EXHIBIT 4.2
NETWORK-1 SECURITY SOLUTIONS, INC.
STOCK OPTION PLAN
(AS AMENDED)
1. Purpose of Plan
The purpose of the Stock Option Plan (the "Plan") is to provide an
incentive to Key Employees, Directors and Consultants (as hereinafter defined)
of Network-1 Security Solutions, Inc. (the "Company") who are in a position to
contribute materially to the long term success of the Company, to increase their
interest in the Company's welfare and to aid in attracting and retaining Key
Employees, Directors and Consultants of outstanding ability.
2. Definitions
Unless otherwise specified or unless the context otherwise requires,
the following terms, as used in this Stock Option Plan, have the following
meanings:
a) "Affiliate" means a corporation which for purposes of Section 422
of the Code, is a parent or subsidiary of the Company, direct or indirect, each
as defined in Section 424 of the Code.
b) "Board of Directors" or "Board" means the Board of Directors of
the Company.
c) "Code" means the United States Internal Revenue Code of 1986, as
such may be amended from time to time.
d) "Compensation Committee" means the committee to which the Board
of Directors delegates the power to act under or pursuant to the provisions of
the Plan, or the Board of Directors if no committee is selected.
e) "Company" means Network-1 Security Solutions, Inc., a Delaware
corporation.
f) "Consultant" means any person retained by the Company or any of
its Affiliates to render services on a consultant basis.
g) "Disability" or "Disabled" means permanent and total disability
as defined in Section 22(e)(3) of the Code.
h) "Incentive Stock Option" means an Option, as identified below,
which is designated by the Compensation Committee as such and which, when
granted, is intended to be an "incentive stock option" as defined in section 422
of the Code.
i) "Key Employee" means an employee of the Company or of an
Affiliate, (including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by the Board
of Directors or the Committee to be eligible to be granted one or more options
under the Plan.
j) "Non-Qualified Stock Option" shall mean an Option, as defined
below, which is designated by the Compensation Committee as such and which, when
granted, is not intended to be an "Incentive Stock Option" as defined in Code
Section 422.
k) "Option" means a right or option granted under the Plan.
l) "Option Agreement" means an agreement between the Company and a
Participant executed and delivered pursuant to the Plan.
m) "Participant" means a Key Employee to whom one or more Incentive
Stock Options or Non-Qualified Stock Options are granted under the Plan and an
employee, nonemployee director, consultant or independent contractor ("Non Key
Employee") to whom one or more Non-Qualified Stock Options are granted under the
Plan.
n) "Plan" means this Stock Option Plan.
o) "Shares" means the following shares of the capital stock of
the Company as to which Options have been or may be granted under the Plan;
1,050,000 authorized and unissued common stock, ($0.01) par value, including
fractional shares, any shares of capital stock into which the shares are
changed or for which they are exchanged within the provisions of Section 9 of
the Plan.
3. Aggregate Number of Shares
1,050,000 Shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), shall be the aggregate number of Shares which may be
issued under this Plan. Notwithstanding the foregoing, in the event of any
change in the outstanding shares of Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization,
merger, consolidation, transfer of assets, reorganization, conversion or what
the Compensation Committee deems in its sole discretion to be similar
circumstances, the aggregate number and kind of Shares which may be issued
under this Plan shall be appropriately adjusted in a manner determined in the
sole discretion of the Compensation Committee. Reacquired shares of the
Company's Common Stock, as well as unissued shares, may be used for the
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purpose of this Plan. Shares of the Company's Common Stock subject to Options
which have terminated unexercised, either in whole or in part, shall be
available for future Options granted under this Plan.
4. Class of Persons Eligible to Receive Options
(a) All Key Employees, as defined in Section 2 above, including officers
of the Company and of any present or future Company Affiliate, all
members of the Board of Directors of the Company who are not Key
Employees (the "Nonemployee Directors") and Consultants to the Company
and to any present or future Company Affiliate are eligible to receive
an Option or Options under this Plan. The individuals who shall, in
fact, receive an Option or Options under this Plan (the
"Participants") shall be selected by the Compensation Committee, in
its sole discretion, except as otherwise specified in Sections 5 and 6
hereof.
