock nor are any shares of our preferred stock presently outstanding. Preferred stock will be fully paid and nonassessable upon issuance.
Anti-Takeover Effects of Some Provisions of Delaware Law
Provisions of Delaware law and our Amended and Restated Certificate of Incorporation and Bylaws could make the acquisition of our company through tender offer, a proxy context or other means more difficult and could make the removal of incumbent officers and directors more difficult. We expect these provisions to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with our board of directors. We believe that the benefits provided by our ability to negotiate with the proponent of an unfriendly or unsolicited proposal outweigh the disadvantages of discouraging these proposals. We believe the negotiation of an unfriendly or unsolicited proposal could result in an improvement of its terms.
Amended and Restated Certificate of Incorporation and Bylaws
Our Amended and Restated Certificate of Incorporation and our Bylaws provide for the following:
| · | Undesignated Preferred Stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of VirnetX. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company. |
| · | Stockholder Meetings. Our charter documents provide that a special meeting of stockholders may be called only by resolution adopted by the board of directors. |
| · | Requirements for Advance Notification of Stockholder Nominations and Proposals. Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. |
| · | Board Classification. Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors. |
| · | Limits on Ability of Stockholders to Act by Written Consent. We have provided in our certificate of incorporation that our stockholders may not act by written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our Bylaws or remove directors without holding a meeting of our stockholders called in accordance with our Bylaws. |
| · | Amendment of Bylaws. Any amendment of our Bylaws requires approval by holders of at least two-thirds of our outstanding capital stock entitled to vote generally in the election of directors. |
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date the person became an interested stockholder, unless:
| · | prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| · | the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers, and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| · | on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
General
At our option, we may elect to offer fractional shares of preferred stock, rather than full shares of preferred stock. If we do elect to offer fractional shares of preferred stock, we will issue receipts for depositary shares and each of these depositary shares will represent a fraction of a share of a particular series of preferred stock, as specified in the applicable prospectus supplement. Each owner of a depositary share will be entitled, in proportion to the applicable fractional interest in shares of preferred stock underlying that depositary share, to all rights and preferences of the preferred stock underlying that depositary share. These rights may include dividend, voting, redemption and liquidation rights.
The shares of preferred stock underlying the depositary shares will be deposited with a bank or trust company selected by us to act as depositary, under a deposit agreement by and among us, the depositary and the holders of the depositary receipts. The depositary will be the transfer agent, registrar and dividend disbursing agent for the depositary shares.
The depositary shares will be evidenced by depositary receipts issued pursuant to the depositary agreement. Holders of depositary receipts agree to be bound by the deposit agreement, which requires holders to take certain actions such as filing proof of residence and paying certain charges.
The summary of terms of the depositary shares contained in this prospectus is not complete, and is subject to modification in any prospectus supplement for any issuance of depositary shares. You should refer to the forms of the deposit agreement, our certificate of incorporation and the certificate of designation that are, or will be, filed with the Commission for the applicable series of preferred stock.
Dividends
The depositary will distribute cash dividends or other cash distributions, if any, received in respect of the series of preferred stock underlying the depositary shares to the record holders of depositary receipts in proportion to the number of depositary shares owned by those holders on the relevant record date. The relevant record date for depositary shares will be the same date as the record date for the preferred stock.
In the event of a distribution other than in cash, the depositary will distribute property received by it to the record holders of depositary receipts that are entitled to receive the distribution, unless the depositary determines that it is not feasible to make the distribution. If this occurs, the depositary, with our approval, may adopt another method for the distribution, including selling the property and distributing the net proceeds to the holders.
Liquidation preference
If a series of preferred stock underlying the depositary shares has a liquidation preference, in the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of depositary shares will be entitled to receive the fraction of the liquidation preference accorded each share of the applicable series of preferred stock, as set forth in the applicable prospectus supplement.
Redemption
If a series of preferred stock underlying the depositary shares is subject to redemption, the depositary shares will be redeemed from the proceeds received by the depositary resulting from the redemption, in whole or in part, of the preferred stock held by the depositary. Whenever we redeem any preferred stock held by the depositary, the depositary will redeem, as of the same redemption date, the number of depositary shares representing the preferred stock so redeemed. The depositary will mail the notice of redemption to the record holders of the depositary receipts promptly upon receiving the notice from us and not fewer than 20 or more than 60 days, unless otherwise provided in the applicable prospectus supplement, prior to the date fixed for redemption of the preferred stock.
Voting
Upon receipt of notice of any meeting at which the holders of preferred stock are entitled to vote, the depositary will mail the information contained in the notice of meeting to the record holders of the depositary receipts underlying the preferred stock. Each record holder of those depositary receipts on the record date will be entitled to instruct the depositary as to the exercise of the voting rights pertaining to the amount of preferred stock underlying that holder’s depositary shares. The record date for the depositary will be the same date as the record date for the preferred stock. The depositary will, to the extent practicable, vote the preferred stock underlying the depositary shares in accordance with these instructions. We will agree to take all action that may be deemed necessary by the depositary in order to enable the depositary to vote the preferred stock in accordance with these instructions. The depositary will not vote the preferred stock to the extent that it does not receive specific instructions from the holders of depositary receipts.
