sec document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. )1
Network-1 Security Solutions, Inc.
----------------------------------
(Name of Issuer)
Common Stock, $.01 Par Value
----------------------------
(Title of Class of Securities)
64121N 10 9
-----------
(CUSIP Number)
SAM SCHWARTZ, ESQ.
OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
--------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 18, 2003
-----------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box / /.
Note. Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. See Rule 13d-7
for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 20 Pages)
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1 The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall
not be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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CUSIP No. 64121N 10 9 13D Page 2 of 20 Pages
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================================================================================
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Corey M. Horowitz
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
PF, AF, OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
--------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 3,833,252 (1)
OWNED BY
EACH
REPORTING
PERSON WITH ----------------------------------------------------------------
8 SHARED VOTING POWER
74,573 (2)
-----------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
3,833,252 (1)
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
74,573 (2)
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
3,907,825 (1)(2)
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
33.8%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
================================================================================
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 64121N 10 9 13D Page 3 of 20 Pages
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(1) Includes (a)(i) 486,303 shares of Common Stock, (ii) 85,220 shares
of Common Stock issuable upon exercise of warrants and (iii) 42,500
shares of Common Stock issuable upon exercise of options, all of
which are held by Mr. Horowitz and (b)(i) 155,463 shares of Common
Stock, (ii) 643,896 shares of Common Stock issuable upon exercise of
warrants, (iii) 250,000 shares of Common Stock issuable upon
exercise of options and (iv) 2,169,870 shares of Common Stock
issuable upon conversion of 1,084,935 shares of Series E Convertible
Preferred Stock, all of which are held by CMH Capital Management
Corp.
(2) Includes (a)(i) 1,528 shares of Common Stock and (ii) 70,754 shares
of Common Stock issuable upon conversion of 35,377 shares of Series
E Convertible Preferred Stock, all of which are held by Donna
Slavitt, Mr. Horowitz's spouse and (b) 2,291 shares of Common Stock
held by Horowitz Partners, a general partnership of which Mr.
Horowitz is a partner. Mr. Horowitz disclaims beneficial ownership
of the shares held by Horowitz Partners except to the extent of his
pecuniary interest therein.
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CUSIP No. 64121N 10 9 13D Page 4 of 20 Pages
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================================================================================
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
CMH Capital Management Corp.
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e) / /
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
--------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY -0-
OWNED BY
EACH
REPORTING
PERSON WITH ----------------------------------------------------------------
8 SHARED VOTING POWER
3,219,229 (1)
-----------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
-0-
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,219,229 (1)
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
3,219,229 (1)
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
28.3%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
================================================================================
*SEE INSTRUCTIONS BEFORE FILLING OUT!
(1) Includes (i) 155,463 shares of Common Stock, (ii) 643,896 shares of
Common Stock issuable upon exercise of warrants, (iii) 250,000
shares of Common Stock issuable upon exercise of options and (iv)
2,169,870 shares of Common Stock issuable upon conversion of
1,084,935 shares of Series E Convertible Preferred Stock.
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CUSIP No. 64121N 10 9 13D Page 5 of 20 Pages
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The following constitutes the Schedule 13D filed by the undersigned
(the "Schedule 13D").
Item 1. Security and Issuer.
-------------------
This statement relates to shares of the Common Stock, par value $.01
per share (the "Shares"), of Network-1 Security Solutions, Inc. (the "Issuer").
The principal executive offices of the Issuer are located at 445 Park Avenue,
Suite 1028, New York, New York 10022.
Item 2. Identity and Background.
-----------------------
(a) This statement is filed by Corey M. Horowitz and CMH Capital
Management Corp., a New York corporation ("CMH"). Each of the foregoing is
referred to as a "Reporting Person" and collectively as the "Reporting Persons."
Mr. Horowitz is the Chairman of the Board of Directors of the Issuer
and CMH has a consulting arrangement with the Issuer pursuant to which it has
received and continues to receive consulting fees of $17,500 a month and
reimbursement of certain expenses.
Mr. Horowitz is the sole stockholder, officer and director of CMH.
