☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware
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77-0390628
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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308 Dorla Court, Suite 206
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Zephyr Cove, Nevada
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89448
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer x
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Page
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PART I — FINANCIAL INFORMATION
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1
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Item 1 —Financial Statements.
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1
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1
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||
2
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2
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3
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||
4
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||
13
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||
17
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||
Item 4 —Controls and Procedures
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17
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PART II — OTHER INFORMATION
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18
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Item 1 —Legal Proceedings
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18
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Item 1A —Risk Factors
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20
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Item 5 —Other Information | 26 | |
Item 6 —Exhibit
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27
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28
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29
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As of
March 31,
2015
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As of
December 31, 2014
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|||||||
ASSETS
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(unaudited)
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|||||||
Current assets:
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||||||||
Cash and cash equivalents
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$
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13,290
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$
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18,658
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||||
Investments available for sale
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21,410
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22,571
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||||||
Prepaid expenses - current
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957
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653
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||||||
Total current assets
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35,657
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41,882
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||||||
Prepaid expenses – non-current
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3,048
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3,144
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||||||
Property and equipment, net
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62
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64
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||||||
Total assets
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$
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38,767
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$
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45,090
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||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Current liabilities:
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||||||||
Accounts payable and accrued liabilities
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$
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1,306
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$
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3,554
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||||
Royalty payable
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6,100
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6,100
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||||||
Related-party payable
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—
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81
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||||||
Income tax liability
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395
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408
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||||||
Deferred revenue, current portion
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1,500
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1,500
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||||||
Derivative liability
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—
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320
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||||||
Total current liabilities
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9,301
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11,963
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||||||
Deferred revenue, non-current portion
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125
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500
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||||||
Total liabilities | 9,426 | 12,463 | ||||||
Commitments and contingencies
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—
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—
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||||||
Stockholders' equity:
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||||||||
Preferred stock, par value $0.0001 per share
|
||||||||
Authorized: 10,000,000 shares at March 31, 2015 and December 31, 2014, Issued and outstanding: 0 shares at March 31, 2015 and December 31, 2014
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—
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—
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||||||
Common stock, par value $0.0001 per share
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||||||||
Authorized: 100,000,000 shares at March 31, 2015 and December 31, 2014, Issued and outstanding: 52,116,862 shares and 51,996,701 shares, at March 31, 2015 and December 31, 2014, respectively
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5
|
5
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||||||
Additional paid-in capital
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135,632
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133,072
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||||||
Accumulated deficit
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(106,289
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)
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(100,435
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)
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||||
Accumulated other comprehensive loss
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(7
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)
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(15
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)
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||||
Total stockholders' equity
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29,341
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32,627
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||||||
Total liabilities and stockholders' equity
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$
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38,767
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$
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45,090
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Three Months Ended
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||||||||
March 31,
2015
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March 31,
2014
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|||||||
Revenue
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$
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375
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$
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250
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||||
Operating expense:
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||||||||
Research and development
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392
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347
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||||||
Selling, general and administrative
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5,742
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6,856
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||||||
Total operating expense
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6,134
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7,203
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||||||
Loss from operations
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(5,759
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)
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(6,953
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)
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||||
Gain (loss) on change in value of derivative liability
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(117
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)
|
838
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|||||
Interest income, net
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23
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30
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||||||
Loss before taxes
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(5,853
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)
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(6,085
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)
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||||
Provision for income taxes
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(2
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)
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(2
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)
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||||
Net loss
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$
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(5,855
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)
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$
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(6,087
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)
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Basic and diluted loss per share
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$
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(0.11
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)
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$
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(0.12
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)
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Weighted average shares outstanding basic and diluted
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52,027
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51,253
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Three Months Ended
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||||||||
March 31,
2015
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March 31,
2014
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|||||||
Net loss
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$
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(5,855
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)
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$
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(6,087
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)
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Other comprehensive gain (loss), net of tax:
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||||||||
Change in unrealized gain (loss) on investments, net of tax
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8
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(11
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)
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|||||
Total other comprehensive gain (loss), net of tax
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8
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(11
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)
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|||||
Comprehensive loss
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$
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(5,847
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)
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$
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(6,098
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)
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Three Months
Ended
March 31, 2015
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Three Months
Ended
March 31, 2014
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|||||||
Cash flows from operating activities:
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||||||||
Net loss
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$
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(5,855
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)
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$
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(6,087
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
Depreciation
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7
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5
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||||||
Stock-based compensation
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1,692
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1,828
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||||||
Change in value of derivative liability
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117
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(838
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)
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|||||
Changes in assets and liabilities:
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||||||||
Prepaid expenses
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(208
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)
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(4,024
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)
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||||
Accounts payable and accrued liabilities
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(2,248
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)
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1,263
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|||||
Income tax liability
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(13
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)
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—
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|||||
Related party payable
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(81
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)
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—
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|||||
Deferred revenue
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(375
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)
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(250
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)
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||||
Net cash used in operating activities
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(6,964
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)
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(8,103
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)
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||||
Cash flows from investing activities:
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||||||||
Purchase of property and equipment
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(4
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)
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—
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|||||
Purchase of investments
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(2,932
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)
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(3,383
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)
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Proceeds from sale or maturity of investments
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4,101
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5,701
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||||||
Net cash provided by investing activities
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1,165
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2,318
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||||||
Cash flows from financing activities:
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||||||||
Proceeds from exercise of options
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—
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68
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||||||
Proceeds from exercise of warrants
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431
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—
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||||||
Net cash provided by financing activities
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431
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68
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||||||
Net decrease in cash and cash equivalents
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(5,368
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)
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(5,717
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)
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||||
Cash and cash equivalents, beginning of period
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18,658
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19,173
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||||||
Cash and cash equivalents, end of period
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$
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13,290
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$
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13,456
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·
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Consideration for Past Sales: Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented technology prior to signing a patent license agreement with us or from the resolution of a litigation, disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive royalty for past sales in connection with the settlement of patent litigation where there was no prior patent license agreement. These amounts are negotiated, typically based upon application of a royalty rate to historical sales prior to the execution of the license agreement. In each of these cases, since delivery has occurred, we record the consideration as revenue when we have obtained a signed agreement, identified a fixed or determinable price, and determined that collectability is reasonably assured.
