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EXHIBIT 10.1
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EMPLOYMENT AGREEMENT dated February 28, 2007, between NETWORK-1
SECURITY
SOLUTIONS, INC., a Delaware corporation with its principal office
located at 445
Park Avenue, Suite 1028, New York, New York 10022 (the "COMPANY"),
and COREY M.
HOROWITZ residing at 1085 Park Avenue, New York, New York 10128
(the
"EXECUTIVE").
The Company desires to enter into this Agreement in order to assure
itself
of the continued services of Executive, and Executive desires to
accept
continued employment with the Company, upon the terms and
conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations
hereinafter set forth, the parties agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Executive, and
Executive
hereby accepts employment by the Company, upon the terms and
conditions
hereinafter set forth.
SECTION 2. TERM. The employment of Executive hereunder shall be for
a
period commencing on February 28, 2007 (the "COMMENCEMENT DATE")
and ending on
the second anniversary of the Commencement Date (the "TERM") or
such earlier
date upon which the employment of the Executive shall terminate in
accordance
with the provisions hereof. The period commencing on the
Commencement Date and
ending on the date of termination of Executive's employment
hereunder shall be
called the "TERM OF EMPLOYMENT" for Executive, and the date on
which the
Executive's employment hereunder shall terminate shall be called
the
"TERMINATION DATE."
SECTION 3. DUTIES. During the Term of Employment, Executive shall
be
employed as Chairman and Chief Executive Officer of the Company and
will act in
accordance with, and be subject to the policies and procedures as
may be duly
adopted by the Board of Directors (the "BOARD") from time to time.
Executive
shall perform such duties as are consistent therewith as the Board
shall
designate. Executive will be responsible for the management and
operations of
all aspects of the Company's business, including licensing of the
Company's
patents, patent litigation oversight, patent acquisitions, and
finance and
administration. Executive will also have direct responsibility,
subject to Board
of Directors policies and resolutions as noted above, for all
current and future
budget and staff, and profit and loss accountability for the
Company in its
entirety. Executive shall use his best efforts to perform well and
faithfully
the foregoing duties and responsibilities. In addition, Executive
shall continue
to serve as Chairman of the Board and shall be nominated during the
Term of
Employment on an annual basis as a director (subject to election by
the
stockholders of the Company). On the Termination Date, if Executive
is no longer
employed by the Company, he agrees to submit his resignation as a
Board member
if requested by the Company. For purposes of this Agreement, so
long as
Executive shall serve as a member of the Board, any references
herein to
decisions or determinations to be made by the Board with respect to
Executive
(including, without limitation, matters relating to compensation
and
termination) shall be made by a majority of the then members of the
Board
excluding Executive, who shall recuse himself and abstain from
voting with
respect to any such matters.
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SECTION 4. TIME TO BE DEVOTED TO EMPLOYMENT. During the Term of
Employment,
Executive shall devote such time, attention and energies to the
business of the
Company as is necessary in the Board's reasonable judgment to
perform his duties
and responsibilities as Chairman and Chief Executive Officer. It is
understood
that Executive is not required to devote his full time and
attention to the
business of the Company during the Term of Employment. Executive
shall be
permitted to conduct other business activities so long as such
activities do
not, in the reasonable judgment of the Board, conflict or interfere
with the
duties of Executive hereunder.
SECTION 5. COMPENSATION.
(a) The Company shall pay to Executive an initial annual base
salary of
$288,750 (the "BASE SALARY") during the first year of the Term of
Employment,
payable in such installments (but not less often than monthly) as
is generally
the policy of the Company with respect to its executive officers.
The Base
Salary shall be increased by 5% on the one year anniversary of the
Commencement
Date.