By virtue of his position with CMH, Mr. Horowitz has the power to vote and
dispose of the Issuer's Shares owned by CMH. Accordingly, the Reporting Persons
are hereby filing a joint Schedule 13D.
(b) The principal business address of each Reporting Person is 445
Park Avenue, Suite 1028, New York, New York 10022.
(c) The principal occupation and business of Mr. Horowitz and CMH is
private and public investments and financial advisory and consulting services.
(d) No Reporting Person has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) No Reporting Person has, during the last five years, been party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) Mr. Horowitz is a citizen of the United States of America.
Item 3. Source and Amount of Funds or Other Consideration.
-------------------------------------------------
On November 18, 2003, CMH purchased 1,084,935 shares of Series E
Convertible Preferred Stock of the Issuer from FalconStor Software, Inc.
pursuant to a securities purchase agreement (the "Securities Purchase
Agreement") for an aggregate purchase price of $35,000. CMH acquired such shares
of Series E Convertible Preferred Stock with its working capital.
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CUSIP No. 64121N 10 9 13D Page 6 of 20 Pages
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The warrants and options reported in this Schedule 13D were granted
to the Reporting Persons in consideration for services rendered to the Issuer.
The Shares currently held by the Reporting Persons were purchased in private
transactions using personal funds or working capital, as applicable.
The aggregate purchase price of the 70,754 Shares issuable upon
conversion of 35,377 shares of Series E Convertible Preferred Stock owned by
Donna Slavitt, Mr. Horowitz's spouse, is $75,000. The Shares owned by Ms.
Slavitt were acquired with personal funds.
Item 4. Purpose of Transaction.
----------------------
The Shares reported owned in this Schedule 13D were acquired for
investment purposes. Depending upon overall market conditions, other investment
opportunities available to the Reporting Persons, and the availability of Shares
at prices that would make the purchase of additional Shares desirable, the
Reporting Persons may endeavor to increase their position in the Issuer through,
among other things, the purchase of Shares on the open market or in private
transactions or otherwise, on such terms and at such times as the Reporting
Persons may deem advisable. No Reporting Person has any present plan or proposal
which would relate to or result in any of the matters set forth in subparagraphs
(a) - (j) of Item 4 of Schedule 13D except as set forth herein or such as would
occur upon completion of any of the actions discussed above.
Item 5. Interest in Securities of the Issuer.
------------------------------------
(a) The following list sets forth the aggregate number and
percentage (based on 8,314,458 Shares outstanding as reported in the Issuer's
Form 10-Q for the quarter ended September 30, 2003) of Shares beneficially owned
by each Reporting Person, as of November 26, 2003:
Shares of Common Percentage of Shares
Stock of Common Stock
Name Beneficially Owned Beneficially Owned
---- ------------------ --------------------
Corey M. Horowitz 3,907,825 (1) 33.8%
CMH Capital Management Corp. 3,219,229 (2) 28.3%
(1) Includes (a)(i) 486,303 Shares, (ii) 85,220 Shares issuable upon
exercise of Warrants and (iii) 42,500 Shares issuable upon exercise
of options, all of which are held by Mr. Horowitz, (b)(i) 155,463
Shares, (ii) 643,896 Shares issuable upon exercise of warrants,
(iii) 250,000 Shares issuable upon exercise of options and (iv)
2,169,870 Shares issuable upon conversion of 1,084,935 shares of
Series E Convertible Preferred Stock, all of which are held by CMH
Capital Management Corp., (c)(i) 1,528 Shares and (ii) 70,754 Shares
issuable upon conversion of 35,377 shares of Series E Convertible
Preferred Stock, all of which are held by Donna Slavitt and (d)
2,291 Shares held by Horowitz Partners. Mr. Horowitz disclaims
beneficial ownership of the Shares held by Horowitz Partners, except
to the extent of his pecuniary interest therein.
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CUSIP No. 64121N 10 9 13D Page 7 of 20 Pages
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(2) Includes (i) 155,463 Shares, (ii) 643,896 Shares issuable upon
exercise of warrants, (iii) 250,000 Shares issuable upon exercise of
options and (iv) 2,169,870 Shares issuable upon conversion of
1,084,935 shares of Series E Convertible Preferred Stock.
