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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________.
Commission File Number: 1-14896
NETWORK-1 SECURITY SOLUTIONS, INC.
(Name of small business issuer in its Charter)
DELAWARE 11-3027591
(State or other (IRS Employer
jurisdiction Identification Number)
of incorporation)
1601 TRAPELO ROAD, RESERVOIR PLACE
WALTHAM, MASSACHUSETTS 02451
(Address of Principal Executive Offices)
Issuer's telephone number : (781) 522-3400
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $1,147,000.
The aggregate market value of the Common Stock of the registrant held by
non-affiliates as of March 28, 2001 was approximately $5,329,000 based on the
average bid and asked prices for such Common Stock as reported on the Nasdaq
SmallCap Market.
The number of shares of Common Stock outstanding as of April 12, 2001 was
6,458,347.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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Part III of this Annual Report is hereby amended in its entirety to add the
following information:
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
NAME AGE POSITION
- ---- --- --------
Avi A. Fogel 46 President, Chief Executive Officer and Director
Murray P. Fish 49 Chief Financial Officer and Secretary
Joseph A. Donohue 46 Vice President of Engineering
Ted Hlibka 56 Vice President or Sales
Corey M. Horowitz 46 Chairman of the Board of Directors
Marcus J. Ranum 38 Director
Emanuel R. Pearlman 41 Director
Mark Tuomenoksa 43 Director
Jonathan Mark 47 Director
Avi A. Fogel, age 46, has served as President, Chief Executive Officer and
Director of the Company since May 1998. From March 1998 until May 1998, Mr.
Fogel served as a consultant to the Company. From June 1997 until the
consummation of the Company's initial public offering in November 1998, Mr.
Fogel served as President and Chief Executive Officer of CommHome Systems
Corporation, a development stage company engaged in the business of developing
residential networking solutions, which he co-founded in June 1997. From January
1997 to June 1997, Mr. Fogel was engaged in pre-incorporation activities related
to CommHome Systems Corporation. From October 1995 to December 1996, Mr. Fogel
was employed by Digital Equipment Corp. as Vice President, Global Marketing.
From July 1994 to October 1995, Mr. Fogel was Executive Vice President, Global
Marketing and Business Development of LANNET Data Communications, Ltd., a
manufacturer of LAN switching hubs located in Tel Aviv, Israel. From July 1990
to July 1994, Mr. Fogel served as President and Chief Executive Officer of
LANNET, Inc., the U.S. subsidiary of LANNET Data Communications, Ltd.
Murray P. Fish, age 49, has served as Chief Financial Officer since May
1998 and as Secretary since February 2000. From August 1997 to May 1998, Mr.
Fish was an independent financial consultant. From April 1991 to August 1997,
Mr. Fish served as President, Chief
1
Executive Officer and a director of RealWorld Corporation, a manufacturer of
accounting software. From March 1989 to April 1991, Mr. Fish served as Vice
President and Controller of Goldman Financial Group, Inc., a manufacturer of
chemical and machine tools.
Joseph A. Donohue, age 46, has served as Vice President of Engineering
since July 1998. From April 1987 to July 1998, Mr. Donohue was employed by
Stratus Computer Inc., having held the positions of Director - Windows/NT
Software Development from November 1997 to July 1998, Director - Proprietary OS
from July 1994 to November 1997 and Manager - Kernel Development from July 1993
to July 1994. From April 1987 to July 1993, Mr. Donohue was employed by Stratus
Computer, Inc. in various engineering positions.
Ted Hlibka, age 56, has served as Vice President of Sales since February
2001. From April 2000 to February 2001, Mr. Hlibka served as Vice President of
Sales for Quintum Technologies, Inc., a manufacturer of Tenor voice over IP
gateways. From September 1997 to March 2000, Mr. Hlibka served as Vice President
of Sales for ViaGate Technologies, Inc., a manufacturer of multimedia access
switches. From July 1987 to August 1997, Mr. Hlibka was employed by Integrated
Network Corporation most recently as Vice President of Marketing and in various
other sales positions.
Corey M. Horowitz, age 46, became Chairman of the Board of Directors of the
Company in January 1996 and has been a member of the Board of Directors since
April 1994. Mr. Horowitz is a private investor and President and sole
shareholder of CMH Capital Management Corp., a New York investment advisory and
merchant banking firm, which he founded in September 1991. From January 1986 to
February 1991, Mr. Horowitz was a general partner in charge of mergers and
acquisitions at Plaza Securities Co., a New York investment partnership.