(b) (i) In addition to the Base Salary set forth in paragraph 5(a)
above,
during the Term of Employment, Executive shall receive incentive
compensation
("BONUS COMPENSATION") in an amount equal to 5% of the Company's
royalties or
other payments (before deduction of payments to third parties
including, but not
limited to, legal fees and expenses and third party license fees)
actually
received from licensing its patented technologies (including
patents owned as of
the date hereof and acquired or licensed on an exclusive basis
during the period
in which Executive continues to serve as an executive officer of
the Company)
whether payable to the Company in the form of cash or securities
(the "ROYALTY
BONUS COMPENSATION"). The Royalty Bonus Compensation shall be paid
to Executive
within ten (10) days of the Company's actual receipt of the
royalties. In
addition, during the Term of Employment, Executive shall also be
entitled to
Bonus Compensation equal to 5% of the gross proceeds from (i) the
sale of any of
the Company's patents, and (ii) the merger of the Company with or
into another
corporation or entity with the result that the then existing
stockholders of the
Company hold less than 50% of the combined voting power of the then
outstanding
securities of the surviving entity in such transaction (the
"Merger"); provided,
that, at the time of the Merger substantially all of the assets of
the Company
(exclusive of cash) shall consist of the Company's patents and
license
agreements with respect to the patents. For purposes hereof, gross
proceeds from
a Merger shall include the total proceeds and other consideration
paid or
received in connection with the Merger including cash, securities
or other
assets. Such Bonus Compensation shall be paid within ten (10) days
of the
closing of any such transaction.
(c) The Royalty Bonus Compensation shall continue to be paid to
Executive
for the life of each of the Company's patents (including patents
owned as of the
date hereof and acquired or licensed on an exclusive basis during
the period in
which Executive continues to serve as an executive officer of the
Company) with
respect to licenses entered into by the Company with third parties
during the
Term of Employment or at anytime thereafter whether Executive is
employed by the
Company or not, provided, that, Executive's employment has not been
terminated
by the Company for Cause as defined in Section 9(a) hereof or
terminated by
Executive without Good Reason as defined in Section 10 hereof.
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SECTION 6. EQUITY.
(a) The Company recognizes that equity participation in the Company
through
the grant of options is essential to induce Executive to agree to
continue to
provide the services pursuant to this Agreement. Accordingly, (i)
on the
Commencement Date the Company shall grant to Executive a five (5)
year stock
option to purchase 375,000 shares of the Company's Common Stock and
(ii) on the
one year anniversary of the Commencement Date the Company shall
grant to
Executive a five (5) year stock option to purchase a minimum of
375,000 shares
of the Company's Common Stock, provided, that, Executive's
employment has not
been terminated by the Company for cause as defined in Section 9(a)
hereof or
terminated by Executive without good reason as defined in Section
10 hereof
(collectively, the "NEW OPTIONS"). The exercise price per share of
the New
Options shall equal the closing price of the Company's common stock
on the date
of grant of each New Options (the Commencement Date shall be the
date of grant
for the New Options to purchase 375,000 shares issued on the date
hereof). The
New Options shall each vest in equal quarterly amounts over a one
year period
beginning March 31, 2007 and March 31, 2008, respectively, subject
to
accelerated vesting in the event of a change of control (as defined
in the form
of New Option). The form of New Options is attached as EXHIBIT A
hereto. In
addition to grants of the New Options, the Company agrees on the
Commencement
Date to extend for an additional 3 years the expiration dates of
all options and
warrants expiring in calendar year 2007 and 2008 owned by Executive
and CMH
Capital Management Corp. ("CMH"), an affiliated entity of Executive
(the
"EXTENDED OPTIONS AND WARRANTS"). A list of the Extended Options
and Warrants is
set forth on EXHIBIT B hereto. Following the issuance of the New
Options
(including the New Option in the minimum amount of 375,000 shares
to be issued
on the one year anniversary of the Commencement Date), when
aggregated with the
prior options and warrants owned by Executive and CMH (including
the Extended
Options and Warrants), Executive's ownership in the Company
represented by all
options and warrants owned by him and CMH (exclusive of ownership
of common
stock) as of the date hereof will be equal to 21.47% of the
Company's
outstanding securities on a fully diluted basis (assuming the
exercise and
conversion of all outstanding options, warrants and convertible
securities (the
"DERIVATIVE OWNERSHIP PERCENTAGE"). A list of all options and
warrants owned by
Executive and CMH including the New Options and the Extended
Options and
Warrants issued pursuant to this Section 6(a) together with a
calculation of the
Derivative Ownership Percentage, is attached as EXHIBIT B. The
Company agrees to
file an amendment to its Registration Statement on Form S-8, within
30 days as
so directed by Executive, to register the shares underlying the New
Options
issued on the date hereof pursuant to this Section 6(a) hereof.