(b) Notwithstanding any other provision of this Plan, the aggregate fair
market value of the Common Stock as to which a holder may exercise
Incentive Stock Options may not exceed $100,000 in any calendar year.
5. Administration of Plan
(a) This Plan shall be administered by the Compensation Committee of the
Board of Directors. Prior to the time at which the stock of the
Company is required to be registered under Section 12 of the
Securities Exchange Act of 1934 ("Registration Date"), the
Compensation Committee shall be composed of all or certain members of
the Board of Directors as the Board shall determine. From and after
the Registration Date, the Compensation Committee shall be composed of
a minimum of two members of the Board of Directors as the Board shall
determine, each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 (c) (2) (i) under the Securities Exchange Act of
1934, as amended, of the Securities and Exchange Commission (the
"SEC") or any future corresponding rule.
(b) The Compensation Committee shall, in addition to its other authority
and subject to the provisions of this Plan, determine the
Participants, whether the Option shall be an Incentive Stock Option or
a Non-Qualified Stock Option (as such terms are defined in Section 2),
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the number of Shares to be subject to each of the options, the time or
times at which the Options shall be granted, the rate of Option
exercisability, and, subject to Section 6 hereof, the price at which
each of the Options is exercisable and the duration of the Option.
(c) The Compensation Committee shall adopt such rules for the conduct of
its business and administration of this Plan as it considers
desirable. A majority of the members of the Compensation Committee
shall constitute a quorum for all purposes. The vote or written
consent of a majority of the members of the Compensation Committee on
a particular matter shall constitute the act of the Compensation
Committee on such matter. The Compensation Committee shall have the
right to construe the Plan and the Options issued pursuant to it, to
correct defects and omissions and to reconcile inconsistencies to the
extent necessary to effectuate the Plan and the Options issued
pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Compensation Committee
or the Board of Directors shall be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the
exercise of any authority or discretion granted in connection with the
Plan to the Compensation Committee or the Board of Directors, or for
the acts or omissions of any other members of the Compensation
Committee or the Board of Directors. Subject to the numerical
limitations on Compensation Committee membership set forth in Section
5(a) hereof, the Board of Directors may at any time appoint additional
members of the Compensation Committee and may at any time remove any
member of the Compensation Committee with or without cause. Vacancies
in the Compensation Committee, however caused, may be filled by the
Board of Directors, if it so desires.
6. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 6(b) hereof or Non-Qualified Stock
Options granted pursuant to Section 6(c) hereof, as determined by the
Compensation Committee. The Compensation Committee may grant both an
Incentive Stock Option and a Non-Qualified Stock Option to the same
person, or more than one of each type of Option to the same person,
subject to the restrictions set forth in (b) and (c) below.
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The Option price for Incentive Stock Options issued under this Plan
shall be equal at least to the fair market value (as defined below) of
the Company's Common Stock on the date of the grant of the Option as
determined by the Compensation Committee in accordance with its
interpretation of the requirements of Section 422 of the Code and the
regulations thereunder. The Option price for Non-Qualified Stock
Options issued under this Plan may, in the sole discretion of the
Compensation Committee, be less than the fair market value of the
Common Stock on the date of the grant of the Option. If an Incentive
Stock Option is granted to an individual who, at the time the Option
is granted, owns stock possessing more than 10% of the total combined
voting power of all shares of stock of the Company or any parent or
subsidiary corporation of the Company (a "10% Shareholder"), the
Option price shall not be less than 110% of the fair market value of
the Company's Common Stock on the date of grant of the option. The
fair market value of the Company's Common Stock on any particular date
shall mean the last reported sale price of a share of the Company's
Common Stock on any stock exchange on which such stock is then listed
or admitted to trading, or on the Nasdaq Stock Market, on such date,
or if no sale took place on such day, the last such date on which a
sale took place, or if the Common Stock is not then quoted on the
Nasdaq Stock Market, or listed or admitted to trading on any stock
exchange, the average of the bid and asked prices in the
over-the-counter market on such date, or if none of the foregoing, a
price determined by the Compensation Committee.
(b) Subject to the authority of the Compensation Committee set forth in
Section 5(b) hereof, Incentive Stock Options issued pursuant to this
Plan shall be issued only to Key Employees of the Company
substantially in the form set forth in Appendix A hereof, which form
is hereby incorporated by reference and made a part hereof, and shall
contain substantially the terms and conditions set forth therein.