(b) Mr. Horowitz has sole power to vote and dispose of 3,833,252
Shares (consisting of the 614,023 Shares beneficially owned by him, constituting
approximately 7.3% of the Shares outstanding and, by virtue of his position as
sole stockholder, officer and director of CMH, of the 3,219,229 Shares
beneficially owned by CMH, constituting approximately 28.3% of the Shares
outstanding), constituting approximately 33.3% of the Shares outstanding.
By virtue of being her spouse, Mr. Horowitz may be deemed to have
shared power to vote and dispose of the 72,282 Shares beneficially owned by
Donna Slavitt, constituting less than 1% of the Shares outstanding. Ms. Slavitt
resides at 1085 Park Avenue, New York, New York 10128. She is the president of
World Packaging Corp., a manufacturer and distributor of promotional and
licensed products. Ms. Slavitt has not, in the last five years, been convicted
in a criminal proceeding or a party to a civil proceeding as described in Items
2(d) and (e). Ms. Slavitt is a citizen of the United States of America.
By virtue of his position as a partner of Horowitz Partners ("HP"),
Mr. Horowitz may be deemed to have shared power to vote and dispose of the 2,291
Shares beneficially owned by HP, constituting less than 1% of the Shares
outstanding. HP is a general partnership with an address at 445 Park Avenue,
Suite 1028, New York, New York 10022. HP's principal business is investments and
it has not, in the last five years, been convicted in a criminal proceeding or a
party to a civil proceeding as described in Items 2(d) and (e). The other
partners of HP are Mr. Horowitz's mother, Syd Horowitz, his brother, Gary
Horowitz and his sister, Cindy Horowitz (the "Partners"). Syd Horowitz resides
at 56 Field Lane, Roslyn Heights, New York 11577 and is retired. Gary Horowitz
resides at 41 Lowell Drive, Stow, Massachusetts 01775 and his principal
occupation is a clinical pathologist. Cindy Horowitz resides at 173 West 78th
Street, New York, New York 10024 and her principal occupation is an elementary
school teacher. None of the Partners have, in the last five years, been
convicted in a criminal proceeding or a party to a civil proceeding as described
in Items 2(d) and (e). The Partners are all citizens of the United States of
America.
CMH has sole power to vote and dispose of 3,219,229 Shares,
constituting approximately 28.3% of the Shares outstanding.
(c) On November 18, 2003, CMH purchased, in a private transaction,
1,084,935 shares of Series E Convertible Preferred Stock of the Issuer,
convertible into 2,169,870 Shares, for an aggregate purchase price of $35,000.
Reference is made to the Securities Purchase Agreement which is filed as an
exhibit hereto and incorporated herein by reference. There were no other
transactions in the securities of the Issuer by the Reporting Persons during the
past sixty days.
(d) No person other than the Reporting Persons is known to have the
right to receive, or the power to direct the receipt of dividends from, or
proceeds from the sale of, the Shares.
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CUSIP No. 64121N 10 9 13D Page 8 of 20 Pages
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(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships
With Respect to Securities of the Issuer.
---------------------------------------------------------
Other than as described herein, there are no contracts,
arrangements, understandings or relationships among the Reporting Persons, or
between the Reporting Persons and any other person, with respect to the
securities of the Issuer.
Item 7. Material to be Filed as Exhibits.
--------------------------------
1. Securities Purchase Agreement by and between CMH Capital
Management Corp. and FalconStor Software, Inc., dated
November 18, 2003.
2. Joint Filing Agreement by and between Corey M. Horowitz and
CMH Capital Management Corp., dated November 26, 2003.
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CUSIP No. 64121N 10 9 13D Page 9 of 20 Pages
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SIGNATURES
After reasonable inquiry and to the best of his knowledge and
belief, each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: November 26, 2003
/s/ Corey M. Horowitz
--------------------------------------
Corey M. Horowitz
CMH CAPITAL MANAGEMENT CORP.