(b) At anytime during the period ended December 31, 2008, in the
event that
the Company completes a financing (either a single transaction or
series of
transactions) consisting of the issuance of common stock or any
other securities
convertible or exercisable into common stock, Executive shall
receive (at the
closing of such financing) from the Company, at the same price as
the securities
issued in the financing, such number of additional options to
purchase Common
Stock so that Executive maintains his same Derivative Ownership
Percentage as of
the date hereof; provided, that, the provisions of this Section
6(b) shall
provide anti-dilution protection up to one or more maximum
financing(s)
aggregating $2.5 million. Any such additional options to be issued
to Executive
shall immediately vest on the date of grant and shall contain
substantially the
same provisions (exclusive of the vesting provisions) as the New
Options issued
pursuant to Section 6(a) hereof.
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SECTION 7. BUSINESS EXPENSES; BENEFITS.
(a) The Company shall reimburse Executive, in accordance with the
practice
from time to time for executive officers of the Company, for all
reasonable and
necessary expenses and other disbursements incurred by Executive
for or on
behalf of the Company in the performance of Executive's duties
hereunder.
Executive shall provide such appropriate documentation of expenses
and
disbursements as may from time to time be required by the
Company.
(b) During the Term of Employment, Executive shall be entitled to
four (4)
weeks vacation per year.
(c) During the Term of Employment, Executive shall be entitled
to
participate in the group health, life, dental and disability
insurance benefits,
and retirement plan benefits made available from time to time for
its executive
officers and other employees.
SECTION 8. INVOLUNTARY TERMINATION.
(a) If Executive is incapacitated or disabled to the extent he
cannot
perform his duties under this Agreement for twelve (12) consecutive
weeks, or
for a cumulative total of six (6) months in any calendar year (such
condition
being hereinafter referred to as a "DISABILITY"), the Term of
Employment and
employment of the Executive under this Agreement shall cease (such
termination,
as well as a termination under Section 8(b), being hereinafter
referred to as an
"INVOLUNTARY TERMINATION") and Executive shall be entitled to
receive the
benefits payable under any disability policy maintained by the
Company on his
behalf and in accordance with Section 11(b) hereof.
(b) If Executive dies during the Term of Employment, the Term of
Employment
and Executive's employment hereunder shall cease as of the date of
the
Executive's death and Executive shall be entitled to receive the
benefits
payable in accordance with Section 11 (b) hereof.
SECTION 9. TERMINATION BY THE COMPANY. ]
(a) TERMINATION FOR CAUSE. The Company may terminate the Term of
Employment
and the employment of the Executive hereunder at any time for Cause
(as
hereinafter defined) (such termination being referred to herein as
a
"TERMINATION FOR CAUSE") by giving Executive written notice of such
termination,
effective immediately upon the giving of such notice to Executive.
As used in
this Agreement, "CAUSE" means the Executive's (a) commission of an
act (i)
constituting a felony or (ii) involving fraud, moral turpitude,
theft or
dishonesty which is not a felony and which materially adversely
affects the
Company or could reasonably be expected to materially adversely
affect the
Company, (b) repeated failure to be reasonably available to perform
his duties
(other than as a result of illness or incapacity), which, if
curable, shall not
have been cured within 30 days of written notice thereof from the
Company, (c)
repeated failure to follow the lawful directions of the Board,
which, if
curable, shall not have been cured within 30 days of written notice
thereof from
the Company, or (d) material breach of the terms and provisions of
this
Agreement or any agreement with the Company which, if curable,
shall not have
been cured within 30 days of written notice thereof from the
Company.