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·
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Current Royalty Payments: Ongoing royalty payments cover a licensee’s obligations to us related to its sales of covered products in the current contractual reporting period. Licensees that owe these current royalty payments are obligated to provide us with quarterly or semi-annual royalty reports that summarize their sales of covered products and their related royalty obligations to us. We expect to receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. As a result, it is impractical for us to recognize revenue in the period in which the underlying sales occur, and, in most cases, we will recognize revenue in the period in which the royalty report is received and other revenue recognition criteria are met due to the fact that without royalty reports from our licensees, our visibility into our licensees’ sales is limited.
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·
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Non-Refundable Up-Front Fees and Minimum Fee Contracts: For licenses that provide for non-refundable up-front or fixed minimum fees over their term, for which we have no future obligations or performance requirements, revenue is generally recognized over the license term. For licenses that provide for fees that are not fixed or determinable, including licenses that provide for extended payment terms and/or payment of a significant portion of the fee after expiration of the license or more than 12 months after delivery, the fees are generally presumed not to be fixed or determinable, and revenue is deferred and recognized as earned, but generally not in advance of collection.
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·
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Non-Royalty Elements: Elements that are not related to royalty revenue in nature, such as settlement fees, expense reimbursement, and damages, if any, are recorded as gain from settlement which is reflected as a separate line item within the operating expenses section in the consolidated statements of operations.
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Deferred Revenue, December 31, 2014
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$
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2,000
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Less: Amount amortized as revenue
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375
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Deferred Revenue, March 31, 2015
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$
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1,625
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March 31, 2015
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||||||||||||||||||||||||
Adjusted
Cost |
Unrealized
Gains |
Unrealized
Losses |
Fair
Value |
Cash
and Cash |
Investments
Available |
|||||||||||||||||||
Cash
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$
|
4,524
|
$
|
-
|
$
|
-
|
$
|
4,524
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$
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4,524
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$
|
-
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||||||||||||
Level 1:
|
||||||||||||||||||||||||
Mutual funds
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974
|
-
|
-
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974
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974
|
-
|
||||||||||||||||||
Corporate securities
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11,142
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1
|
-
|
|
11,143
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4,929
|
6,214
|
|||||||||||||||||
Municipal securities
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256
|
-
|
-
|
256
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-
|
256
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||||||||||||||||||
U.S agency securities
|
17,798
|
6
|
(1
|
)
|
17,803
|
2,863
|
14,940
|
|||||||||||||||||
30,170
|
7
|
(1
|
)
|
30,176
|
8,766
|
21,410
|
||||||||||||||||||
Total
|
$
|
34,694
|
$
|
7
|
$
|
(1
|
)
|
$
|
34,700
|
$
|
13,290
|
$
|
21,410
|
December 31, 2014
|
||||||||||||||||||||||||
Adjusted
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
Cash
and Cash
Equivalents
|
Investments
Available
for Sale
|
|||||||||||||||||||
Cash
|
$
|
1,183
|
$
|
-
|
$
|
-
|
$
|
1,183
|
$
|
1,183
|
$
|
-
|
||||||||||||
Level 1:
|
||||||||||||||||||||||||
Mutual funds
|
10,139
|
-
|
-
|
10,139
|
10,139
|
-
|
||||||||||||||||||
Corporate securities
|
9,405
|
1
|
(3
|
)
|
9,403
|
1,645
|
7,758
|
|||||||||||||||||
U.S agency securities
|
20,504
|
2
|
(2
|
)
|
20,504
|
5,691
|
14,813
|
|||||||||||||||||
40,048
|
3
|
(5
|
)
|
40,046
|
17,475
|
22,571
|
||||||||||||||||||
Total
|
$
|
41,231
|
$
|
3
|
$
|
(5
|
)
|
$
|
41,229
|
$
|
18,658
|
$
|
22,571
|
December 31, 2014
|
||||||||||||||||
Quoted
Prices in
Active
Markets
for
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
Series l Warrants
|
$
|
—
|
$
|
—
|
$
|
320
|
320
|
|||||||||
Total
|
$
|
—
|
$
|
—
|
$
|
320
|
320
|
Three Months
Ended
March 31, 2015
|
Three Months
Ended
March 31, 2014
|
||||||||
Fair Value
Measurements
Using
Significant
Unobservable
Inputs (Level 3)
|
Fair Value
Measurements
Using
Significant
Unobservable
Inputs (Level 3)
|
||||||||
Balance December 31, 2014
|
$
|
320
|
Balance December 31, 2013
|
$
|
2,564
|
||||
Loss on derivative liability included in net loss
|
117
|
Gain on derivative liability included in net loss
|
(838
|
)
|
|||||
Settlements
|
(333
|
)
|
Settlements
|
—
|
|||||
Expiration of warrants
|
(104
|
)
|
Expiration of warrants
|
—
|
|||||
Balance March 31, 2015
|
$
|
—
|
Balance March 31, 2014
|
$
|
1,726
|
Original Number
of
Warrants Issued
|
Exercise
Price per
Common
Share
|
Exercisable at
December 31,
2014
|
Became
Exercisable
|
Exercised
|
Terminated /
Cancelled /
Expired
|
Exercisable
at March 31,
2015
|
Expiration
Date
|
||||||||||||||||||||
2,619,036
|
(1)
|
$
|
3.59
|
157,467
|
—
|
120,161
|
37,306
|
—
|
March 2015
|
||||||||||||||||||
Total
|
157,467
|
—
|
120,161
|
37,306
|
—
|
(1)
|
Referred to as our Series I Warrants.