Marcus J. Ranum, age 38, has served as a director of the Company since June
1998. Mr. Ranum currently serves as Chief Technology Officer of NFR Security,
Inc., a development stage networking software company which he founded in March
1996. From October 1994 to February 1996, Mr. Ranum served as Chief Scientist
and Executive Manager of V-One Corporation, a company engaged in the development
and marketing of network security products. From June 1994 to October 1994, he
served as a consultant in network security, software analysis and testing,
software development and related matters. From November 1992 to June 1994, Mr.
Ranum served as Senior Scientist of Trusted Information Systems, Inc. From
August 1991 to November 1993, Mr. Ranum served as a consultant to Digital
Equipment Corporation.
Emanuel R. Pearlman, age 41, has served as a director of the Company since
December 1999. Since May, 2000, Mr. Pearlman has served as Chief Operating
Officer of Vornado Operating Corp. Since June 1998, Mr. Pearlman has also served
as manager of both Beach Lane Capital LLC, a financial advisory and consulting
firm, and Beach Lane Opportunity LLC, an investment partnership. In addition,
since June 1995, Mr. Pearlman has served as President of M.E.P. Capital
Corporation, a financial advisory and consulting firm. From October 1992 until
December 1996, Mr. Pearlman was a consultant to Bally Entertainment Corporation.
Mark Tuomenoksa, age 43, has served as a director of the Company since June
2000. Since December 1999, Mr. Tuomenoksa has served as Chief Executive Officer
and Chairman of OpenReach, Inc., a company founded by him and a provider of
virtual private networking (VPN) services to small and midsize companies. From
August 1997 until October 1999, he served as Chief Technology Officer and Vice
President of Marketing of Intel/Shiva Corporation, a network equipment company
with remote access and virtual private networking products.
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From April 1997 to July 1997, Mr. Tuomenoksa served as Product Planning Vice
President for Lucent Technologies. From April 1996 to March 1997, Mr. Tuomenoksa
served as Director of AT&T Downtown Digital, a division of AT&T engaged in the
development and operation of World Wide Web and e-Commerce sites for AT&T
customers. From August 1994 until March 1996, he served as Director of
Interactive Media Services Development for AT&T Business Communication Services.
Jonathan Mark, age 47, has served as a director of the Company since
November 2000. Since February 2001, Mr. Mark has served as an independent
consultant to technology companies. From September 1999 to January 2001, he
served as Senior Managing Director of Castle Harlen, Inc., a leverage buyout
firm. From September 1981 until August 1999, Mr. Mark served as a Director of
Bain & Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
In August 1998, the Board of Directors established an Audit Committee and a
Compensation Committee, both currently consisting of Corey M. Horowitz and
Emanuel R. Pearlman. The Audit Committee meets with the Company's independent
auditors at least annually to review the scope and results of the annual audit;
recommends to the Board the independent auditors to be retained; and receives
and considers the auditors' comments as to internal controls, accounting staff
and management performance and procedures in connection with audit and financial
controls. All members of the Company's Audit Committee are independent as
independence is defined in Rule 4200(a)(15) of the NASD listing standards. The
Audit Committee has adopted a written Audit Committee Charter. The Compensation
Committee is responsible for determining compensation for the executive officers
of the Company, including bonuses and benefits, and will administer the
Company's compensation programs, including the Company's Stock Option Plan.
The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors is made by the entire Board of Directors.
The Board of Directors may from time to time establish other committees to
facilitate the management of the Company.
During the past fiscal year, the Company's Board of Directors held 6
meetings. The Board of Directors' Compensation Committee met 8 times during the
past fiscal year. The Audit Committee met 5 times during the past fiscal year.
No incumbent director failed to participate in at least 75% of all meetings of
the Board of Directors and the committees on which he served during the past
fiscal year.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
(i) for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that
3
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Bylaws provide that the Company shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by law. The
Company's Bylaws also permit the Company to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity. The Company currently maintains liability
insurance for its officers and directors. At present, there is no pending
material litigation or proceeding involving any director, officer, employee or
agent of the Company where indemnification will be required or permitted. The
Company is not aware of any threatened litigation or proceeding that might
result in a material claim for such indemnification.