(b) TERMINATION OTHER THAN FOR CAUSE. The Company may terminate the
Term of
Employment and the employment of Executive hereunder at any time
other than for
Cause as
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defined in Section 9(a) above (such termination shall be defined as
a
"TERMINATION OTHER THAN FOR CAUSE") by giving Executive written
notice of such
termination, which notice shall be effective thirty (30) days after
the giving
of such notice or such later date set forth therein.
SECTION 10. TERMINATION BY EXECUTIVE. If at any time during the
Term of
Employment, Executive elects to terminate Executive's employment
with the
Company (other than for "GOOD REASON", as defined below), then the
Company's
obligations to Executive under this Agreement shall be as set forth
in Section
11(e) hereof and such termination by Executive shall constitute a
breach of this
Agreement. If Executive elects to terminate Executive's employment
with the
Company for Good Reason, then the Company shall pay Executive the
amounts set
forth in Section 11(d) hereof. For the purpose of this Section,
"Good Reason"
means (i) any material diminution of duties inconsistent with
Executive's title,
authority, duties and responsibilities as Chairman and Chief
Executive Officer;
(ii) any reduction of or failure to pay Executive compensation
provided for
herein, which non-payment continues for a period of thirty (30)
days following
written notice to the Company by Executive of such non-payment,
except to the
extent Executive consents in writing to any reduction, deferral or
waiver of
compensation; (iii) any relocation of the principal location of
Executive's
employment more than 75 miles from the Corporation's current
headquarters in New
York, New York without Executive's prior written consent; or (iv)
any material
violation by the Company of its obligations under this Agreement
that is not
cured (if curable) within thirty (30) days after receipt of notice
thereof.
SECTION 11. EFFECT OF TERMINATION.
(a) Upon the termination of the Term of Employment and
Executive's
employment hereunder due to a Termination for Cause (as defined in
Section 9(a)
above), Executive shall not have any further rights or claims
against the
Company under this Agreement, except the right to receive (i) the
unpaid
portion, if any, of (a) the Base Salary provided for in Section
5(a), computed
on a pro rata basis through the Termination Date and (b) Bonus
Compensation
(including the Royalty Bonus Compensation) provided for in Section
5(b) earned
prior to the Termination Date, (ii) any unpaid accrued benefits of
Executive,
(iii) reimbursement for any expenses for which Executive shall not
have been
reimbursed as provided in Section 7(a), and (iv) Executive's rights
under the
vested portion of any options or warrants issued to Executive and
CMH by the
Company including the New Options issued in accordance with Section
6(a) hereof,
(collectively, the "AGGREGATE DERIVATIVE SECURITIES").
(b) Upon the termination of Executive's employment hereunder due to
an
Involuntary Termination, neither Executive nor his beneficiary or
estate shall
have any further rights or claims against the Company under this
Agreement
except the right to receive (i) the amounts set forth in Section
11(a), (ii)
Bonus Compensation in accordance with Section 5(c), and (iii) the
accelerated
vesting of all of the Aggregate Derivative Securities that would
have vested
twelve (12) months from the date of Involuntary Termination.
(c) Upon the termination of Executive's employment upon a
Termination Other
Than for Cause (as defined in Section 9(b) above), neither
Executive nor his
beneficiary nor his estate shall have any rights or claims against
the Company
except to receive (i) the amounts set forth in 11(b), and (ii) a
severance equal
to twelve (12) months Base Salary as in effect at the time of the
Termination
Other Than for Cause, such sum to be paid in a lump sum payment
upon
termination.
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(d) Upon the termination of Executive's employment by Executive for
Good
Reason (as defined in Section 10 above), neither Executive nor his
beneficiary
or estate shall have any further rights or claims against the
Company under this
Agreement, except the right to receive the amounts set forth in
Section 11(c).