By: /s/ Corey M. Horowitz
----------------------------------
Corey M. Horowitz
President
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CUSIP No. 64121N 10 9 13D Page 10 of 20 Pages
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EXHIBIT INDEX
-------------
Exhibit Page
------- ----
1. Securities Purchase Agreement by and between CMH 11-19
Capital Management Corp. and FalconStor Software,
Inc., dated November 18, 2003.
2. Joint Filing Agreement by and between Corey M. 20
Horowitz and CMH Capital Management Corp., dated
November 26, 2003.
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CUSIP No. 64121N 10 9 13D Page 11 of 20 Pages
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Exhibit 1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is effective
as of November 18, 2003, by and between CMH Capital Management Corp. a Delaware
corporation ("Purchaser"), and FALCONSTOR Software, Inc., a Delaware corporation
("Seller").
RECITALS
A. Seller is the owner of 1,084,935 shares of the Series E Preferred
Stock (the "Series E Preferred") and warrants to purchase 500,000 shares of
common stock (the "Warrants" and together with the Series E Preferred, the
"Securities") of Network-1 Security Solutions, Inc., a Delaware corporation
("Network-1").
B. Subject to the terms and conditions hereof, Seller desires to
sell to Purchaser, and Purchaser desires to acquire from Seller, the Series E
Preferred.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained and other valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereby agree as
follows:
1. SALE AND PURCHASE OF SECURITIES. Subject to Purchaser's and
Seller's warranties and representations set forth herein, and contingent upon
the executing by Network-1 of the Release attached hereto as Exhibit A, Seller
hereby sells, assigns, transfers, conveys and delivers the Series E Preferred to
Purchaser, and Purchaser hereby purchases the Series E Preferred from Seller,
for a total price of $35,000. The purchase price shall be paid in cash at
closing.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser
represents, warrants and covenants to Seller as follows:
a. PURCHASE ENTIRELY FOR OWN ACCOUNT. The Series E Preferred will
be acquired by Purchaser for investment for Purchaser's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Series E Preferred.
b. RELIANCE UPON PURCHASERS' REPRESENTATIONS. Purchaser
understands that the Series E Preferred are not registered under the Securities
Act of 1933, as amended (the "Act"), that the sale provided for in this
Agreement and the issuance of Series E Preferred hereunder is exempt from
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CUSIP No. 64121N 10 9 13D Page 12 of 20 Pages
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registration under the Act, and that Seller's reliance on such exemption is
based, in part, on Purchaser's representations set forth herein. Purchaser is an
Accredited Investor as defined in Rule 501 of Regulation D of the Act.
c. RESTRICTED SECURITIES. Purchaser understands that the Series E
Preferred may not be sold, transferred or otherwise disposed of without
registration under the Act or an exemption therefrom, and that in the absence of
an effective registration statement covering the Series E Preferred, or an
available exemption from registration under the Act, the Securities must be held
indefinitely. In particular, Purchaser is aware that the Series E Preferred may
not be sold pursuant to Rule 144 promulgated under the Act unless all of the
conditions of Rule 144 are met. Among the conditions for use of Rule 144 with
respect to the Series E Preferred is the availability of current information to
the public about Network-1. Purchaser understands that he or she must hold the
Series E Preferred for at least one year from the date on which Purchaser
purchases the Series E Preferred from Seller before Purchaser may sell the
Series E Preferred pursuant to Rule 144.
d. LEGENDS. Purchaser agrees that each certificate or other
document evidencing any of the Series E Preferred shall bear the following or
similar legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT UNDER THE ACT IN EFFECT WITH
RESPECT TO THESE SECURTIES OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS REQUIRED."
e. RISKS OF INVESTMENT. Purchaser represents that: (a) Purchaser
is experienced in evaluating and investing in securities of companies in the
development stage and has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
Purchaser's prospective investment in the Securities; (b) Purchaser has the
ability to bear the economic risks of Purchaser's prospective investment; and
(c) Purchaser is able, without materially impairing his or her financial
condition, to hold the Series E Preferred for an indefinite period of time and
to suffer complete loss of its investment.
4. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents,
warrants and covenants to Purchaser as follows:
a. CAPACITY. Seller has full legal capacity, power and authority
to execute, deliver, and perform its obligations under this Agreement.
2
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CUSIP No. 64121N 10 9 13D Page 13 of 20 Pages
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b. VALIDITY. This Agreement has been duly and validly executed
and delivered by the Seller and constitutes a legal, valid and binding agreement
of the Seller, enforceable against the Seller in accordance with its terms.
c. NO CONSENTS; NO CONTRAVENTION. The execution, delivery and
performance by the Seller of this Agreement does not require any authorization
consent, approval or action by or in respect of, or filing with, any
governmental body, agency, official or other person and does not contravene, or
constitute a default under, any provision of applicable law or regulation or of
any agreement, judgment, order, decree or other instrument to which the Seller
is a party or by which the Seller is bound.
d. OWNERSHIP OF SECURITIES. Seller owns of record and
beneficially the Series E Preferred s, with full right and authority to sell and
transfer such Securities hereunder, and upon sale and transfer of such Series E
Preferred and the delivery of one or more deeds of transfer (or executed stock
powers) with respect to such Series E Preferred hereunder, Purchaser will
receive good, valid and marketable title thereto, free and clear of all liens,
security interests or encumbrances or any other third parties rights, and not
subject to any agreements or understandings among any persons with respect to
the voting or transfer of such shares other than the voting agreement set forth
in Article V.3 of the Securities Purchase Agreement among Network-1, Seller, and
others, dated as of October 2, 2001. Other than the Warrants, Seller does not
own any other securities of Network-1.
e. INFORMATION. Seller acknowledges that Corey M. Horowitz, the
Chairman of the Board of Directors of Network-1, is the sole shareholder of the
Purchaser. The Seller has received from Network-1 all the information it has
requested and considers necessary or appropriate for deciding whether to sell
the Series E Preferred, and has had the full opportunity to examine all relevant
documents (including Network-1's public filings made with the SEC) and to ask
questions of, and to receive answers from, Purchaser and the management of
Network-1 concerning Network-1 and its business, prospects, financial condition
and affairs, and all other matters deemed relevant by the Seller, including its
intentions with respect to the Patents referenced in Exhibit A hereto.
5. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matters herein, and supersedes and replaces any prior agreements and
understandings, whether oral or written between and among them with respect to
such matters. The provisions of this Agreement may be waived, altered, amended
or repealed, in whole or in part, only upon the written consent of all parties
to this Agreement.
b. SUCCESSORS AND ASSIGNS. Subject to any provisions herein with
regard to assignment, all covenants and agreements herein shall bind and inure
to the benefit of the respective heirs, executors, administrators, successors
and assigns of the parties hereto.
3
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CUSIP No. 64121N 10 9 13D Page 14 of 20 Pages
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c. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
d. ATTORNEYS' FEES; COSTS. In the event a party breaches this
Agreement, the breaching party shall pay all costs and attorneys' fees incurred
by the other party in connection with such breach, whether or not any
arbitration or litigation is commenced.
e. NOTICES. All notices, requests, demands, instructions or
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon delivery,
if delivered personally, or if given by prepaid telegram, or mailed first-class,
postage prepaid, registered or certified mail, return receipt requested, shall
be deemed to have been given seventy-two (72) hours after such delivery, to the
address set forth on the signature page below. Either party hereto may change
the address to which such communications are to be directed by giving written
notice to the other party hereto of such change in the manner above provided.
f. SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby.
g. DESCRIPTIVE HEADINGS. The headings herein [and in any of the
documents attached hereto as exhibits], are descriptive only and for the
convenience of identifying provisions, and are not determinative of the meaning
or effect of any such provisions.
h. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
PURCHASER: SELLER:
CMH CAPITAL MANAGEMENT CORP. FALCONSTOR SOFTWARE, INC.