Nonemployee Directors and Consultants shall not be eligible for
Incentive Stock Options. Incentive Stock Options shall not be
exercisable after the expiration of ten years (five years in the case
of 10% Shareholders) from the date such Options are granted, unless
terminated earlier under the terms of the Option. At the time of the
grant of an Incentive Stock Option hereunder, the Compensation
Committee may, in its discretion, modify or amend any of the Option
terms contained in Appendix
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A for any particular Participant, provided that the Option as modified
or amended satisfies the requirements of Section 422 of the Code and
the regulations thereunder. Each of the Options granted pursuant to
this Section 6(b) is intended, if possible, to be an "Incentive Stock
Option" as that term is defined in Section 422 of the Code and the
regulations thereunder. In the event this Plan or any Option granted
pursuant to this Section 6(b) is in any way inconsistent with the
applicable legal requirements of the Code or the regulations
thereunder for an Incentive Stock Option, this Plan and such Option
shall be deemed automatically amended as of the date hereof to conform
to such legal requirements, if such conformity may be achieved by
amendment.
(c) Subject to the authority of the Compensation Committee set forth in
Section 5(b) hereof, Non-Qualified Stock Options issued pursuant to
this Plan shall be issued to Participants of the Company substantially
in the form set forth in Appendix B hereof, which form is hereby
incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein.
Non-Qualified Stock Options shall expire not more than ten years after
the date they are granted, unless terminated earlier under the Option
terms. At the time of granting a Non-Qualified Stock Option
hereunder, the Compensation Committee may, in its discretion, modify
or amend any of the Option terms contained in Appendix B for any
particular Participant.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors,
shareholders, stock option plan committees, the Compensation
Committees, employees or agents shall have any liability to any
optionee in the event: (i) an Option granted pursuant to Section 6(b)
hereof does not qualify as an "Incentive Stock Option" as that term is
used in Section 422 of the Code and the regulations thereunder; (ii)
any optionee does not obtain the tax treatment pertaining to an
Incentive Stock Option; or (iii) any Option granted pursuant to
Section 6(c) hereof is an "Incentive Stock Option."
7. Exercise of Option and Issue of Stock
Options shall be exercised by giving written notice to the Company. Such
written notice shall: (1) be signed by the person exercising the Option, (2)
state the number of shares and with respect to which the Option, if any, is
being exercised, (3)
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contain the legend required by Appendix A and B, page 5, paragraph (b) therein,
and (4) specify a date (other than a Saturday, Sunday or legal holiday) not less
than five (5) nor more than ten (10) days after the date of such written notice,
as the date on which the Shares will be taken up and payment made therefor. The
conditions specified above may be waived in the sole discretion of the Company.
Such tender and conveyance shall take place at the principal office of the
Company during ordinary business hours, or at such other hour and place agreed
upon by the Company and the person(s) exercising the Option. On the date
specified in such written notice (which date may be extended by the Company in
order to comply with any law or regulation which requires the Company to take
any action with respect to the Option Shares prior to issuance thereof) the
Company shall accept payment for the Option Shares (in the forms set forth
below) and shall deliver to the person(s) exercising the Option in exchange
therefor a certificate or certificates for fully paid non-assessable shares. In
the event of any failure to take up and pay for the number of Shares specified
in such written notice of the exercise of the Option on the date set forth
therein (or on the extended date as above provided) the exercise of the Option
shall terminate with respect to such number of Shares, but shall continue with
respect to the remaining Shares covered by the Option and not yet acquired
pursuant thereto.
The payment may be in any of the following forms: (a) cash, which may be
evidenced by a check; (b) certificates representing shares of Common Stock of
the Company, which will be valued by the Secretary of the Company at the fair
market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the last trading day immediately preceding the date
of delivery of such certificates to the Company, accompanied by an assignment of
the stock to the Company, or (c) any combination of cash and Common Stock of the
Company valued as provided in clause (b). Any assignment of stock shall be in a
form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable or determines that such taxes are
due and payable.