|
●
|
Although we have to date entered into a limited number of settlement and license agreements, we may not be successful in entering into further licensing relationships, or if we are successful in entering into such relationships, the acquisition of them may be expensive, and they, as well as our existing settlement and license agreements may not generate the financial results we expect;
|
●
|
Third parties may challenge the validity of our patents;
|
●
|
The pendency of our various litigations may cause potential licensees not to do business with us;
|
●
|
We face, and we expect to continue to face, intense competition from new and established competitors who may have superior products and services or better marketing, financial or other capacities than we do; and
|
●
|
It is possible that one or more of our potential customers or licensees develops or otherwise sources products or technologies similar to, competitive with or superior to ours.
|
●
|
New legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue. For instance, the United States Supreme Court has recently modified some tests used by the United States Patent and Trademark Office (USPTO) in granting patents during the past 20 years which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of challenge of any patents we obtain or license. In addition, the United States recently enacted sweeping changes to the United States patent system under the Leahy-Smith America Invents Act (“AIA”), including changes that transition the United States from a “first-to-invent” system to a “first to file” system and alter the processes for challenging issued patents
|
●
|
More patent applications are filed each year resulting in longer delays in getting patents issued by the USPTO.
|
●
|
Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer.
|
●
|
As patent enforcement becomes more prevalent, it may become more difficult for us to voluntarily license our patents.
|
●
|
The need to educate potential customers about our patent rights and our product and service capabilities;
|
●
|
Customers’ willingness to invest potentially substantial resources and modify their network infrastructures to take advantage of our products;
|
●
|
Customers’ budgetary constraints;
|
●
|
The timing of customers’ budget cycles; and
|
●
|
Delays caused by customers’ internal review processes.
|
●
|
Long sales cycles may increase the risk that our financial resources are exhausted before we are able to generate significant revenue.
|
●
|
power loss, transmission cable cuts and other telecommunications failures;
|
●
|
damage or interruption caused by fire, earthquake, and other natural disasters;
|
●
|
computer viruses or software defects; and
|
●
|
physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control
|
●
|
developments in any then-outstanding litigation;
|
●
|
quarterly variations in our operating results;
|
●
|
large purchases or sales of common stock or derivative transactions related to our stock;
|
●
|
actual or anticipated announcements of new products or services by us or competitors;
|
●
|
general conditions in the markets in which we compete; and
|
●
|
general economic and financial conditions
|
●
|
the outcome of actions to enforce our intellectual property rights currently in progress or that we may undertake in the future, and the timing thereof;
|
●
|
the amount and timing of receipt of license fees from potential infringers, licensees or customers;
|
●
|
the rate of adoption of our patented technologies;
|
●
|
the number of new license arrangements we may execute, or that may expire, within a particular period and the scope of those licenses, including the number of our patents which are licensed, the extent of prior infringement of our patent rights, royalty rates, timing of payment obligations, expiration date etc;
|
●
|
the success of a licensee in selling products that use our patented technologies; and
|
●
|
the amount and timing of expenses related to our patent filings and enforcement proceedings, including litigation, related to our intellectual property rights.
|
●
|
A staggered Board of Directors: This means that only one or two directors (since we have a five-person Board of Directors) will be up for election at any given annual meeting. This has the effect of delaying the ability of stockholders to effect a change in control of us because it would take two annual meetings to effectively replace a majority of the Board of Directors.
|
●
|
Blank check preferred stock: Our Board of Directors has the authority to establish the rights, preferences and privileges of our 10,000,000 authorized, but unissued, shares of preferred stock. Therefore, this stock may be issued at the discretion of our Board of Directors with preferences over your shares of our common stock in a manner that is materially dilutive to you. In addition, blank check preferred stock can be used to create a “poison pill” which is designed to deter a hostile bidder from buying a controlling interest in our stock without the approval of our Board of Directors. We have not adopted such a “poison pill;” but our Board of Directors has the ability to do so in the future, very rapidly and without stockholder approval.
|
●
|
Advance notice requirements for director nominations and for new business to be brought up at stockholder meetings: Stockholders wishing to submit director nominations or raise matters to a vote of the stockholders must provide notice to us within very specific date windows and in very specific form in order to have the matter voted on at a stockholder meeting. This has the effect of giving our Board of Directors and management more time to react to stockholder proposals generally and could also have the effect of disregarding a stockholder proposal or deferring it to a subsequent meeting to the extent such proposal is not raised properly.
|
●
|
No stockholder actions by written consent: No stockholder or group of stockholders may take actions rapidly and without prior notice to our Board of Directors and management or to the minority stockholders. Along with the advance notice requirements described above, this provision also gives our Board of Directors and management more time to react to proposed stockholder actions.
|
●
|
Super majority requirement for stockholder amendments to the By-laws: Stockholder proposals to alter or amend our By-laws or to adopt new By-laws can only be approved by the affirmative vote of at least 66 2/3% of the outstanding shares of our common stock.
|
●
|
No ability of stockholders to call a special meeting of the stockholders: Only the Board of Directors or management can call special meetings of the stockholders. This could mean that stockholders, even those who represent a significant percentage of our shares of common stock, may need to wait for the annual meeting before nominating directors or raising other business proposals to be voted on by the stockholders.
|
Exhibit Number
|
Description
|
10.1 | Patent Licensing Representative Agreement, dated May 8, 2015, by and between VirnetX, Inc. and IPValue Management, Inc. |
31.1
|
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1*
|
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2*
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101**
|
Interactive Data Files
|
*
|
This exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate them by reference.
|
VIRNETX HOLDING CORPORATION
|
|||
By:
|
/s/ Kendall Larsen
|
||
Name
|
Kendall Larsen
|
||
Chief Executive Officer (Principal Executive Officer)
|
By:
|
/s/ Richard H. Nance
|
||
Name
|
Richard H. Nance
|
||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
|||
Date: May 11, 2015
|
Exhibit
Number
|
Description
|
10.1 | Patent Licensing Representative Agreement, dated May 8, 2015, by and between VirnetX, Inc. and IPValue Management, Inc. |
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2*
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Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101**
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Interactive Data Files
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This exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate them by reference.