DIRECTOR COMPENSATION
To date, directors of the Company have received no cash compensation for
their services as directors. The Company does not currently compensate directors
who are also employees of the Company for service on the Board of Directors. All
Directors are reimbursed for their expenses incurred in attending meetings of
the Board of Directors and its committees. Each non-employee director receives
upon joining the Board of Directors an option to purchase 20,000 shares of
Common Stock when such director is first elected or appointed to the Board of
Directors, with the option shares vesting over a one year period in equal
quarterly amounts, under the Stock Option Plan. In addition, each non-employee
director will receive an automatic option grant to purchase 5,000 shares of
Common Stock on each year anniversary that such director is a member of the
Board of Directors with the option shares vesting over a one year period in
equal quarterly amounts, under the Stock Option Plan. All option grants to
non-employee directors will be at a share exercise price equal to the fair
market value of the Common Stock at the time of grant.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors, and persons who own more than 10% of the Company's
outstanding Common Stock to file initial reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by Commission regulations to furnish
the Company with copies of all Section 16(a) forms they file. The Company
believes that its executive officers, directors, and greater than 10%
stockholders complied during the year ended December 31, 2000 with the reporting
requirements of Section 16(a).
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ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes compensation paid to the Company's Chief
Executive Officer and to each of its executive officers who received
compensation in excess of $100,000 for services rendered in all capacities to
the Company during each of the years ended December 31, 2000, 1999, and 1998.
One of the Company's other employees (a non-executive officer) was among the
Company's four highest compensated employees during the year ended December 31,
2000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
YEAR ---------------------------------------------- ------
ENDED OTHER SHARES
NAME AND DECEMBER BONUS ANNUAL COM- UNDERLYING
PRINCIPAL POSITION 31 SALARY ($) ($) PENSATION(1) OPTIONS(#)
------------------ -- ---------- --- ------------ ----------
Avi A. Fogel 2000 $171,963 $ 29,500 - 50,000
President & Chief 1999 $150,000 $ 28,375 - 122,116
Executive Officer 1998 $128,192(2) $ 24,986 - 383,343
Robert P. Olsen
Vice President of Sales 2000 $138,462 $ 16,481 - 30,000
Vice President of Product 1999 $120,000 $ 24,975 - 52,758
Management 1998 $ 94,154(3) $ 14,992 - 94,362
Murray P. Fish 2000 $138,461 $ 17,713 - 30,000
Chief Financial Officer and 1999 $120,000 $ 25,500 - 52,714
Secretary 1998 $ 75,692(4) $ 14,926 - 94,185
Joseph A. Donohue 2000 $138,462 $ 16,588 - 30,000
Vice President of 1999 $120,000 $ 22,125 - 52,605
Engineering 1998 $ 53,077(5) $ 10,060 - 93,750
Brian Gildea 2000 $117,013 -- - 15,000
Senior Account Manager
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the parties listed above did not
exceed the lesser of ten percent (10%) of such individual's annual salary
and bonus for each fiscal year indicated or $50,000.
(2) Mr. Fogel was first employed as President and Chief Executive Officer in
May 1998 and served as a consultant to the Company from March 1998 to May
1998. Mr. Fogel received $33,000 as a consultant. Mr. Fogel's annual base
salary during 1998 was $150,000.
(3) Mr. Olsen served as Vice President of Product Management from May 1998
until March 1999 at which time he became Vice President of Sales. Mr.
Olsen served as
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a consultant to the Company from March 1998 to May 1998. Mr. Olsen
received $18,000 as a consultant. Mr. Olsen's annual base salary during
1998 was $120,000. Effective December 29, 2000, Mr. Olsen was no longer
employed by the Company.
(4) Mr. Fish joined the Company in May 1998.
(5) Mr. Donohue joined the Company in July 1998.
OPTION GRANTS IN 2000
The following stock options were granted to the Company's executive
officers during the year ended December 31, 2000:
NUMBER OF % OF TOTAL
SHARES OPTIONS GRANTED TO EXERCISE
UNDERLYING EMPLOYEES PRICE PER EXPIRATION
OPTIONS GRANTED IN 1999(1) SHARE (2) DATE
--------------- ---------- --------- ----
Avi A. Fogel 50,000 9.3% $ 7.875 5/15/2010
Robert P. Olsen 30,000 5.6% $ 7.875 5/15/2010
Murray P. Fish 30,000 5.6% $ 7.875 5/15/2010
Joseph Donohue 30,000 5.6% $ 7.875 5/15/2010
- ---------------------------
(1) The number of options granted to employees during the year ended December
31, 2000 used to compute this percentage is based on 530,600 incentive
stock options and 10,000 non-qualified stock options.