By: /s/ Corey M. Horowitz By:/s/ Seth Horowitz
---------------------- -----------------
Corey M. Horowitz
Address: 445 Park Avenue, Suite 1028 2 Huntington Quadrangle
New York, New York 10022 Melville, NY 11747
4
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CUSIP No. 64121N 10 9 13D Page 15 of 20 Pages
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EXHIBIT A
---------
RELEASE
-------
This General Release (the "Release"), entered into this 18th day of
November, 2003, by and between FalconStor Software, Inc. ("FalconStor") and
Network-1 Security Solutions, Inc. ("Network-1"), is made with respect to the
following facts:
RECITALS
--------
WHEREAS, FalconStor is the owner of 1,084,935 shares of the Series E
Preferred stock of Network-1 (the "Series E Preferred"); and
WHEREAS, in connection with its business strategy going forward,
Network-1 has determined that it is in the best interests of Network-1 and its
stockholders that FalconStor cease being a holder of the Series E Preferred; and
WHEREAS, the Board of Network-1 has determined that it is not in the
financial interests of Network-1 to use its cash to purchase the Series E
Preferred from Falconstor; and
WHEREAS, Network-1 has no objection to FalconStor selling the Series
E Preferred to CMH Capital Management Corp., a company controlled by the
Chairman of the Board of Network-1,; and
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
OPERATIVE PROVISIONS
1. RELEASE.
A). Effective upon the latter of: a) FalconStor's sale of the
Series E Preferred to CMH; and b) Network-1's purchase, license, or receipt by
assignment of the patents set forth on Exhibit A (the "Patents"), Network-1
hereby releases and forever discharges FalconStor and its subsidiaries, and its
and their successors, ,heirs, officers, directors, employees, agents, principals
and shareholders from any and all rights, claims, demands, interests, causes of
action, suits, debts, controversies, liabilities, costs, expenses, attorneys'
fees, and damages of whatever character, nature or kind whatsoever, including
those in law and in equity, whether known or unknown, which they now have
against FalconStor, including, without limitation, the Patents. Network-1
acknowledges that it may discover facts or law different from, or in addition
to, the facts or law that it knows or believes to be true with respect to the
claims released and agrees, nonetheless, that this Release shall be full and
remain effective in all respects notwithstanding such different or additional
facts or discovery of them.
5
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CUSIP No. 64121N 10 9 13D Page 16 of 20 Pages
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B). Effective upon FalconStor's sale of the Series E Preferred to
CMH, Falconstor hereby releases and forever discharges Network-1 and its
subsidiaries, and its and their successors, heirs, officers, directors,
employees, agents, principals and shareholders from any and all rights, claims,
demands, interests, causes of action, suits, debts, controversies, liabilities,
costs, expenses, attorneys' fees, and damages of whatever character, nature or
kind whatsoever, including those in law and in equity, whether known or unknown,
which they now have against Network-1. Falconstor acknowledges that it may
discover facts or law different from, or in addition to, the facts or law that
it knows or believes to be true with respect to the claims released and agrees,
nonetheless, that this Release shall be full and remain effective in all
respects notwithstanding such different or additional facts or discovery of
them.
2. WAIVER OF CIVIL CODE SECTION 1542. Network-1 and Falconstor
intend that the foregoing release shall be effective as a bar to all claims,
whether known or unknown. In furtherance of this intention, Network-1 and
Falconstor expressly waives any and all rights and benefits conferred upon them
by the provisions of section 1542 of the California Civil Code, which provides
as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with
the debtor.
or any similar provision of law. Further, Network-1 and Falconstor acknowledges
that the foregoing waiver was separately bargained for and is a key element of
this Release.
3. GENERAL PROVISIONS.
a. REPRESENTATION OF COMPREHENSION OF DOCUMENT. In entering into
this Release, the parties warrant and represent that: (i) they have read the
contents of this Release; (ii) the terms of this Release have been explained to
them by their respective attorneys; (iii) those terms are fully understood and
voluntarily accepted by them; (iv) they have relied upon the legal advice of
their own choosing; and (v) no party shall deny the validity of this Release on
the ground that it/they did not have the advise of its/their counsel.
b. RECITALS. The parties represent and warrant that the Recitals
in this Release are true and correct and are incorporated herein as
representations and warranties, as applicable, by this reference.