(e) Upon the termination of Executive's employment by Executive
(other than
for Good Reason), neither Executive nor his beneficiary or estate
shall have any
further rights or claims against the Company under this Agreement,
except the
right to receive the amounts set forth in Section 11(a).
SECTION 12. INSURANCE. The Company may, for its own benefit, in its
sole
discretion, and at its sole cost and expense, maintain "key-man"
life and
disability insurance policies covering Executive. Executive will
cooperate with
the Company and provide such information or other assistance as the
Company may
reasonably request in connection with the Company's obtaining and
maintaining
such policies.
SECTION 13. DISCLOSURE OF INFORMATION. Executive will not, either
during
the Term of Employment or at any time thereafter, divulge, publish,
communicate,
furnish or make accessible to anyone (other than in furtherance of
the purposes
of the Company) any knowledge or information with respect to the
Company's
confidential, secret or proprietary information or assets, or with
respect to
any other confidential, secret or proprietary aspects of the
business,
activities or intellectual property of the Company including,
without
limitation, (a) patents and related intellectual property, terms of
patent
acquisition contracts or licensing arrangements, or other technical
data
pertaining to the Company's patents and intellectual property
(whether or not
subject to patent, trademark or copyright protection) or (b)
business strategies
and plans including, but not limited to, litigation strategies and
potential
patent acquisitions; except as such items set forth in clauses (a)
and (b) above
may already be in the public domain through no fault of Executive
(all of the
foregoing items set forth in clauses (a) and (b) being referred to
herein
collectively as "CONFIDENTIAL PROPERTY") or except as otherwise
required by law.
In the event that Executive becomes legally compelled to disclose
any
Confidential Property, Executive shall advise the Company as soon
as practicable
so that the Company may seek a protective order or other
appropriate remedy. In
addition, Executive agrees to cooperate in the Company's effort, at
the
Company's expense, to obtain a protective order or other
appropriate remedy.
Upon the termination of the Term of Employment, Executive shall
return to the
Company all property (including Confidential Property) of the
Company (or any
subsidiary or affiliate thereof) then in the possession of
Executive and all
books, records, computer tapes or discs and all other material
containing
non-public information concerning the business or affairs of the
Company or any
subsidiary or affiliate thereof.
SECTION 14. RIGHT TO INVENTIONS. (a) Executive shall promptly
disclose,
grant and assign to the Company for its sole use and benefit any
and all marks,
designs, logos, inventions, improvements, technical information and
suggestions
relating in any way to the business conducted by the Company, which
he may
develop or which may be acquired by Executive during the Term of
Employment
(whether or not during usual working hours), together with all
trademarks,
patent applications, letters, patent, copyrights and reissues
thereof that may
at any time be granted for or upon any such mark, design, logo,
invention,
improvement or technical information (collectively, "INVENTIONS").
In connection
therewith, Executive shall (at the Company's sole cost and
expense)
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take all actions reasonably necessary or desirable to assign and/or
confirm the
assignment of any Invention to the Company.
(b) To the extent any of the rights, title and interest in and
to
Inventions cannot be assigned by Executive to the Company,
Executive hereby
grants to the Company an exclusive, royalty-free, transferable,
irrevocable,
worldwide license (with rights to sublicense through multiple tiers
of
sublicensees) to practice such non-assignable rights, title and
interest. To the
extent any of the rights, title and interest in and to Inventions
can be neither
assigned nor licensed by Executive to the Company, Executive hereby
irrevocably
waives and agrees never to assert such non-assignable and
non-licensable rights,
title and interest against the Company or any of the Company's
successors in
interest to such non-assignable and non-licensable rights.
Executive hereby
grants to the Company or the Company's designees a royalty free,
irrevocable,
worldwide license (with rights to sublicense through multiple tiers
of
sublicensees) to practice all applicable patent, copyright, moral
right, mask
work, trade secret and other intellectual property rights relating
to any prior
inventions which Executive incorporates, or permits to be
incorporated, in any
Inventions. Notwithstanding the foregoing, Executive agrees that he
will not
incorporate, or permit to be incorporated, any prior inventions of
Executive in
any Inventions without the Company's prior written consent.