(2) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock at the date of grant, as determined by
the Board of Directors except for the options granted to employees of the
Company's professional services group (the "PSG Employees"). Such options
to purchase up to an aggregate of 104,063 shares were committed to the PSG
employees on November 8, 1999 at an exercise price equal to the fair
market value of the Company's Common Stock on that date; however, the
options were deemed to have been granted on February 9, 2000, the date of
the Company's sale of its professional services division, because the
options were contingent upon the closing.
6
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000 AND 2000 FISCAL YEAR-END OPTION
VALUES
Options were exercised by executive officers of the Company during the year
ended December 31, 2000. The following table sets forth information relating to
options exercised by executive officers during the year ended Decdmber 31, 2000
and the fiscal year-end value of unexercised options held by executive officers
on an aggregated basis:
Shares Number of Securities Underlying Value of Unexercised
Acquired Value Unexercised Options In-the-Money Options
on Exercise Realized at 12/31/2000 (#) at Fiscal Year-End ($) (1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Avi A. Fogel -- $ -- 376,393 179,067 $249,148 $ 92,367
Robert P. Olsen 70,779 640,886 37,768 139,352 $ 11,770 $ 41,729
Murray P. Fish 51,884 455,474 56,500 120,399 $ 29,914 $ 23,504
Joseph Donohue 55,236 531,625 52,748 123,607 $ 11,979 $ 41,242
(1) Options are "in-the-money" if the market price of the Common Stock on
December 31, 2000 ($3.3125) exceeds the exercise price of such options.
The value of such options is calculated by determining the difference
between the aggregate market price of the Common Stock underlying the
options on December 31, 2000 and the aggregate exercise price of such
options.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENTS
On May 18, 1998, the Company entered into an employment agreement with Avi
A. Fogel, pursuant to which Mr. Fogel serves as the Company's Chief Executive
Officer and President for a four year term at an annual base salary of $150,000
per year subject to annual increases in base salary of up to 20% at the
discretion of the Compensation Committee of the Board of Directors. In May 2000,
Mr. Fogel's annual base salary was increased to $185,000 per year. Mr. Fogel is
eligible to receive an additional annual cash bonus of up to $50,000 as
determined by the Compensation Committee of the Board of Directors in its
discretion. In addition, upon execution of his employment agreement, Mr. Fogel
received five year options to purchase 294,879 shares of the Company's Common
Stock at an exercise price of $2.42 per share. The options granted to Mr. Fogel
vested as to 34% of the shares covered thereby at the time of execution of his
employment agreement and vest as to 22% of the shares covered thereby on each of
the first three anniversaries thereafter, subject to acceleration upon a change
of control of the Company. In the event Mr. Fogel's employment agreement is
terminated "other than for cause" (as defined in the agreement), he shall be
entitled to (i) the vesting of all options in the year of termination and 50% of
the options that would have vested in the year following termination and (ii)
the lesser of one year's base salary or the base salary for the balance of the
term of the agreement. Mr. Fogel has
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agreed not to disclose any confidential information of the Company during the
term of his employment or at any time thereafter or to compete with the Company
during the term of his agreement and for a period of two years thereafter in the
event of termination for cause.
On May 19, 1998, the Company entered into an employment agreement with
Murray P. Fish pursuant to which Mr. Fish agreed to serve as the Company's Chief
Financial Officer for a three year term at an annual salary of $120,000 per
annum, subject to an additional cash bonus of $30,000 as determined by the
Compensation Committee of the Board of Directors in its discretion. In May 2000,
Mr. Fish's annual base salary was increased to $150,000 per year. Upon execution
of his employment agreement, Mr. Fish received an incentive stock option to
purchase 58,500 shares of the Company's Common Stock at an exercise price of
$5.60 per share. The options granted to Mr. Fish vested as to 34% of the shares
covered thereby upon execution of the agreement and vest as to 22% on each of
the first three anniversaries thereafter, subject to acceleration upon a change
of control of the Company. In the event Mr. Fish's employment agreement is
terminated "other than for cause" (as defined in the agreement), he shall be
entitled to (i) the vesting of all options in the year of termination and 50% of
the options that would have vested in the year following termination and (ii)
the lesser of six months base salary or the base salary for the balance of the
term of the agreement. Mr. Fish has agreed not to disclose any confidential
information of the Company during the term of his employment or at any time
thereafter or to compete with the Company during the term of his agreement and
for a period of two years thereafter in the event of termination for cause. The
Company's employment agreement with Mr. Fish expires on May 19, 2001.