8. Assignability and Transferability of Option
By its terms, an Option granted to a Participant shall not be transferable
by the Participant otherwise than by will or the laws of descent and
distribution, and shall be exercisable, during the Participant's lifetime only
by such Participant and Participant's legal guardian or custodian in the event
of disability. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of any Option or of any rights granted thereunder, otherwise
than by will or the laws of descent
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and distribution, or the levy of any attachment or similar process upon an
Option or such rights, shall be null and void.
9. Adjustments Upon Changes in Capitalization
In the event that the authorized and outstanding shares of Common Stock of
the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
any reorganization, merger, consolidation, recapitalization, reclassification,
change in par value, stock split-up, combination of shares or dividend payable
in capital stock, or the like, appropriate adjustments to prevent dilution or
enlargement of the rights granted to or available for, Participants, shall be
made in the manner and kind of shares for the purpose of which Options may be
granted under the Plan, and, in addition, appropriate adjustment shall be made
in the number and kind of shares and in the option price per share subject to
outstanding Options. No such adjustment shall be made which shall, within the
meaning of Section 424 of the Code, constitute such a modification, extension or
renewal of an Incentive Stock Option as to cause it to be considered as the
grant of a new Incentive Stock Option.
10. Modification, Amendment, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration of
ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time
to time, to modify or amend this Plan in any way, or to suspend or terminate it,
effective as of such date, which date may be either before or after the taking
of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not affect Options granted under the Plan prior
to the actual date on which such action occurred. If a modification or
amendment of this Plan is required by the Code or the regulations thereunder to
be approved by the shareholders of the Company in order to permit the granting
of Incentive Stock Options pursuant to the modified or amended Plan, such
modification or amendment shall also be approved by the shareholders of the
Company in such manner as is prescribed by the Code and the regulations
thereunder. If the Board of Directors voluntarily submits a proposed
modification, amendment, suspension or termination for shareholder approval,
such submission shall not require any future modifications, amendments,
suspensions or terminations (whether or not relating to the same provision or
subject matter) to be similarly submitted for shareholder approval.
11. Effectiveness of Plan
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This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such Options shall not be exercisable
before
such shareholder approval is obtained.
12. Indemnification of Compensation Committee
In addition to such other rights of indemnification as they may have as
directors or as members of the Compensation Committee, the members of the
Compensation Committee (or the directors acting with respect to the Plan if
there is no Compensation Committee) shall be indemnified by the Company against
all reasonable expenses, including attorneys fees, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein to which they or any of them may be a party
by reason of any action taken by them as members of the Compensation Committee
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Compensation Committee member is liable for gross
negligence or willful misconduct in the performance of his or her duties. To
receive such indemnification, a Compensation Committee member must first offer
in writing to the Company the opportunity, at its own expense, to defend any
such action, suit or proceeding.
13. General Conditions
(a) Nothing contained in this Plan or any Option granted pursuant to this
Plan shall confer upon any employee the right to continue in the
employ of the Company or any present or future parent, affiliated or
subsidiary corporation or interfere in any way with the rights of the
Company or any present or future parent, affiliated or subsidiary
corporation to terminate his employment in any way.
(b) Corporate action constituting an offer of stock for sale to any
employee under the terms of the Options to be granted hereunder shall
be deemed complete as of the date when the Compensation Committee
authorizes the grant of the Option to the employee, regardless of when
the Option is actually delivered to the employee or acknowledged or
agreed to by him.
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(c) If the Company's Common Stock has not been registered under Section 12
of the Securities Exchange Act of 1934, the exercise of an Option will
not be effective unless and until the Option holder executes and
delivers to the Company a Stock Restriction Agreement, in the form on
file in the office of the Secretary of the Company.
(d) The use of the masculine pronoun shall include the feminine gender
whenever appropriate.
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APPENDIX A
INCENTIVE STOCK OPTION
To: --------------------------------------------------------------
Name
--------------------------------------------------------------
Address
Date of Grant: ------------------------------
You are hereby granted an option* (the "Option"), effective as of the date
hereof, to purchase ___ shares of Common Stock, par value $.01 per share
("Common Stock"), of Network-1 Security Solutions, Inc. (the "Company") at a
price of ___ per share pursuant to the Company's 1996 Stock Option Plan adopted
by the Company's Board of Directors and Stockholders effective March 7, 1996, as
amended (the "Plan"). Your option price is intended to equal at least the fair
market value of the Company's Common Stock as of the date hereof; provided,
however, that if, at the time this option is granted, you own stock possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or any parent or subsidiary (an "Affiliate") of the Company (a "10%
Shareholder"), your option price is intended to be at least 110% of the fair
market value of the Company's Common Stock as of the date hereof.