Withdrawal of preferred stock
Owners of depositary shares will be entitled to receive upon surrender of depositary receipts at the principal office of the depositary and payment of any unpaid amount due to the depositary, the number of whole shares of preferred stock underlying their depositary shares.
Partial shares of preferred stock will not be issued. Holders of preferred stock will not be entitled to deposit the shares under the deposit agreement or to receive depositary receipts evidencing depositary shares for the preferred stock.
Amendment and termination of the deposit agreement
The form of depositary receipt evidencing the depositary shares and any provision of the deposit agreement may be amended by agreement between the depositary and us. However, any amendment which materially and adversely alters the rights of the holders of depositary shares, other than fee changes, will not be effective unless the amendment has been approved by at least a majority of the outstanding depositary shares. The deposit agreement may be terminated by the depositary or us only if:
| · | all outstanding depositary shares have been redeemed; or |
| · | there has been a final distribution of the preferred stock in connection with our dissolution and such distribution has been made to all the holders of depositary shares. |
Charges of depositary
We will pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangement. We will also pay charges of the depositary in connection with:
| · | the initial deposit of the preferred stock; |
| · | the initial issuance of the depositary shares; |
| · | any redemption of the preferred stock; and |
| · | all withdrawals of preferred stock by owners of depositary shares. |
Holders of depositary receipts will pay transfer, income and other taxes and governmental charges and other specified charges as provided in the deposit agreement for their accounts. If these charges have not been paid, the depositary may:
| · | refuse to transfer depositary shares; |
| · | withhold dividends and distributions; and |
| · | sell the depositary shares evidenced by the depositary receipt. |
Miscellaneous
The depositary will forward to the holders of depositary receipts all reports and communications we deliver to the depositary that we are required to furnish to the holders of the preferred stock. In addition, the depositary will make available for inspection by holders of depositary receipts at the principal office of the depositary, and at such other places as it may from time to time deem advisable, any reports and communications we deliver to the depositary as the holder of preferred stock.
Neither the depositary nor we will be liable if either the depositary or we are prevented or delayed by law or any circumstance beyond the control of either the depositary or us in performing our respective obligations under the deposit agreement. Our obligations and the depositary’s obligations will be limited to the performance in good faith of our or the depositary’s respective duties under the deposit agreement. Neither the depositary nor we will be obligated to prosecute or defend any legal proceeding in respect of any depositary shares or preferred stock unless satisfactory indemnity is furnished. The depositary and we may rely on:
| · | written advice of counsel or accountants; |
| · | information provided by holders of depositary receipts or other persons believed in good faith to be competent to give such information; and |
| · | documents believed to be genuine and to have been signed or presented by the proper party or parties. |
Resignation and removal of depositary
The depositary may resign at any time by delivering a notice to us. We may remove the depositary at any time. Any such resignation or removal will take effect upon the appointment of a successor depositary and its acceptance of such appointment. The successor depositary must be appointed within 60 days after delivery of the notice for resignation or removal. The successor depositary must be a bank and trust company having its principal office in the United States of America and having a combined capital and surplus of at least $50,000,000.
Federal income tax consequences
Owners of the depositary shares will be treated for U.S. federal income tax purposes as if they were owners of the preferred stock underlying the depositary shares. As a result, owners will be entitled to take into account for U.S. federal income tax purposes and deductions to which they would be entitled if they were holders of such preferred stock. No gain or loss will be recognized for U.S. federal income tax purposes upon the withdrawal of preferred stock in exchange for depositary shares. The tax basis of each share of preferred stock to an exchanging owner of depositary shares will, upon such exchange, be the same as the aggregate tax basis of the depositary shares exchanged. The holding period for preferred stock in the hands of an exchanging owner of depositary shares will include the period during which such person owned such depositary shares.
General
We may issue warrants for the purchase of our debt securities, preferred stock or common stock, or any combination thereof. Warrants may be issued independently or together with our debt securities, preferred stock or common stock and may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The warrant agent will act solely as our agent in connection with the warrants. The warrant agent will not have any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants. This summary of certain provisions of the warrants is not complete. For the terms of a particular series of warrants, you should refer to the prospectus supplement for that series of warrants and the warrant agreement for that particular series.