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CUSIP No. 64121N 10 9 13D Page 17 of 20 Pages
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c. REPRESENTATION OF AUTHORITY TO ENTER AGREEMENT. Each of the
undersigned represents that they have authority to enter into this Release and
execute its terms.
d. MERGER AND MODIFICATION. This Release constitutes the entire
written agreement of compromise and settlement between the parties and there are
no other agreements modifying its terms. The terms of this Release can be
modified only by a writing signed by the parties which expressly states that
such modification is intended.
e. GOVERNING LAW. The parties acknowledge and agree that the
conditions, validity and enforceability of any terms or provisions of this
Release shall be determined by the laws of the State of New York governing
contracts entered into and to be performed in the State of New York.
f. INTERPRETATION OF RELEASE. This Release constitutes a fully
negotiated agreement among commercially sophisticated parties and therefore
shall not be construed or interpreted for or against any party.
g. ATTORNEYS' FEES AND COSTS. If any of the parties hereto
commences any action to enforce, interpret or challenge the terms of this
Release, then each of the parties hereto hereby agrees that the prevailing party
in any such action shall be entitled to recover its/their attorneys' fees and
court costs, and other non-reimbursable litigation expenses, including expert
witness fees and attorney and witness travel expenses, and including all
attorneys' fees and costs incurred in enforcing any judgment or in collecting
upon any amounts that may be awarded in any such action.
h. COUNTERPARTS. This Release may be executed in any number of
counterparts, all of which shall constitute one in the same instrument, and any
party hereto may execute this Release by signing one or more counterparts.
Notwithstanding the foregoing, the releases contained herein are intended to and
shall become effective only when this Release has been executed by all of the
parties hereto.
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CUSIP No. 64121N 10 9 13D Page 18 of 20 Pages
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i. SUCCESSORS AND ASSIGNS. This Release may not be assigned in
whole or in part by either party without the prior written consent of the other
party, except either party may assign this Agreement without the other's prior
written consent to an Affiliated Entity, or in the event of a merger or other
reorganization involving such party, or sale of all or substantially all of such
party's assets. For purposes hereof, Affiliated Entity shall be defined as an
entity controlled by, or under common control with, such party. This Release
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties hereto and their successors and assigns.
IN WITNESS WHEREOF, this Release is executed as of the day and year
first above set forth.
FalconStor Software, Inc. Network-1 Security Solutions, Inc.
/s/ Seth Horowitz /s/ Edward W. James
----------------- -------------------
By: Seth Horowitz By: Edward W. James
Its: Vice President, Corporate Counsel Its: Interim CEO and CFO
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CUSIP No. 64121N 10 9 13D Page 19 of 20 Pages
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EXHIBIT A
1. 6,577,631: Communication switching module for the transmission and control of
audio, video, and computer data over a single network fabric
2. 6,574,242: Method for the transmission and control of audio, video, and
computer data over a single network fabric
3. 6,570,890: Method for the transmission and control of audio, video, and
computer data over a single network fabric using Ethernet packets
4. 6,539,011: Method for initializing and allocating bandwidth in a permanent
virtual connection for the transmission and control of audio, video, and
computer data over a single network fabric
5. 6,218,930: Apparatus and method for remotely powering access equipment over a
10/100 switched Ethernet network
6. 6,215,789: Local area network for the transmission and control of audio,
video, and computer data
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CUSIP No. 64121N 10 9 13D Page 20 of 20 Pages
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Exhibit 2
JOINT FILING AGREEMENT
----------------------
In accordance with Rule 13d-1(k)(1)(iii) under the Securities
Exchange Act of 1934, as amended, the persons named below agree to the joint
filing on behalf of each of them of a Statement on Schedule 13D dated November
26, 2003 (including amendments thereto) with respect to the Common Stock of
Network-1 Security Solutions, Inc. This Joint Filing Agreement shall be filed as
an Exhibit to such Statement.
Dated: November 26, 2003
/s/ Corey M. Horowitz
----------------------------------------
Corey M. Horowitz
CMH CAPITAL MANAGEMENT CORP.
By: /s/ Corey M. Horowitz
------------------------------------
Corey M. Horowitz
President