Your Option may first be exercised on and after [one year from the date of
grant], but not before that time. Your Option may be exercised either: (i) on
and after ___________ and prior to the Termination Date (as hereinafter
defined), for up to _____% of the total number of shares subject to the Option
minus the number of shares previously purchased by exercise of the Option (as
adjusted for any change in the outstanding shares of the Common Stock of the
Company, by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Compensation Committee deems in its sole discretion to be
similar circumstances); or (ii) each succeeding year thereafter and prior to the
Termination Date (as hereinafter defined) for up to an additional [twenty (20%)
percent] of the total number of shares subject to the Option minus the number of
shares previously purchased by exercise of the Option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Compensation Committee deems
in its sole discretion to be similar circumstances). No fractional shares shall
be issued or delivered.
* This Incentive Stock Option is to be issued only to Key Employees of the
Company. Nonemployee Directors and Consultants are not eligible for this
option.
This Option shall terminate and is not exercisable after the expiration of
ten years from the date of its grant (five years from the date of grant if, at
the time of the grant, you are a 10% Shareholder) (the "Scheduled Termination
Date"), except if terminated earlier as hereinafter provided (the "Termination
Date").
In the event of a "change of control" (as hereafter defined) of the
Company, your Option may, from and after the date of the change of control, and
notwithstanding the second paragraph of this option, be exercised for up to 100%
of the total number of shares then subject to the Option minus the number of
shares previously purchased upon exercise of the Option (as adjusted for any
changes in the outstanding Common Stock by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Compensation Committee deems
in its sole discretion to be similar circumstances).
A "change of control" shall be deemed to have occurred upon the happening
of any of the following events:
1. A change within a twelve-month period in a majority of the members of
the Board of Directors of the Company;
2. A change within a twelve-month period in the holders of more than 50%
of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "change in control" by the
Compensation Committee.
You may exercise your option as set forth in Section 7 of the Plan.
If the Company's Common Stock has not been registered under Section 12 of
the Securities Exchange Act of 1934, the exercise
of your option will not be effective unless and until you execute and deliver to
the Company a Stock Restriction Agreement, in the form on file in the office of
the Secretary of the Company.
Your Option will, to the extent not previously exercised by
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you, terminate thirty (30) days after the date on which your employment by the
Company or Affiliate of the Company is terminated, whether such termination is
voluntary or not, other than by reason of disability as defined in Section
22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder, or death, in which case your Option will terminate six
(6) months from the date of termination of employment due to disability or death
(but in no event later than the Scheduled Termination Date). After the date
your employment is terminated, as aforesaid, you may exercise this Option only
for the number of shares which you had a right to purchase and did not purchase
on the date your employment terminated. If you are employed by an Affiliate of
the Company, your employment shall be deemed to have terminated on the date your
employer ceases to be an Affiliate of the Company, unless you are on that date
transferred to the Company or another Affiliate of the Company. Your employment
shall not be deemed to have terminated if you are transferred from the Company
to an Affiliate, or vice versa, or from one Affiliate to another Affiliate.
Anything in this Option to the contrary notwithstanding, your option will
terminate immediately if your employment is terminated for cause (as determined
by the Company in its sole and absolute discretion). Your employment shall be
deemed to have been terminated for cause if you are terminated due to, among
other reasons, (i) your willful misconduct or gross negligence, (ii) your
material breach of any agreement with the Company or (iii) your failure to
render satisfactory services to the Company.
If you die while employed by the Company or an Affiliate of the Company,
your legatee(s), distributee(s), executor(s) or administrator(s), as the case
may be, may, at any time within six (6) months after the date of your death (but
in no event later than the Scheduled Termination Date), exercise the Option as
to any shares which you had a right to purchase and did not purchase during your
lifetime. If your employment with the Company, or an Affiliate is terminated by
reason of your becoming disabled (within the meaning of Section 22(e)(3) of the
Code and the regulations thereunder), you or your legal guardian or custodian
may at any time within six (6) months after the date of such termination (but in
no event later than the Scheduled Termination Date), exercise the Option as to
any shares which you had a right to purchase and did not purchase prior to such
termination. Your legatee, distributee, executor, administrator, guardian or
custodian must present proof of his authority satisfactory to the Company prior
to being allowed to exercise this Option.