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(1) | VIRNETX INC., a corporation existing and organized under the laws of Delaware, United States of America, having its principal place of business at 308 Dorla Court, Zephyr Cove, Nevada (“VIRNETX”), and |
(2) | IPVALUE MANAGEMENT, INC., a corporation existing and organized under the laws of the State of Delaware, United States of America, having offices at 3945 Freedom Circle, Suite 900, Santa Clara, CA 95054 (“IPVALUE”). |
1. | INTERPRETATION |
1.1 | The Agreement (including the recitals and the Schedules) shall, unless the context otherwise requires, be interpreted in accordance with the definitions set out in this Article 1, and the words and expressions set out herein shall have the meaning assigned to them. |
1.2 | “VIRNETX Patents” means the patents and patent applications owned by VIRNETX as of the Effective Date. VIRNETX may exclude patents and patent applications from the definition of “VIRNETX Patents” after the Effective Date if at any time they are no longer owned by VIRNETX or an Affiliate of VIRNETX or any consent of or payment to a third party would be required in order to license them as contemplated under this Agreement (“Conditional VIRNETX Patents”); provided, however, that VIRNETX shall not exercise this exclusion right in bad faith for the primary purpose of avoiding payment of Commissions to IPVALUE under this Agreement. |
1.3 | “VIRNETX LTE Patents” means those VIRNETX Patents that are or become, and remain, Essential (as defined in Section 15 (Definitions) of the ETSI Rules of Procedure dated 20 March 2013) with respect to the standards in the 3GPP LTE, SAE project for which VIRNETX has submitted an IPR Licensing Declaration form to ETSI (the “Standards”); provided that such VIRNETX Patents shall only be considered VIRNETX LTE Patents during such time as such VIRNETX Patents remain Essential with respect to the Standards. |
1.4 | “Affiliate” means, in relation to a company, any other company over which that company has control, where “control” means the ability of a person to ensure that the activities and business of that other company are conducted in accordance with the wishes of that person, and a person shall be deemed to have control of a company only if that person has beneficial ownership of the majority of the issued share capital and has voting rights in that company. A company will only be considered an Affiliate so long as such control exists. |
1.5 | “Approved Counterparty(ies)” means any prospective or actual licensee under or of the VIRNETX Patents that is approved in writing by VIRNETX for IPVALUE to pursue as a prospective licensee. |
1.6 | “Business Day” means a day (other than Saturday or Sunday) on which banks are open for business in New York. |
1.7 | “Commercialization Activities” means any activities approved by VIRNETX that are necessary or desirable to generate revenue from the VIRNETX Patents anywhere in the world by means of VIRNETX granting a License to an Approved Counterparty. |
1.8 | “Commission” means any amounts payable by VIRNETX to IPVALUE under Schedule 1 attached to this Agreement. |
1.9 | “Excluded Field of Use” means any field of use other than the creation of encrypted channels between two or more of the licensee’s own products. Without limiting the generality of the following, “Excluded Field of Use” shall include any field of use relating to the creation of (i) a centralized security clearinghouse of secure domain names; (ii) a system or a service that validates the request for access using a secure domain name and facilitates creation of encrypted communication channels between two devices when, either, one (heterogeneous environment) or none of the devices involved and/or its operating system is manufactured by the licensee; or (iii) a system or a service that acts as a broker for automatic creation of encrypted communication channels, upon secure domain name lookup, between two devices not manufactured by the licensee. |
1.10 | “IPVALUE Competitor” means a person or entity (excluding law firms) who provides patent licensing advice and negotiating services to owners of patent portfolios on a commission basis. |
1.11 | “IPVALUE Excluded Party(ies)” and “VIRNETX Excluded Party(ies)” shall have the meaning ascribed to such terms in Section 2.11 and 6.2, respectively. |
1.12 | “License” means a non-exclusive license or grant of equivalent rights (e.g., a covenant not to sue) under the VIRNETX Patents to an Approved Counterparty or to any wholly owned subsidiary of an Approved Counterparty. |
1.13 | “Litigation Expenses” has the meaning set forth in Schedule 1. |
1.14 | “Minimum Success Event” shall mean that VIRNETX enters into a Transaction on or before March 31, 2016. |
1.15 | “Performance Criteria” has the meaning set forth in Schedule 3. |
1.16 | “Revenue” has the meaning set forth in Schedule 1. |
1.17 | “Stop Notice” means a notice provided by VIRNETX for IPVALUE to stop activities, in accordance with the provisions set forth in Article 6 of this Agreement. |
1.18 | “Stop Notice Fee” means a fee to be paid to IPVALUE if VIRNETX issues a Stop Notice, calculated in accordance with Schedule 2 of this Agreement. |
1.19 | “Third Party Expenses” has the meaning set forth in Schedule 1. |
1.20 | “Transaction” has the meaning set forth in Schedule 1. |
2. | APPOINTMENT AND ACTIVITIES |
2.1 | Subject to the terms and conditions of this Agreement, including without limitation Section 2.2, VIRNETX hereby appoints IPVALUE to be VIRNETX’s representative to negotiate or assist VIRNETX in negotiating Licenses (which may include non-exclusive licenses, covenants not to sue, covenants not assert, and the like) with Approved Counterparties. VIRNETX hereby authorizes IPVALUE, during the term of this Agreement, in its reasonable discretion, to conduct Commercialization Activities in support of the foregoing appointment, provided that such activities are approved by VIRNETX in advance. Such authorization may include, without limitation, the authority of IPVALUE to sign and send notice letters to an Approved Counterparty regarding the VIRNETX Patents, provided that such notice letters are approved in advance by VIRNETX. |