On July 31, 1998, the Company entered into an employment agreement with
Joseph A. Donohue pursuant to which Mr. Donohue agreed to serve as the Company's
Vice President of Engineering for a three year term at an annual salary of
$120,000 per annum, subject to an additional cash bonus of $30,000 as determined
by the Compensation Committee of the Board of Directors in its discretion. In
May 2000, Mr. Donohue's annual base salary was increased to $150,000 per year.
In connection with his employment, Mr. Donohue received an incentive stock
option to purchase 62,500 shares of the Company's Common Stock at an exercise
price of $6.00 per share. The options granted to Mr. Donohue vested as to 34% of
the shares covered thereby upon execution of the agreement and 22% of the shares
covered thereby on each of the first three anniversaries thereafter, subject to
acceleration upon a change of control of the Company. In the event Mr. Donohue's
employment agreement is terminated "other than for cause" (as defined in the
agreement), he shall be entitled to (i) the vesting of all options in the year
of termination and 50% of the options that would have vested in the year
following termination and (ii) the lesser of six months base salary or the base
salary for the balance of the term of the agreement. Mr. Donohue has agreed not
to disclose any confidential information of the Company during the term of his
employment or at any time thereafter or to compete with the Company during the
term of his agreement and for a period of two years thereafter in the event of
termination for cause. The Company's employment with Mr. Donohue expires on July
31, 2001.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the Company's shares of Common Stock as of April 27, 2001 by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director and nominee, (iii)
each of the executive officers of the Company, and (iv) all executive officers
and directors of the Company as a group.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
---------------- ------------------ ---------------------
Wheatley Partners II, L.P. (2) 1,194,659 18.5%
Corey M. Horowitz(3) 896,991 13.4%
CMH Capital Management Corp.
Barry Rubenstein(4) 677,776 10%
Woodland Venture Fund
Seneca Ventures
Woodland Partners
Avi A. Fogel(5) 522,423 7.5%
Murray P. Fish(6) 77,370 1.2%
Joseph A. Donohue(7) 60,748 *
Emanuel R. Pearlman(8) 42,072 *
Mark Tuomenoksa(9) 20,000 *
Jonathan Mark(10) 10,000 *
Marcus Ranum(11) 4,375 *
All officers and directors as 1,633,979 22.1%
a group (8 Persons)
- -------------------------------------
* Less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the above table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the
9
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants and convertible securities
held by such person (but not those held by any other person) and which are
exercisable or convertible within 60 days have been exercised and
converted. Assumes a base of 6,458,347 shares of Common Stock outstanding.
Except as otherwise indicated, the address for each beneficial owner is
c/o Network-1 Security Solutions, Inc., 1601 Trapelo Road, Reservoir
Place, Waltham, Massachusetts 02451.
(2) Does not include (i) 31,040, 23,280, 31,040, 4,656 and 3,104 shares of
Common Stock beneficially owned by Barry Rubenstein, Irwin Lieber, Barry
Fingerhut, Seth Lieber and Jonathan Lieber, respectively, each of whom is
a general partner of Wheatley Partners II, L.P. ("Wheatley") and (ii) an
aggregate of 606,028 shares of Common Stock subject to currently
exercisable warrants and options and convertible securities beneficially
owned by Barry Rubenstein (361,328 shares), Irwin Lieber (162,736 shares),
Barry Fingerhut (65,572 shares) and Jonathan Lieber (16,392 shares). Each
of Messrs. Rubenstein, I. Lieber, Fingerhut, S. Lieber and J. Lieber
disclaims beneficial ownership of the shares held by Wheatley, except to
the extent of their equity interest therein. Wheatley's business address
is 80 Cuttermill Road, Great Neck, New York 11021.