Debt warrants
The prospectus supplement relating to a particular issue of warrants to purchase debt securities will describe the terms of the debt warrants, including the following:
| · | the title of the debt warrants; |
| · | the offering price for the debt warrants, if any; |
| · | the aggregate number of the debt warrants; |
| · | the designation and terms of the debt securities, including any conversion rights, purchasable upon exercise of the debt warrants; |
| · | if applicable, the date from and after which the debt warrants and any debt securities issued with them will be separately transferable; |
| · | the principal amount of debt securities that may be purchased upon exercise of a debt warrant and the exercise price for the warrants, which may be payable in cash, securities or other property; |
| · | the dates on which the right to exercise the debt warrants will commence and expire; |
| · | if applicable, the minimum or maximum amount of the debt warrants that may be exercised at any one time; |
| · | whether the debt warrants represented by the debt warrant certificates or debt securities that may be issued upon exercise of the debt warrants will be issued in registered or bearer form; |
| · | information with respect to book-entry procedures, if any; the currency or currency units in which the offering price, if any, and the exercise price are payable; |
| · | if applicable, a discussion of material U.S. federal income tax considerations; |
| · | the anti-dilution provisions of the debt warrants, if any; |
| · | the redemption or call provisions, if any, applicable to the debt warrants; |
| · | any provisions with respect to the holder’s right to require us to repurchase the warrants upon a change in control or similar event; and |
| · | any additional terms of the debt warrants, including procedures, and limitations relating to the exchange, exercise and settlement of the debt warrants. |
Debt warrant certificates will be exchangeable for new debt warrant certificates of different denominations. Debt warrants may be exercised at the corporate trust office of the warrant agent or any other office indicated in the prospectus supplement. Prior to the exercise of their debt warrants, holders of debt warrants will not have any of the rights of holders of the debt securities purchasable upon exercise and will not be entitled to payment of principal or any premium, if any, or interest on the debt securities purchasable upon exercise.
Equity warrants
The prospectus supplement relating to a particular series of warrants to purchase our common stock or preferred stock will describe the terms of the warrants, including the following:
| · | the title of the warrants; |
| · | the offering price for the warrants, if any; |
| · | the aggregate number of warrants; |
| · | the designation and terms of the common stock or preferred stock that may be purchased upon exercise of the warrants; |
| · | if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each security; |
| · | if applicable, the date from and after which the warrants and any securities issued with the warrants will be separately transferable; |
| · | the number of shares of common stock or preferred stock that may be purchased upon exercise of a warrant and the exercise price for the warrants; |
| · | the dates on which the right to exercise the warrants shall commence and expire; |
| · | if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time; |
| · | the currency or currency units in which the offering price, if any, and the exercise price are payable; |
| · | if applicable, a discussion of material U.S. federal income tax considerations; |
| · | the antidilution provisions of the warrants, if any; |
| · | the redemption or call provisions, if any, applicable to the warrants; |
| · | any provisions with respect to the holder’s right to require us to repurchase the warrants upon a change in control or similar event; and |
| · | any additional terms of the warrants, including procedures, and limitations relating to the exchange, exercise and settlement of the warrants. |
Holders of equity warrants will not be entitled:
| · | to vote, consent or receive dividends; |
| · | receive notice as stockholders with respect to any meeting of stockholders for the election of our directors or any other matter; or |
| · | exercise any rights as stockholders of us. |
This summary of certain provisions of the warrants is not complete. For the terms of a particular series of warrants, you should refer to the prospectus supplement for that series of warrants and the warrant agreement for that particular series.
The debt securities may be either secured or unsecured and will either be our senior debt securities or our subordinated debt securities. The debt securities will be issued under one or more separate indentures between us and a trustee to be specified in an accompanying prospectus supplement. Senior debt securities will be issued under a senior indenture and subordinated debt securities will be issued under a subordinated indenture. Together, the senior indenture and the subordinated indenture are called indentures in this description. This prospectus, together with the applicable prospectus supplement, will describe the terms of a particular series of debt securities.
The following is a summary of selected provisions and definitions of the indentures and debt securities to which any prospectus supplement may relate. The summary of selected provisions of the indentures and the debt securities appearing below is not complete and is subject to, and qualified entirely by reference to, all of the provisions of the Company’s Certificate of Incorporationapplicable indenture and By-Laws, copies of which are attached hereto.
The materialfollowing description sets forth selected general terms and provisions of the three formsapplicable indenture and debt securities to which any prospectus supplement may relate. Other specific terms of warrantsthe applicable indenture and debt securities will be described in the applicable prospectus supplement. If any particular terms of the indenture or debt securities described in a prospectus supplement differ from any of the terms described below, then the terms described below will be deemed to have been superseded by that prospectus supplement.
General
Debt securities may be issued in separate series without limitation as to aggregate principal amount. We may specify a maximum aggregate principal amount for the transactiondebt securities of any series.
We are summarized below. This summarynot limited as to the amount of debt securities we may issue under the indentures. Unless otherwise provided in a prospectus supplement, a series of debt securities may be reopened to issue additional debt securities of such series.