2.2 | Subject to the terms and conditions of this Agreement, unless instructed otherwise by VIRNETX, IPVALUE shall conduct Commercialization Activities only with an Approved Counterparty. For so long as a third party remains an Approved Counterparty, VIRNETX shall cooperate with IPVALUE to negotiate Licenses with the Approved Counterparties hereunder on VIRNETX’s behalf. This Section 2.2 will not be construed as restricting VIRNETX from engaging attorneys or advisors to assist VIRNETX in conducting any licensing or enforcement activities with respect to the VIRNETX Patents; however, except in the event that IPVALUE fails to achieve the Minimum Success Event, before VIRNETX appoints an IPVALUE Competitor as its representative to negotiate licenses for the VIRNETX Patents with a third party other than an Approved Counterparty, VIRNETX will discuss the opportunity with IPVALUE in good faith. The Parties contemplate that there may be instances where a Court or standards setting organization may require that VIRNETX negotiate directly with an Approved Counterparty (either with or without IPVALUE) (hereinafter “VIRNETX Mandated Negotiations”), and agree that such activity shall not be deemed to be an interference with IPVALUE’s Commercialization Activities. If VIRNETX provides notice to IPVALUE of a VIRNETX Mandated Negotiation and requests that IPVALUE cease any or all Commercialization Activities with respect to such Approved Counterparty, (i) IPVALUE shall immediately comply with such request, and (ii) VIRNETX agrees to provide IPVALUE with status updates regarding such negotiations, but only to the extent VIRNETX can do so without violating its commitments (e.g., confidentiality obligations) to a Court, standards setting organization or any third party in connection with the VIRNETX Mandated Negotiations. |
2.3 | IPVALUE hereby accepts the appointments under Section 2.1. In carrying out such activities, IPVALUE shall at all times ensure that such activities are performed by appropriately experienced, qualified and skilled personnel. IPVALUE shall use commercially reasonable efforts in pursuit of Transactions, provided that IPVALUE shall be entitled to exercise its professional judgment, skill and sole discretion in matters of selecting strategy for engaging and conducting negotiations with Approved Counterparties. |
2.4 | IPVALUE shall make reasonable efforts to refrain from and will not knowingly engage in (i) any conduct that would violate VIRNETX’s undertakings to ETSI or any other applicable standards setting organization, or (ii) activities or making statements that would give rise to antitrust liability (including anti-monopoly, price fixing, abuse of dominant position and refusal to deal) or successful claims of unfair competition, legal or equitable estoppel, implied license, patent misuse, or waiver; provided that no act by IPVALUE that has been approved by VIRNETX may constitute a breach of this Section. |
2.5 | IPVALUE shall not approach a third party to license the VIRNETX Patents until such third party becomes an Approved Counterparty. Subject to the foregoing, IPVALUE may approach third parties as appropriate to generate interest in licensing the VIRNETX Patents, and may share with such third parties materials IPVALUE generates to demonstrate the value of the VIRNETX Patents. Such materials must be pre-approved by VIRNETX in writing prior to being provided to any third parties. Notice letters to an Approved Counterparty to formally notify the Approved Counterparty of the VIRNETX Patents will not be sent to the Approved Counterparty unless approved by VIRNETX in advance. |
2.6 | Except for VIRNETX Mandated Negotiations, IPVALUE will conduct or assist in all negotiations with any Approved Counterparty regarding a potential Transaction as approved by VIRNETX. VIRNETX may at any time attend the negotiations. Upon VIRNETX’s request, IPVALUE shall submit materials to be used to support negotiations to VIRNETX for VIRNETX’s approval and/or comments thereto. |
2.7 | IPVALUE will keep VIRNETX fully apprised of its Commercialization Activities and communications with the Approved Counterparties in support of this Agreement, and shall promptly provide VIRNETX with information in connection therewith as may be requested by VIRNETX from time to time. IPVALUE shall provide a report to VIRNETX within thirty (30) days after every calendar quarter including the identity of Approved Counterparties contacted and the status of discussions initiated by IPVALUE through the end of each calendar quarter. |
2.8 | VIRNETX acknowledges and understands that IPVALUE and its employees are not acting as legal counsel for, or providing legal services to, VIRNETX under the Agreement. However, the parties acknowledge that they have common interest in certain legal issues relating to enforcement of VIRNETX patents and, from time to time during the term of this Agreement, may exchange legally privileged information with one another relating to such common legal interests. The parties acknowledge and agree that the parties shall not have any obligation to disclose any attorney-client privileged information or attorney work product information, or information that may be subject to a similar legal privilege. The parties further acknowledge and agree that, to the extent legally permissible, any such disclosures of privileged information by either party are made with the expectation that such disclosures do not waive any applicable attorney client or attorney work product privilege. Any such privileged information that the parties elect to disclose will be subject to the Common Interest Agreement, dated December 18, 2006, by and between the parties in addition to the confidentiality obligations set forth in this Agreement. |
2.9 | VIRNETX shall determine in its sole, good faith discretion the terms and conditions for potential Transactions being pursued by IPVALUE and whether to enter into any such Transaction. VIRNETX shall retain its own counsel, at VIRNETX’s sole expense, to obtain any legal advice regarding the proposed Transaction. IPVALUE understands that VIRNETX may require a License to include an Excluded Field of Use, and, if required by VIRNETX, shall make such exclusion known to potential licensees during license negotiations. If IPVALUE brings to VIRNETX an offer that meets or exceeds all business and financial terms previously communicated to IPVALUE in writing as acceptable to VIRNETX and does not include any other terms objectionable to VIRNETX, and VIRNETX rejects the offer and instructs IPVALUE to cease negotiations, IPVALUE may request (and VIRNETX will not unreasonably withhold its consent) to treat such rejection as a Stage 5 Stop Notice, in which case the applicable Stop Notice Fee shall be payable to IPVALUE. |
2.10 | VIRNETX shall review any negotiated Transaction document (e.g., a draft agreement for signature) and may discuss with IPVALUE any changes or amendment required to be made to the Transaction document before VIRNETX will execute the document; provided, however, that in no event shall VIRNETX be obligated to disclose to IPVALUE any confidential or legally privileged information in connection therewith. |