(3) Includes (i) 486,303 shares of common stock held by Mr. Horowitz, (ii)
41,250 shares of common stock subject to currently exercisable stock
options held by Mr. Horowitz, (iii) 155,463 shares of common stock held by
CMH Capital Management Corp. ("CMH"), (iv) 124,936 shares of common stock
subject to currently exercisable warrants held by CMH, (v) 85,220 shares
of common stock subject to currently exercisable warrants held by Mr.
Horowitz, (vi) 2,291 shares of Common Stock held by Horowitz Partners, a
general partnership of which Mr. Horowitz is a partner and (vii) 1,528
shares of Common Stock held by Donna Slavitt, Mr. Horowitz' wife. Does not
include 11,875 shares of common stock subject to stock options which are
not currently exercisable. The address of CMH Capital Management Corp. is
885 Third Avenue, New York, New York 10022.
(4) Includes (i) 31,040 shares of Common Stock held by Mr. Rubenstein, (ii)
47,500 shares of common stock subject to currently exercisable stock
options held by Mr. Rubenstein, (iii) 49,664 shares of common stock
subject to currently exercisable warrants held by Mr. Rubenstein, (iv)
151,628 and 133,780 shares of common stock held by Woodland Venture Fund
and Seneca Ventures, respectively, (v) 32,787, 16,393, 16,393, 234 and 234
shares of common stock subject to currently exercisable warrants held by
Woodland Venture Fund, Seneca Ventures, Woodland Partners, Barry
Rubenstein and Marilyn Rubenstein, respectively, (vi) 32,787, 16,393,
16,393, 234 and 234 shares of common stock issuable upon conversion of
Series D Preferred Stock held by Woodland Venture Fund, Seneca Ventures,
Woodland Partners, Barry Rubenstein and Marilyn Rubenstein, respectively,
(vii) 32,787, 16,393, 16,393, 234 and 234 shares of common stock subject
to warrants underlying certain promissory notes held by Woodland Venture
Fund, Seneca Ventures, Woodland Partners, Barry Rubenstein and Marilyn
Rubenstein, respectively, and (viii) 32,787, 16,393, 16,393, 234 and 234
shares of common stock issuable upon conversion of Series D Preferred
Stock underlying certain promissory notes held by Woodland Venture Fund,
Seneca Ventures, Woodland Partners, Barry
10
Rubenstein and Marilyn Rubenstein, respectively. Barry Rubenstein and
Woodland Services Corp. are the general partners of Woodland Venture Fund
and Seneca Ventures. Barry Rubenstein is the President and sole director
of Woodland Services Corp. Barry Rubenstein is the general partner of
Woodland Partners. Barry Rubenstein is a general partner of Wheatley
Partners II, L.P. Marilyn Rubenstein is the wife of Barry Rubenstein. Mr.
Rubenstein disclaims beneficial ownership of the shares of common stock
held by Wheatley Partners II, L.P., except to the extent of his equity
interest therein. The address of Barry Rubenstein is 68 Wheatley Road,
Brookville, New York 11545. The address for Wheatley Partners II, L.P., is
80 Cuttermill Road, Great Neck, New York 11021. The address for Woodland
Venture Fund, Seneca Ventures and Woodland Partners is c/o Barry
Rubenstein, 68 Wheatley Road, Brookville, New York 11545.
(5) Includes (i) 49,700 shares of Common Stock owned by Mr. Fogel, (ii)
456,066 shares of common stock subject to currently exercisable stock
options, and (iii) 16,657 shares of common stock subject to currently
exercisable warrants. Does not include 164,538 shares subject to stock
options which are not currently exercisable.
(6) Includes 77,370 shares of Common Stock subject to currently exercisable
stock options issued to Mr. Fish pursuant to the Stock Option Plan. Does
not include 78,899 shares of Common Stock subject to stock options which
are not currently exercisable.
(7) Includes 60,748 shares of Common Stock subject to currently exercisable
stock options issued to Mr. Donohue pursuant to the Stock Option Plan.
Does not include 90,651 shares of Common Stock subject to stock options
which are not currently exercisable.