The prospectus supplement relating to a particular series of debt securities will set forth:
| · | whether the debt securities are senior or subordinated; |
| · | the offering price; |
| · | the title; |
| · | any limit on the aggregate principal amount; |
| · | the person who shall be entitled to receive interest, if other than the record holder on the record date; |
| · | the date or dates the principal will be payable; |
| · | the interest rate or rates, which may be fixed or variable, if any, the date from which interest will accrue, the interest payment dates and the regular record dates, or the method for calculating the dates and rates; |
| · | the place where payments may be made; |
| · | any mandatory or optional redemption provisions or sinking fund provisions and any applicable redemption or purchase prices associated with these provisions; |
| · | if issued other than in denominations of U.S. $1,000 or any multiple of U.S. $1,000, the denominations in which the debt securities shall be issuable; |
| · | if applicable, the method for determining how the principal, premium, if any, or interest will be calculated by reference to an index or formula; |
| · | if other than U.S. currency, the currency or currency units in which principal, premium, if any, or interest will be payable and whether we or a holder may elect payment to be made in a different currency; |
| · | the portion of the principal amount that will be payable upon acceleration of maturity, if other than the entire principal amount; |
| · | if the principal amount payable at stated maturity will not be determinable as of any date prior to stated maturity, the amount or method for determining the amount which will be deemed to be the principal amount; |
| · | if applicable, whether the debt securities shall be subject to the defeasance provisions described below under “Satisfaction and discharge; defeasance” or such other defeasance provisions specified in the applicable prospectus supplement for the debt securities; |
| · | any conversion or exchange provisions; |
| · | whether the debt securities will be issuable in the form of a global security; |
| · | the deletion, addition or change in any event of default; |
| · | any change or modification to the subordination provisions applicable to the subordinated debt securities if different from those described below under “Subordinated debt securities;” |
| · | any deletion, addition or change in the covenants set forth in Article 10 of the indenture; |
| · | any paying agents, authenticating agents, security registrars or other agents for the debt securities, if other than the trustee; |
| · | any provisions relating to any security provided for the debt securities, including any provisions regarding the circumstances under which collateral may be released or substituted; |
| · | any provisions relating to guaranties for the securities and any circumstances under which there may be additional obligors; |
| · | any provisions granting special rights to holders when a specified event occurs; |
| · | any special tax provisions that apply to the debt securities; |
| · | with respect to the debt securities that do not bear interest, the dates for certain required reports to the applicable trustee; |
| · | any and all additional, eliminated or changed terms that will apply to the debt securities; and |
| · | any other terms of such debt securities. |
Unless otherwise specified in the prospectus supplement, the debt securities will be registered debt securities. Debt securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which at time of issuance is below market rates. The U.S. federal income tax considerations applicable to debt securities sold at a discount will be described in the applicable prospectus supplement.
Exchange and transfer
Debt securities may be transferred or exchanged at the office of the security registrar or at the office of any transfer agent designated by us.
We will not impose a service charge for any transfer or exchange, but we may require holders to pay any tax or other governmental charges associated with any transfer or exchange.
In the event of any partial redemption of debt securities of any series, we will not be required to:
| · | issue, register the transfer of, or exchange, any debt security of that series during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption and ending at the close of business on the day of the mailing; or |
| · | register the transfer of or exchange any debt security of that series selected for redemption, in whole or in part, except the unredeemed portion being redeemed in part. |
We will appoint the trustee as the initial security registrar. Any transfer agent, in addition to the security registrar initially designated by us, will be named in the prospectus supplement. We may designate additional transfer agents or change transfer agents or change the office of the transfer agent. However, we will be required to maintain a transfer agent in each place of payment for the debt securities of each series.
Global securities
The debt securities of any series may be represented, in whole or in part, by one or more global securities. Each global security will:
| · | be registered in the name of a depositary, or its nominee, that we will identify in a prospectus supplement; |
| · | be deposited with the depositary or nominee or custodian; and |
| · | bear any required legends. |
No global security may be exchanged in whole or in part for debt securities registered in the name of any person other than the depositary or any nominee unless:
| · | the depositary has notified us that it is unwilling or unable to continue as depositary or has ceased to be qualified to act as depositary; |
| · | an event of default is continuing with respect to the debt securities of the applicable series; or |
| · | any other circumstance described in a prospectus supplement has occurred permitting or requiring the issuance of any such security. |
As long as the depositary, or its nominee, is the registered owner of a global security, the depositary or nominee will be considered the sole owner and holder of the debt securities represented by the global security for all purposes under the indentures. Except in the above limited circumstances, owners of beneficial interests in a global security will not be:
| · | entitled to have the debt securities registered in their names; |
| · | entitled to physical delivery of certificated debt securities; or |
| · | considered to be holders of those debt securities under the indenture. |
Payments on a global security will be made to the depositary or its nominee as the holder of the global security. Some jurisdictions have laws that require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to transfer beneficial interests in a global security.