SECTION 15. FUTURE INNOVATIONS. Executive recognizes that
Inventions or
Confidential Property relating to his activities while working for
the Company
and conceived, reduced to practice, created, derived, developed, or
made by
Executive, alone or with others, within three (3) months after
termination of
his employment may have been conceived, reduced to practice,
created, derived,
developed, or made, as applicable, in significant part while
employed by the
Company. Accordingly, Executive agrees that such Inventions or
Confidential
Property shall be presumed to have been conceived, reduced to
practice, created,
derived, developed, or made, as applicable, during his employment
with the
Company and are to be promptly assigned to the Company unless and
until
Executive has established the contrary by written evidence
satisfying the clear
and convincing standard of proof.
SECTION 16. COOPERATION IN PERFECTING RIGHTS TO PROPRIETARY
INFORMATION AND
INNOVATIONS.
(a) Executive agrees to perform, during and after his employment,
all acts
deemed necessary or desirable by the Company to permit and assist
the Company
(during any period after Executive's termination of employment with
the Company,
subject to Executive's obligations to his then employer, if any),
at the
Company's expense, in obtaining and enforcing the full benefits,
enjoyment,
rights and title throughout the world in the Inventions or
Confidential Property
assigned or licensed to, or whose rights are irrevocably waived and
shall not be
asserted against, the Company under this Agreement. Such acts may
include, but
are not limited to, execution of documents and assistance or
cooperation (i) in
the filing, prosecution, registration, and memorialization of
assignment of any
applicable patents, copyrights, mask work, or other applications,
(ii) in the
enforcement of any applicable patents, copyrights, mask work, moral
rights,
trade secrets, or other proprietary rights, and (iii) in other
legal proceedings
related to the Inventions or Confidential Property.
(b) In the event that the Company is unable (after reasonable
efforts) to
secure Executive's signature to any document required to file,
prosecute,
register, or memorialize the
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assignment of any patent, copyright, mask work or other
applications or to
enforce any patent, copyright, mask work, moral right, trade secret
or other
proprietary right under any Inventions (including derivative
works,
improvements, renewals, extensions, continuations, divisionals,
continuations in
part, continuing patent applications, reissues, and reexaminations
thereof),
Executive hereby irrevocably designates and appoints the Company
and the
Company's duly authorized officers and agents as his agents and
attorneys-in-fact to act for and on his behalf and instead of him,
(i) to
execute, file, prosecute, register and memorialize the assignment
of any such
application, (ii) to execute and file any documentation required
for such
enforcement, and (iii) to do all other lawfully permitted acts to
further the
filing, prosecution, registration, memorialization of assignment,
issuance, and
enforcement of patents, copyrights, mask works, moral rights, trade
secrets or
other rights under Inventions, all with the same legal force and
effect as if
executed by Executive.
SECTION 17. RESTRICTIVE COVENANT.
(a) The Company is in the business of pursuing licensing
opportunities
related to its patented technologies with third parties who the
Company believes
are infringing its patents and intellectual property or who may
require a
license for future products, and which business strategy has
required, and may
require in the future, the Company to commence patent infringement
lawsuits
against third parties (the "BUSINESS"). Executive acknowledges and
recognizes
that the Business may be conducted throughout the world, and
Executive further
acknowledges and recognizes the highly competitive nature of the
Company's
Business. Accordingly, in consideration of the premises contained
herein, the
consideration to be received hereunder and the New Options and
Extended Options
and Warrants granted to Executive in accordance with Section 6
hereof, Executive
shall not, during the Non-Competition Period (as defined below):
(i) directly or
indirectly engage, whether or not such engagement shall be as a
partner,
stockholder, officer, director, affiliate or other participant, in
any
Competitive Business (as defined below), or represent in any way
any Competitive
Business, whether or not such engagement or representation shall be
for profit,
(ii) interfere with, disrupt or attempt to disrupt the
relationship, contra
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