This Option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal
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guardian or custodian in the event of disability. Until the Option price has
been paid in full pursuant to due exercise of this Option and the purchased
shares are delivered to you, you do not have any rights as a shareholder of the
Company. The Company reserves the right not to deliver to you the shares
purchased by virtue of the exercise of this Option during any period of time in
which the Company deems, in its sole discretion, that such delivery would
violate a federal, state, local or securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this Option is
not exercisable until all of the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this Option is granted is approved by
the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this Option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this Option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this Option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company
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may, in its sole discretion, deem advisable to avoid any violation of federal,
state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable
state securities laws. The shares have been acquired for investment
and may not be offered, sold, transferred, pledged or otherwise
disposed of without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company
that the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this Option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option" this Option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
This Option shall be subject to the terms of the Plan in effect on the date
this Option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
Option and the terms of the Plan in effect on the date of this Option, the terms
of the Plan shall govern. This Option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, modification or waiver of this Option, in whole or in part, shall be
binding upon the Company unless in writing and signed by an appropriate officer
of the Company. This Option and the performances of the parties hereunder shall
be construed in accordance with and governed by the laws of
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the State of New York without regard to principles of conflict of law.
Please sign the copy of this Option and return it to the Company, thereby
indicating your understanding of and agreement with its terms and conditions.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: ____________________________
I hereby acknowledge receipt of a copy of the foregoing Stock Option and
the Network-1 Security Solutions, Inc. 1996 Stock Option Plan, and having read
such documents, hereby signify my understanding of, and my agreement with, their
terms and conditions.
_________________________ ____________________________
(Signature) (Date)
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APPENDIX B
NON-QUALIFIED STOCK OPTION
To: ______________________________________________________
Name
______________________________________________________
Address
Date of Grant: ____________________________________________
You are hereby granted an option (the "Option"), effective as of the date
hereof, to purchase _______ shares of Common Stock, par value $.01 per share
("Common Stock"), of Network-1 Security Solutions, Inc. (the "Company") at a
price of ___ per share pursuant to the Company's 1996 Stock Option Plan adopted
by the Company's Board of Directors and Stockholders effective March 7, 1996
(the "Plan"). [Your option price is intended to equal at least the fair market
value of the Company's Common Stock as of the date hereof.]
Your Option may first be exercised on and after one (1) year from the date
of Grant, but not before that time. Your Option may be exercised either: (i) on
and after ___________ and prior to the Termination Date (as hereinafter
defined), for up to _____% of the total number of shares subject to the Option
minus the number of shares previously purchased by exercise of the Option (as
adjusted for any change in the outstanding shares of the Common Stock of the
Company, by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Compensation Committee deems in its sole discretion to be
similar circumstances); or (ii) each succeeding year thereafter and prior to the
Termination Date (as hereinafter defined) for up to an additional [twenty (20%)
percent] of the total number of shares subject to the Option minus the number of
shares previously purchased by exercise of the Option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Compensation Committee deems in its sole discretion to be similar
circumstances). No fractional shares shall be issued or delivered.
This Option shall terminate and is not exercisable after the expiration of
[ten years] from the date of its grant (the "Scheduled Termination Date"),
except if terminated earlier as hereinafter provided (the "Termination Date").
In the event of a "change of control" (as hereafter defined) of the
Company, your Option may, from and after the date of the change of control, and
notwithstanding the second paragraph of this option, be exercised for up to 100%
of the total number of shares then subject to the Option minus the number of
shares previously purchased upon exercise of the Option (as adjusted for any
changes in the outstanding Common Stock by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Compensation Committee deems
in its sole discretion to be similar circumstances).
A "change of control" shall be deemed to have occurred upon the happening
of any of the following events:
1. A change within a twelve-month period in a majority of the members of the
Board of Directors of the Company;
2. A change within a twelve-month period in the holders of more than 50% of
the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "change in control" by the
Compensation Committee.