Institutions that have accounts with the depositary or its nominee are referred to as “participants.” Ownership of beneficial interests in a global security will be limited to participants and to persons that may hold beneficial interests through participants. The depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of debt securities represented by the global security to the accounts of its participants.
Ownership of beneficial interests in a global security will be shown on and effected through records maintained by the depositary, with respect to participants’ interests, or any participant, with respect to interests of persons held by participants on their behalf.
Payments, transfers and exchanges relating to beneficial interests in a global security will be subject to policies and qualifiedprocedures of the depositary. The depositary policies and procedures may change from time to time. Neither any trustee nor we will have any responsibility or liability for the depositary’s or any participant’s records with respect to beneficial interests in a global security.
Payment and paying agents
Unless otherwise indicated in a prospectus supplement, the provisions described in this paragraph will apply to the debt securities. Payment of interest on a debt security on any interest payment date will be made to the person in whose name the debt security is registered at the close of business on the regular record date. Payment on debt securities of a particular series will be payable at the office of a paying agent or paying agents designated by us. However, at our option, we may pay interest by mailing a check to the record holder. The trustee will be designated as our initial paying agent.
We may also name any other paying agents in a prospectus supplement. We may designate additional paying agents, change paying agents or change the office of any paying agent. However, we will be required to maintain a paying agent in each place of payment for the debt securities of a particular series.
All moneys paid by us to a paying agent for payment on any debt security that remain unclaimed for a period ending the earlier of:
| · | 10 business days prior to the date the money would be turned over to the applicable state; or |
| · | at the end of two years after such payment was due, |
will be repaid to us thereafter. The holder may look only to us for such payment.
No protection in the event of a change of control
Unless otherwise indicated in a prospectus supplement with respect to a particular series of debt securities, the debt securities will not contain any provisions that may afford holders of the debt securities protection in the event we have a change in control or in the event of a highly leveraged transaction, whether or not such transaction results in a change in control.
Covenants
Unless otherwise indicated in a prospectus supplement with respect to a particular series of debt securities, the debt securities will not contain any financial or restrictive covenants.
Consolidation, merger and sale of assets
Unless we indicate otherwise in a prospectus supplement with respect to a particular series of debt securities, we may not consolidate with or merge into any other person (other than one of our subsidiaries), in a transaction in which we are not the surviving corporation, or convey, transfer or lease our properties and assets substantially as an entirety to, any person (other one of our subsidiaries), unless:
| · | the successor entity, if any, is a U.S. corporation, limited liability company, partnership, trust or other business entity; |
| · | the successor entity assumes our obligations on the debt securities and under the indentures; |
| · | immediately after giving effect to the transaction, no default or event of default shall have occurred and be continuing; and |
| · | certain other conditions specified in the indenture are met. |
Events of default
Unless we indicate otherwise in a prospectus supplement, the following will be events of default for any series of debt securities under the indentures:
| (1) | we fail to pay principal of or any premium on any debt security of that series when due; |
| (2) | we fail to pay any interest on any debt security of that series for 30 days after it becomes due; |
| (3) | we fail to deposit any sinking fund payment when due; |
| (4) | we fail to perform any other covenant in the indenture and such failure continues for 90 days after we are given the notice required in the indentures; and |
| (5) | certain events involving our bankruptcy, insolvency or reorganization. |
Additional or different events of default applicable to a series of debt securities may be described in a prospectus supplement. An event of default of one series of debt securities is not necessarily an event of default for any other series of debt securities.
The trustee may withhold notice to the holders of any default, except defaults in the payment of principal, premium, if any, interest, any sinking fund installment on, or with respect to any conversion right of, the debt securities of such series. However, the trustee must consider it to be in the interest of the holders of the debt securities of such series to withhold this notice.
Unless we indicate otherwise in a prospectus supplement, if an event of default, other than an event of default described in clause (5) above, shall occur and be continuing with respect to any series of debt securities, either the trustee or the holders of at least 25 percent in aggregate principal amount of the outstanding securities of that series may declare the principal amount and premium, if any, of the debt securities of that series, or if any debt securities of that series are original issue discount securities, such other amount as may be specified in the applicable prospectus supplement, in each case together with accrued and unpaid interest, if any, thereon, to be due and payable immediately.
Unless we indicate otherwise in a prospectus supplement, if an event of default described in clause (5) above shall occur, the principal amount and premium, if any, of all the debt securities of that series, or if any debt securities of that series are original issue discount securities, such other amount as may be specified in the applicable prospectus supplement, in each case together with accrued and unpaid interest, if any, thereon, will automatically become immediately due and payable. Any payment by us on the subordinated debt securities following any such acceleration will be subject to the subordination provisions described below under “Subordinated debt securities.”