2.11 | IPVALUE may remove a specific third party from the then-current list of Approved Counterparties by thirty (30) days’ advance written notice to VIRNETX, and each such third party shall be an IPVALUE Excluded Party (“IPVALUE Excluded Party”) until such time as that third party is again added as an Approved Counterparty in accordance with Section 5 of this Agreement. VIRNETX or its Affiliates may license or assert the VIRNETX patents to or against any IPVALUE Excluded Parties, and the consideration received by VIRNETX in connection therewith (including payment for release of past infringement by such companies) shall not be Revenue under this Agreement. |
2.12 | If IPVALUE fails to meet the Performance Criteria set forth in Schedule 3 for any Approved Counterparty, the parties will discuss in good faith whether to remove the Approved Counterparty from the list of Approved Couterparties, and, if so, the timing of the removal of the Approved Counterparty. |
3. | REVENUE, COMMISSION AND COSTS |
3.1 | VIRNETX shall pay IPVALUE any and all Commissions as set forth in Schedule 1. The parties acknowledge that the Commissions are at a discount to IPVALUE’s standard rates in recognition of the efforts that VIRNETX has already undertaken to monetize and realize value from the VIRNETX Patents. |
3.2 | Except as expressly set forth otherwise in this Agreement (including Schedule 1), each party shall bear its own costs with respect to its duties and obligations pursuant to this Agreement, including without limitation any Third Party Expenses incurred by such party. |
3.3 | VIRNETX shall pay any Stop Notice Fee due hereunder and shall do so within thirty (30) days of receiving a proper invoice from IPVALUE for such Stop Notice Fee, by wire transfer to an account designated by IPVALUE. |
3.4 | No amounts owed by a paying party may be offset or otherwise reduced by the paying party as a result of other amounts owed by the receiving party to the paying party without the consent of the receiving party, which shall not be withheld for any undisputed amounts. |
3.5 | Each party acknowledges and agrees that the other party may assign its respective right to receive and/or collect Revenue (or a portion of such Revenue) with respect to any specific Transaction to a third party. In the event IPVALUE makes any such assignment, it shall provide prompt written notice to VIRNETX and shall identify the party to whom such rights are assigned and to whom any amounts payable hereunder should be paid. In the event VIRNETX makes any such assignment, it shall provide prompt written notice to IPVALUE and shall identify the party to whom such rights are assigned and from whom any amounts payable hereunder will be received. |
4. | OTHER VIRNETX OBLIGATIONS |
4.1 | VIRNETX shall reasonably respond to informational requests regarding technical, business and legal issues and will keep IPVALUE reasonably informed of its patent declarations and licensing commitments that VIRNETX has to ETSI or any other applicable standards setting organization, provided that in no event shall VIRNETX be obligated to disclose to IPVALUE any information in connection therewith that is legally privileged or subject to a confidentiality obligation to a third party. Subject to the foregoing, upon reasonable request of IPVALUE and to the extent VIRNETX has the right to do so: i) VIRNETX shall provide information to IPVALUE regarding pre-existing licenses or encumbrances expressly granted by VIRNETX under the VIRNETX Patents that may affect IPVALUE’s activities hereunder; and ii) VIRNETX shall reasonably inform IPVALUE of any contacts or communications between VIRNETX and Approved Counterparties that involves the VIRNETX Patents or in which Licenses to the VIRNETX Patents are discussed. |
4.2 | If VIRNETX, in good faith and not to avoid payment of Commissions to IPVALUE, enters into a license of the VIRNETX Patents with a customer and/or supplier of an Approved Counterparty after the Effective Date that (i) is of a scope that covers all or substantially all of the products and services relevant to the Approved Counterparty such that no license is needed by the Approved Counterparty, and (ii) is entered into before a Transaction is entered into between VIRNETX and the Approved Counterparty, then IPVALUE may request (and VIRNETX will not unreasonably withhold its consent) to treat such license as a Stop Notice with respect to the Approved Counterparty in which case (i) such Approved Counterparty shall be deemed excluded from the then-current list of Approved Counterparties, and (ii) IPVALUE shall be entitled to the applicable Stop Notice Fee (but not any Commissions) with respect to the Approved Counterparty. For avoidance of doubt, in such event, no Commissions or other amounts will be required to be paid to IPVALUE with respect to that Approved Counterparty under Section 9.5 or Schedule 2. For the further avoidance of doubt, IPVALUE will not be entitled to any Commission on a license with a third party that is not an Approved Counterparty. |
4.3 | If VIRNETX, in good faith and not to avoid payment of Commissions to IPVALUE, enters into an agreement to sell or assign more than 50% of the VIRNETX Patents to a non-Affiliate third party during the term of this Agreement, then IPVALUE may request (and VIRNETX will not unreasonably withhold its consent) to treat such sale or assignment as a Stop Notice with respect to the Approved Counterparties who have not yet entered into a Transaction, in which case (i) such Approved Counterparties shall be deemed excluded from the then-current list of Approved Counterparties, (ii) IPVALUE shall be entitled to the applicable Stop Notice Fees (but not any Commissions) with respect to such Approved Counterparties, and (iii) this Agreement will terminate. For avoidance of doubt, IPVALUE will not be entitled to any Commission on the sale or assignment of VIRNETX Patents. |
4.4 | Unless otherwise expressly set forth herein, and subject to VIRNETX’s obligation to make payments to IPVALUE in accordance with the terms of this Agreement, nothing in this Agreement shall restrict VIRNETX from licensing, enforcing, selling, transferring, or conducting any other activities with respect to the VIRNETX Patents in its sole discretion. The fairness and reasonableness of the terms, as well as the benefits and risks, of any such Transaction for VIRNETX shall be solely determined by, and be the sole responsibility of, VIRNETX. Any litigation or other enforcement of the VIRNETX Patents shall be in the sole discretion of VIRNETX. |