(8) Includes (i) 4,430 shares of Common Stock owned by an entity controlled by
Mr. Pearlman, (ii) 21,250 shares of common stock subject to currently
exercisable options issued to Mr. Pearlman pursuant to the Stock Option
Plan, (iii) 4,098 shares of common stock subject to currently exercisable
warrants, (iv) 4,098 shares of common stock issuable upon conversion of
Series D Preferred, (v) 4,098 shares of common stock subject to currently
exercisable warrants underlying certain promissory notes and (vi) 4,098
shares of common stock issuable upon conversion of Series D Preferred
Stock underlying certain
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promissory notes. Does not include 13,750 shares of common stock subject
to options not currently exercisable.
(9) Includes 20,000 shares of Common Stock subject to currently exercisable
stock options issued to Mr. Tuomenoksa pursuant to the Stock Option Plan.
Does not include 5,000 shares of Common Stock subject to stock options
which are not currently exercisable.
(10) Includes 10,000 shares of Common Stock subject to currently exercisable
stock options issued to Mr. Mark pursuant to the Stock Option Plan. Does
not include 15,000 shares of Common Stock subject to stock options which
are not currently exercisable.
(11) Includes 5,625 shares of Common Stock subject to currently exercisable
stock options issued to Mr. Ranum pursuant to the Stock Option Plan. Does
not include 2,950 shares of Common Stock subject to stock options which
are not currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 13, 1999, the Company entered into an agreement with Robert
Russo, then Vice President of Professional Services, pursuant to which $71,615
of deferred salary owed to Mr. Russo was satisfied in full by the payment of
$40,000 in cash and the issuance of 5,855 shares of the Company's Common Stock
at a price per share of $5.40.
On March 10, 1999, the Company entered into an agreement with William
Hancock, then Chief Technology Officer, pursuant to which the Company agreed to
loan to Mr. Hancock up to $100,000, at an interest rate of 6.5% per annum, to be
used by Mr. Hancock to satisfy certain outstanding personal tax obligations. In
consideration for such loan, Mr. Hancock pledged 50,000 shares of Common Stock
of the Company as security for the repayment of the loan. As of March 10, 2000,
the loan was repaid in full.
On December 22, 1999, the Company entered into a Securities Purchase
Agreement for the private sale of $3,000,000 of preferred stock, warrants and
notes to a group of 39 investors, including entities affiliated with Barry
Rubenstein and Corey M. Horowitz, both principal stockholders of the Company,
Avi Fogel, a director, President and Chief Executive Officer of the Company and
Emanuel R. Pearlman, a director of the Company. In the offering the Company
issued 491,803 shares of Series D Preferred Stock at $3.05 per share and
warrants to purchase 491,803 shares of Common Stock at an exercise price of
$3.00 per share, subject to certain adjustments (which resulted in a reduction
of the exercise price to $1.00 per share). The Company also issued convertible
promissory notes (the "Notes") in the principal amount of $1.5 million at an
interest rate of 8% per year. Subject to stockholder approval, the Notes are
convertible into an additional 491,803 shares of Series D Preferred Stock (up to
570,492 shares if you include potential interest through maturity of such notes)
and warrants to purchase
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an additional 491,803 shares of Common Stock (up to 570,492 shares if you
include interest through maturity of such notes) at an exercise price of $1.00
per share reduced from $3.00 per share as referenced above). On April 28, 2000,
the conversion feature of the Notes was approved by the Stockholders of the
Company.
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Waltham, Commonwealth of Massachusetts, on the 27th day of April 2001.
NETWORK-1 SECURITY SOLUTIONS, INC.
By /s/ Avi A. Fogel
-----------------------------
Avi A. Fogel,
President and Chief Executive Officer
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the following persons in the capacities and on the dates
indicated:
NAME TITLE DATE
- ---- ----- ----
/s/ Avi A. Fogel President, Chief Executive April 27, 2001
- --------------------------------- Officer and Director
Avi A. Fogel (principal executive officer)
/s/ Murray P. Fish Chief Financial Officer April 27, 2001
- --------------------------------- (principal financial officer
Murray P. Fish and principal accounting officer)
/s/ Corey M. Horowitz Chairman of the Board April 27, 2001
- --------------------------------- of Directors
Corey M. Horowitz
/s/ Emanuel Pearlman Director April 27, 2001
- ---------------------------------
Emanuel Pearlman
/s/ Marcus Ranum Director April 27, 2001
- ---------------------------------
Marcus Ranum
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