Notwithstanding the foregoing, each indenture will provide that we may, at our option, elect that the sole remedy for an event of default relating to our failure to comply with our obligations described under the section entitled “Reports” below or our failure to comply with the requirements of Section 314(a)(1) of the Trust Indenture Act will for the first 360 days after the occurrence of such an event of default consist exclusively of the right to receive additional interest on the relevant series of debt securities at an annual rate equal to (i) 0.25% of the principal amount of such series of debt securities for the first 180 days after the occurrence of such event of default and (ii) 0.50% of the principal amount of such series of debt securities from the 181st day to, and including, the 360th day after the occurrence of such event of default, which we call “additional interest.” If we so elect, the additional interest will accrue on all outstanding debt securities from and including the date on which such event of default first occurs until such violation is cured or waived and shall be payable on each relevant interest payment date to holders of record on the regular record date immediately preceding the interest payment date. On the 361st day after such event of default (if such violation is not cured or waived prior to such 361st day), the debt securities will be subject to acceleration as provided above. In the event we do not elect to pay additional interest upon any such event of default in accordance with this paragraph, the debt securities will be subject to acceleration as provided above.
In order to elect to pay the additional interest as the sole remedy during the first 360 days after the occurrence of any event of default relating to the failure to comply with the reporting obligations in accordance with the preceding paragraph, we must notify all holders of debt securities and the trustee and paying agent of such election prior to the close of business on the first business day following the date on which such event of default occurs. Upon our failure to timely give such notice or pay the additional interest, the debt securities will be immediately subject to acceleration as provided above.
After acceleration, the holders of a majority in aggregate principal amount of the outstanding securities of that series may, under certain circumstances, rescind and annul such acceleration if all events of default, other than the non-payment of accelerated principal, or other specified amounts or interest, have been cured or waived.
Other than the duty to act with the required care during an event of default, the trustee will not be obligated to exercise any of its entiretyrights or powers at the request of the holders unless the holders shall have offered to the trustee reasonable indemnity. Generally, the holders of a majority in aggregate principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee.
A holder of debt securities of any series will not have any right to institute any proceeding under the indentures, or for the appointment of a receiver or a trustee, or for any other remedy under the indentures, unless:
| (1) | the holder has previously given to the trustee written notice of a continuing event of default with respect to the debt securities of that series; |
| (2) | the holders of at least 25 percent in aggregate principal amount of the outstanding debt securities of that series have made a written request and have offered reasonable indemnity to the trustee to institute the proceeding; and |
| (3) | the trustee has failed to institute the proceeding and has not received direction inconsistent with the original request from the holders of a majority in aggregate principal amount of the outstanding debt securities of that series within 60 days after the original request. |
Holders may, however, sue to enforce the payment of principal, premium or interest on any debt security on or after the due date or to enforce the right, if any, to convert any debt security (if the debt security is convertible) without following the procedures listed in (1) through (3) above.
We will furnish the trustee an annual statement from our officers as to whether or not we are in default in the performance of the conditions and covenants under the indenture and, if so, specifying all known defaults.
Modification and waiver
Unless we indicate otherwise in a prospectus supplement, the applicable trustee and we may make modifications and amendments to an indenture with the consent of the holders of a majority in aggregate principal amount of the outstanding securities of each series affected by the three formsmodification or amendment.
We may also make modifications and amendments to the indentures for the benefit of warrant filedholders without their consent, for certain purposes including, but not limited to:
| · | to evidence the succession of another person to VirnetX, or successive successions, and the assumption by any such successor of the covenants of VirnetX in the indentures in compliance with Article 8 of the indentures; |
| · | adding covenants; |
| · | adding events of default; |
| · | making certain changes to facilitate the issuance of the debt securities; |
| · | to add to, change or eliminate any of the provisions of the indentures or more series of securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the holder of any such security with respect to such provision or (B) shall become effective only when there is no such security outstanding; |
| · | securing the debt securities; |
| · | providing for guaranties of, or additional obligors on, the debt securities; |
| · | to establish the form or term of debt securities as permitted by Sections 2.1 and 3.1 of the indenture; |
| · | providing for a successor trustee or additional trustees; |
| · | conforming the indenture to the description of the securities set forth in this prospectus or the accompanying prospectus supplement; |
| · | curing any ambiguity, defect or inconsistency; provided that such action shall not adversely affect the interest of the holders in any material respect; |
| · | permitting or facilitating the defeasance and discharge of the debt securities; |
| · | make such other provisions in regard to matters or questions arising under the indentures or under any supplemental indentures as our board of directors may deem necessary or desirable, and which does not in each case adversely affect the interests of the holders of the debt securities of a series; and |
| · | comply with requirements of the U.S. Securities and Exchange Commission in order to effect or maintain the qualifications of the indentures under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). |
However, neither the trustee nor we may make any modification or amendment without the consent of the holder of each outstanding security of that series affected by the modification or amendment if such modification or amendment would:
| · | change the stated maturity of the principal of, or any installment of principal or interest on, any debt security; |
| · | reduce the principal, premium, if any, or interest on any debt security or any amount payable upon redemption or repurchase, whether at our option or the option of any holder, or reduce the amount of any sinking fund payments; |
| · | reduce the principal of an original issue discount security or any other debt security payable on acceleration of maturity; |
| · | change the place of payment or the currency in which any debt security is payable; |
| · | impair the right to enforce any payment after the stated maturity or redemption date; |
| · | if subordinated debt securities, modify the subordination provisions in a materially adverse manner to the holders; |
| · | adversely affect the right to convert any debt security if the debt security is a convertible debt security; or |
| · | change the provisions in the indenture that relate to modifying or amending the indenture. |
Satisfaction and discharge; defeasance
We may be discharged from our obligations on the debt securities, subject to limited exceptions, of any series that have matured or will mature or be redeemed within one year if we deposit enough money with the trustee to pay all the principal, interest and any premium due to the stated maturity date or redemption date of the debt securities.