4.5 | VIRNETX shall in any case remain solely responsible for the costs of defending and paying for any claims made against VIRNETX or its Affiliates by a third party alleging that VIRNETX or its Affiliates infringes a patent of the third party. |
4.6 | VIRNETX shall have sole discretion and control over the prosecution and maintenance of the VIRNETX Patents. VIRNETX shall keep IPVALUE reasonably apprised, from time to time during the term of this Agreement, of any newly issued VIRNETX Patents or the expiration or abandonment of existing VIRNETX Patents, as well as any changes in the validity or enforceability of the VIRNETX Patents, provided that in no event shall VIRNETX be obligated to disclose to IPVALUE any information in connection therewith that is legally privileged or the subject of a confidentiality obligation to a third party. |
4.7 | VIRNETX shall have the right to modify or terminate any Transaction in a manner which reduces or defers the expected Revenue under such Transaction; provided, however, that (i) VIRNETX agrees not to do so in bad faith for the primary purpose of avoiding payment of Commissions to IPVALUE under this Agreement and (ii) if VIRNETX modifies or terminates the Transaction for its own convenience, IPVALUE may request (and VIRNETX will not unreasonably withhold its consent) the same Commission as IPVALUE would have received if VIRNETX had not made such modifications or terminated the Transaction. For avoidance of doubt, any modification or termination shall not be deemed to be at VIRNETX’s convenience if it is done in connection with resolving a dispute with a third party or obtaining payments that otherwise might be withheld or subject to dispute or to facilitate another Transaction for which IPVALUE is entitled to a Commission. |
4.8 | VIRNETX shall procure that any obligations of VIRNETX regarding payment of Commissions shall also apply to and be binding upon any Affiliates of VIRNETX who are entitled to receive Revenue to the extent necessary to effect the intent of this Agreement. |
5. | PROPOSAL PROCESS |
5.1 | The parties shall work together to identify, within fifteen (15) business days of the Effective Date, up to ten (10) potential licensees to be approved by VIRNETX in writing as Approved Counterparties. Upon approval in writing by VIRNETX, each such potential licensee will be an Approved Counterparty. The parties further agree to update the list of Approved Counterparties from time to time to reflect the then current list of Approved Counterparties that have been approved in writing by VIRNETX. |
5.2 | Each party may at any time during the term of this Agreement submit a written proposal to the other party to add an Approved Counterparty to the list of Approved Counterparties. |
5.3 | Each party shall promptly review all such proposals submitted by the other party and shall advise the other party whether it approves or rejects each such proposal or amendment within thirty (30) Business Days after receipt of the proposal. If the other party has not received a response within such time, the proposal shall be deemed to have been rejected on such date. If the other party approves of the proposal, it shall provide written notice of such approval to the proposing party, in which case the proposed Approved Counterparty shall become an Approved Counterparty. |
6. | STOP NOTICES |
6.1 | VIRNETX shall have the right, at any time and subject to the payment to IPVALUE of the Stop Notice Fee, to direct IPVALUE to cease any work or effort with respect to any Approved Counterparty, by written notice to IPVALUE ("Stop Notice"). Such Stop Notice shall become effective five (5) Business Days after receipt of such Stop Notice by IPVALUE. Either party may request a meeting with the other party to discuss the Stop Notice. |
6.2 | Representatives of IPVALUE and VIRNETX shall meet (in person or telephonically) within five (5) Business Days of a request by either party for a meeting to discuss a Stop Notice. In the event either party proposes an amendment to the strategy to license the Approved Counterparty, the other party shall give due consideration to the same and may accept or reject such amendment. Within two (2) days after such meeting, VIRNETX shall either withdraw or confirm the Stop Notice by providing written notice of the Stop Notice to IPVALUE, and if VIRNETX confirms the Stop Notice, IPVALUE shall cease efforts to license the Approved Counterparty; such third party shall be a VIRNETX Excluded Party (“VIRNETX Excluded Party”) and deemed excluded from the then-current list of Approved Counterparties until such time as that third party is again added as an Approved Counterparty in accordance with Section 5 of this Agreement; and, if not yet paid, VIRNETX shall pay the applicable Stop Notice Fee. Nothing herein prevents VIRNETX or its Affiliates from licensing or asserting the VIRNETX patents to or against any VIRNETX Excluded Parties. |
7. | AUDIT AND VERIFICATION |
7.1 | Each party shall keep records adequate to verify each report and payment to be made pursuant to this Agreement for three (3) full years following the submission of each such report and payment. The records shall be prepared and maintained on the basis of generally accepted accounting principles, consistently applied. |
7.2 | Each party shall also permit its books and records related to the amounts payable to the other party under this Agreement to be examined once during each calendar year upon reasonable notice during regular business hours at the location at which such books and records are usually kept by an independent auditor selected and paid for by the other party. The audited party shall render reasonable cooperation in the conduct of such audit. Such independent auditor shall not disclose to the other party any information other than that relating solely to the correctness of, or the necessity for, the reports and payments to be made pursuant to this Agreement. |
7.3 | In the event such audit discloses an underpayment due the party requesting the audit of more than ten percent (10%) for such audited period, the audited party shall pay to the other party in addition to the additional fees or sums due and any interest accrued thereon, the actual costs of the audit which shall not exceed the standard billing rates for the personnel performing such audit, as documented by the independent auditor's invoices to the party who requested the audit. |
8. | LIABILITY AND WARRANTIES |