You may exercise your option as set forth in Section 7 of the Plan.
If the Company's Common Stock has not been registered under Section 12 of
the Securities Exchange Act of 1934, the exercise of your Option will not be
effective unless and until you execute and deliver to the Company a Stock
Restriction Agreement, in the form on file in the office of the Secretary of the
Company.
Your Option will, to the extent not previously exercised by you, terminate
thirty (30) days after the date on which your employment by the Company or a
parent or subsidiary corporation (an "Affiliate") of the Company is terminated,
whether such termination is voluntary or not, other than by reason of disability
as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder, or death, in which case your
Option will terminate six (6) months from the date of termination of employment
due to disability or death (but in no event later than the Scheduled Termination
Date). After the date your employment is terminated, as aforesaid, you may
exercise this Option only for the number of shares which you had a right to
purchase and did not purchase on the date your employment terminated. If you
are employed by an Affiliate of the Company, your employment shall be deemed to
have terminated on the date your employer ceases to be an Affiliate of the
Company, unless you are on that date transferred to the Company or another
Affiliate of the
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Company. Your employment shall not be deemed to have terminated if you are
transferred from the Company to an Affiliate, or vice versa, or from one
Affiliate to another Affiliate.
Anything in this Option to the contrary notwithstanding, your Option will
terminate immediately if your employment is terminated for cause (as determined
by the Company in its sole and absolute discretion). Your employment shall be
deemed to have been terminated for cause if you are terminated due to, among
other reasons, (i) your willful misconduct or gross negligence, (ii) your
material breach of any agreement with the Company or (iii) your failure to
render satisfactory services to the Company.
If you die while employed by the Company or an Affiliate of the Company
your legatee(s), distributee(s), executor(s) or administrator(s), as the case
may be, may, at any time within six (6) months after the date of your death (but
in no event later than the Scheduled Termination Date), exercise the Option as
to any shares which you had a right to purchase and did not purchase during your
lifetime. If your employment with the Company or an Affiliate is terminated by
reason of your becoming disabled (within the meaning of Section 22(e)(3) of the
Code and the regulations thereunder), you or your legal guardian or custodian
may at any time within six (6) months after the date of such termination (but in
no event later than the Scheduled Termination Date), exercise the Option as to
any shares which you had a right to purchase and did not purchase prior to such
termination. Your legatee, distributee, executor, administrator, guardian or
custodian must present proof of his authority satisfactory to the Company prior
to being allowed to exercise this Option.
This Option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the Option price has been paid in full pursuant to due
exercise of this Option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this Option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this Option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this Option is granted is
approved by the shareholders of the Company in the
3
manner prescribed by the Code and the regulations thereunder;
(b) Until this Option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this Option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this Option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local, or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable
state securities laws. The shares have been acquired for investment
and may not be offered, sold, transferred, pledged or otherwise
disposed of without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel
4
acceptable to the Company that the proposed transaction will be exempt
from such registration."
The foregoing legend shall be removed upon registration of the legended
shares under the Securities Act of 1933, as amended, and under any applicable
state laws or upon receipt of any opinion of counsel acceptable to the Company
that said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
It is the intention of the Company and you that this Option shall not be an
"Incentive Stock Option" as that term is used in Section 422 of the Code and the
regulations thereunder.
This Option shall be subject to the terms of the Plan in effect on the date
this Option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
Option and the terms of the Plan in effect on the date of this Option, the terms
of the Plan shall govern. This Option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, modification or waiver of this Option, in whole or in part, shall be
binding upon the Company unless in writing and signed by an appropriate officer
of the Company. This Option and the performances of the parties hereunder shall
be construed in accordance with and governed by the laws of the State of New
York without regard to principles of conflict of laws.
Please sign the copy of this Option and return it to the Company, thereby
indicating your understanding of and agreement with its terms and conditions.
NETWORK-1 SECURITY SOLUTIONS, INC.
By: _______________________________
I hereby acknowledge receipt of a copy of the foregoing Stock Option and
the Network-1 Security Solutions, Inc. 1996 Stock Option Plan, and having read
such documents, hereby signify my understanding of and my agreement with their
terms and conditions.
____________________________ _______________________________
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(Signature) (Date)
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