Each indenture contains a provision that permits us to elect either or both of the following:
| · | we may elect to be discharged from all of our obligations, subject to limited exceptions, with respect to any series of debt securities then outstanding. If we make this election, the holders of the debt securities of the series will not be entitled to the benefits of the indenture, except for the rights of holders to receive payments on debt securities or the registration of transfer and exchange of debt securities and replacement of lost, stolen or mutilated debt securities. |
| · | we may elect to be released from our obligations under some or all of any financial or restrictive covenants applicable to the series of debt securities to which the election relates and from the consequences of an event of default resulting from a breach of those covenants. |
To make either of the above elections, we must irrevocably deposit in trust with the trustee enough money to pay in full the principal, interest and premium on the debt securities. This amount may be made in cash and/or U.S. government obligations or, in the case of debt securities denominated in a currency other than U.S. dollars, cash in the currency in which such series of securities is denominated and/or foreign government obligations. As a condition to either of the above elections, for debt securities denominated in U.S. dollars we must deliver to the trustee an opinion of counsel that the holders of the debt securities will not recognize income, gain or loss for U.S. federal income tax purposes as exhibitsa result of the action.
With respect to debt securities of any series that are denominated in a currency other than United States dollars, “foreign government obligations” means:
| · | direct obligations of the government that issued or caused to be issued the currency in which such securities are denominated and for the payment of which obligations its full faith and credit is pledged, or, with respect to debt securities of any series which are denominated in Euros, direct obligations of certain members of the European Union for the payment of which obligations the full faith and credit of such members is pledged, which in each case are not callable or redeemable at the option of the issuer thereof; or |
| · | obligations of a person controlled or supervised by or acting as an agency or instrumentality of a government described in the bullet above the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by such government, which are not callable or redeemable at the option of the issuer thereof. |
Notices
Notices to holders will be given by mail to the addresses of the holders in the security register.
Governing law
The indentures and the debt securities will be governed by, and construed under, the laws of the State of New York.
No personal liability of directors, officers, employees and stockholders
No incorporator, stockholder, employee, agent, officer, director or subsidiary of ours will have any liability for any obligations of ours, or because of the creation of any indebtedness under the debt securities, the indentures or supplemental indentures. The indentures provide that all such liability is expressly waived and released as a condition of, and as a consideration for, the execution of such indentures and the issuance of the debt securities.
Regarding the trustee
The indentures limit the right of the trustee, should it become our current reportcreditor, to obtain payment of claims or secure its claims.
The trustee will be permitted to engage in certain other transactions with us. However, if the trustee acquires any conflicting interest, and there is a default under the debt securities of any series for which it is trustee, the trustee must eliminate the conflict or resign.
Subordinated debt securities
The following provisions will be applicable with respect to each series of subordinated debt securities, unless otherwise stated in the prospectus supplement relating to that series of subordinated debt securities.
The indebtedness evidenced by the subordinated debt securities of any series is subordinated, to the extent provided in the subordinated indenture and the applicable prospectus supplement, to the prior payment in full, in cash or other payment satisfactory to the holders of senior debt, of all senior debt, including any senior debt securities.
Upon any distribution of our assets upon any dissolution, winding up, liquidation or reorganization, whether voluntary or involuntary, marshalling of assets, assignment for the benefit of creditors, or in bankruptcy, insolvency, receivership or other similar proceedings, payments on Form 8-Kthe subordinated debt securities will be subordinated in right of payment to the prior payment in full in cash or other payment satisfactory to holders of senior debt of all senior debt.
In the event of any acceleration of the subordinated debt securities of any series because of an event of default with respect to the subordinated debt securities of that series, holders of any senior debt would be entitled to payment in full in cash or other payment satisfactory to holders of senior debt of all senior debt before the holders of subordinated debt securities are entitled to receive any payment or distribution.
In addition, the subordinated debt securities will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries, including trade payables and lease obligations. This occurs because our right to receive any assets of our subsidiaries upon their liquidation or reorganization, and your right to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors, except to the extent that we filedare recognized as a creditor of such subsidiary. If we are recognized as a creditor of that subsidiary, our claims would still be subordinate to any security interest in the assets of the subsidiary and any indebtedness of the subsidiary senior to us.
We are required to promptly notify holders of senior debt or their representatives under the subordinated indenture if payment of the subordinated debt securities is accelerated because of an event of default.
Under the subordinated indenture, we may also not make payment on the subordinated debt securities if:
| · | a default in our obligations to pay principal, premium, if any, interest or other amounts on our senior debt occurs and the default continues beyond any applicable grace period, which we refer to as a payment default; or |
| · | any other default occurs and is continuing with respect to designated senior debt that permits holders of designated senior debt to accelerate its maturity, which we refer to as a non-payment default, and the trustee receives a payment blockage notice from us or some other person permitted to give the notice under the subordinated indenture. |
We will resume payments on the subordinated debt securities:
| · | in case of a payment default, when the default is cured or waived or ceases to exist, and |
| · | in case of a nonpayment default, the earlier of when the default is cured or waived or ceases to exist or 179 days after the receipt of the payment blockage notice. |
No new payment blockage period may commence on the basis of a nonpayment default unless 365 days have elapsed from the effectiveness of the immediately prior payment blockage notice. No nonpayment default that existed or was continuing on the date of delivery of any payment blockage notice to the trustee shall be the basis for a subsequent payment blockage notice.
As a result of these subordination provisions, in the event of our bankruptcy, dissolution or reorganization, holders of senior debt may receive more, ratably, and holders of the subordinated debt securities may receive less, ratably, than our other creditors. The subordination provisions will not prevent the occurrence of any event of default under the subordinated indenture.
The subordination provisions will not apply to payments from money or government obligations held in trust by the trustee for the payment of principal, interest and premium, if any, on subordinated debt securities pursuant to the provisions described under the section entitled “Satisfaction and discharge; defeasance,” if the subordination provisions were not violated at the time the money or government obligations were deposited into trust.
If the trustee or any holder receives any payment that should not have been made to them in contravention of subordination provisions before all senior debt is paid in full in cash or other payment satisfactory to holders of senior debt, then such payment will be held in trust for the holders of senior debt.
Senior debt securities will constitute senior debt under the subordinated indenture.
Additional or different subordination provisions may be described in a prospectus supplement relating to a particular series of debt securities.
Definitions
“Designated senior debt” means our obligations under any particular senior debt in which the instrument creating or evidencing the same or the assumption or guarantee thereof, or related agreements or documents to which we are a party, expressly provides that such indebtedness shall be designated senior debt for purposes of the subordinated indenture. The instrument, agreement or other document evidencing any designated senior debt may place limitations and conditions on the right of such senior debt to exercise the rights of designated senior debt.
“Indebtedness” means the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the indenture for such series of securities or thereafter created, incurred or assumed:
| · | our indebtedness evidenced by a credit or loan agreement, note, bond, debenture or other written obligation; |
| · | all of our obligations for money borrowed; |
| · | all of our obligations evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, |
| · | our obligations: |
as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles, or
as lessee under leases for facilities, capital equipment or related assets, whether or not capitalized, entered into or leased for financing purposes;
| · | all of our obligations under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts or similar agreements or arrangements; |
| · | all of our obligations with respect to letters of credit, bankers’ acceptances and similar facilities, including reimbursement obligations with respect to the foregoing; |
| · | all of our obligations issued or assumed as the deferred purchase price of property or services, but excluding trade accounts payable and accrued liabilities arising in the ordinary course of business; |
| · | all obligations of the type referred to in the above clauses of another person, the payment of which, in either case, we have assumed or guaranteed, for which we are responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise, or which are secured by a lien on our property; and |
| · | renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in the above clauses of this definition. |
“Senior debt” means the principal of, premium, if any, and interest, including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding, and rent payable on or in connection with, and all fees and other amounts payable in connection with, our indebtedness. However, senior debt shall not include:
| · | any debt or obligation if its terms or the terms of the instrument under which or pursuant to which it is issued expressly provide that it shall not be senior in right of payment to the subordinated debt securities or expressly provide that such indebtedness is on the same basis or “junior” to the subordinated debt securities; or |
| · | debt to any of our subsidiaries, a majority of the voting stock of which is owned, directly or indirectly, by us. |
“Subsidiary” means a corporation more than 50% of the SEC on September 3, 2009.outstanding voting stock of which is owned, directly or indirectly, by us or by one or more of our other subsidiaries or by a combination of us and our other subsidiaries. For purposes of this definition, “voting stock” means stock or other similar interests which ordinarily has or have voting power for the election of directors, or persons performing similar functions, whether at all times or only so long as no senior class of stock or other interests has or have such voting power by reason of any contingency.