8.1 | NO PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE OF WHATEVER NATURE AS A RESULT OF THIS AGREEMENT OR BREACH HEREOF, WHETHER ANY SUCH DAMAGES ARE BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY, AND WHETHER OR NOT SUCH OTHER PARTY HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR EITHER PARTY’S INDEMNITY OBLIGATIONS HEREUNDER, AND EXCEPT FOR AMOUNTS PAYABLE BY EITHER PARTY UNDER ARTICLE 3 (INCLUDING BUT NOT LIMITED TO PAYMENT OF STOP NOTICE FEES), THE TOTAL LIABILITY OF EITHER PARTY TO THE OTHER FOR DAMAGES AS A RESULT OF BREACH OF THIS AGREEMENT SHALL NOT EXCEED TWO MILLION UNITED STATES DOLLARS ($2,000,000). NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOREGOING LIMITATIONS ON A PARTY’S LIABILITY SHALL NOT APPLY IN THE EVENT OF SUCH PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. |
8.2 | EXCEPT AS EXPRESSLY SET OUT IN THIS AGREEMENT, NEITHER PARTY GIVES ANY WARRANTY OR REPRESENTATION OR AGREES TO UNDERTAKE ANY OBLIGATION, EXPRESS OR IMPLIED (BY STATUTE, COURSE OF DEALING, INSOLVENCY PRACTICE OR OTHERWISE). ALL SUCH WARRANTIES AND OBLIGATIONS ARE HEREBY EXCLUDED TO THE MAXIMUM PERMITTED BY LAW. |
8.3 | Each party represents and warrants to the other party that it is duly incorporated or organized and validly existing as an entity under the laws of its jurisdiction or incorporation and has the requisite power and authority to enter into and perform this Agreement. |
8.4 | IPVALUE represents and warrants to VIRNETX that IPVALUE will perform all Commercialization Activities in accordance with applicable laws and the standards and practices of care, skill and diligence customarily observed by similar firms under similar circumstances. |
8.5 | IPVALUE represents and warrants that IPVALUE (i) will not make any representations, warranties, or guarantees regarding the VIRNETX Patents that have not been pre-approved by VIRNETX in writing, and (ii) will not enter into any agreements that purport to grant any rights under any VIRNETX Patents. IPVALUE agrees to defend, hold harmless, and indemnify VIRNETX for any claims made by any third party against VIRNETX to the extent such claims arise from a breach by IPVALUE of this Section 8.5 or a willful, knowing or grossly negligent breach of Section 2.4. |
8.6 | VIRNETX agrees to defend, hold harmless, and indemnify IPVALUE for any claims made by an Approved Counterparty against IPVALUE where the claim arises from a breach or misrepresentation by VIRNETX or its Affiliates in any Transaction. |
9. | TERM AND TERMINATION |
9.1 | This Agreement shall commence on the Effective Date and continue in full force for three (3) years thereafter, unless extended or earlier terminated by mutual agreement of the parties. This Agreement will automatically renew for additional successive 1-year periods unless at least thirty (30) days before the end of the then-current term either party provides written notice to the other party that it does not want to renew. |
9.2 | The following early termination provisions shall apply: |
(A) | If either party materially breaches this Agreement, the other party may terminate this Agreement by giving thirty (30) days’ prior written notice, provided that the matters set forth in such notice are not cured to the other party’s reasonable satisfaction within such thirty (30) day period. |
(B) | VIRNETX may terminate this Agreement upon thirty (30) days’ notice upon a change of control of VIRNETX, including without limitation by way of a merger, acquisition, or sale of all or substantially all of VIRNETX’s assets to which this Agreement relates, provided that VIRNETX shall terminate under this subsection (B) if VIRNETX in good faith determines, as a result of such change of control, to discontinue pursuing licensing of the VIRNETX Patents under this Agreement; |
(C) | VIRNETX may terminate this Agreement immediately upon notice if IPVALUE has failed to achieve the Minimum Success Event; however, this termination right shall end once there is a Transaction. |
(D) | Either party may terminate this Agreement without cause upon sixty (60) days’ notice and without further liability, except as set forth in this section 9.3 below. |
9.3 | With regard to termination of this Agreement pursuant to Section 9.2 above, the parties hereto agree as follows: |
(A) | Upon any termination of this agreement, IPVALUE shall immediately cease all Commercialization Activities. |
(B) | If VIRNETX terminates this Agreement pursuant to Section 9.2(B), IPVALUE may elect to treat such termination as a Stop Notice with respect to all then-current Approved Counterparties who have not yet entered into a Transaction, in which case the associated Stop Notice Fee as calculated under this Agreement as of the date of such termination shall be payable to IPVALUE. The foregoing represents VIRNETX’s sole liability and IPVALUE’s sole and exclusive compensation in the event VIRNETX terminates this Agreement pursuant to Sections 9.2(B), other than surviving Commissions payable to IPVALUE for Transactions closed prior to such termination. For avoidance of doubt, in such event, no Commissions or other amounts will be required to be paid to IPVALUE under Section 9.5 or Schedule 2 in the event VIRNETX or any of its Affiliates enters into any Transaction with an Approved Counterparty after the termination of this Agreement. |
(C) | If VIRNETX terminates this Agreement pursuant to Sections 9.2(C) or 9.2(D), IPVALUE may elect to treat such termination as a Stop Notice with respect to all then-current Approved Counterparties who have not yet entered into a Transaction, in which case the associated Stop Notice Fee as calculated under this Agreement shall be payable to IPVALUE. The foregoing represents VIRNETX’s sole liability and IPVALUE’s sole and exclusive compensation in the event VIRNETX terminates this Agreement pursuant to Sections 9.2(C) or 9.2(D). For avoidance of doubt, in such event, no Commissions or other amounts will be required to be paid to IPVALUE under Section 9.5. |
9.4 | Except as expressly set forth herein, including without limitation Section 9.3 above, expiration or termination of this Agreement shall not affect the rights of the parties which have accrued prior to the date of expiration or termination (including but not limited to payment obligations accrued prior to expiration or termination for Transactions closed prior to expiration or termination). The following provisions shall survive expiration or termination of this Agreement for any reason: Articles 3, 7, 8, 10 (provided that the provisions of Article 10 shall expire five years after such expiration or termination of the Agreement), 11, 12 and 13, Section 4.5, 4.7, 9.3, 9.4 and 9.5, and Schedules 1 and 2. For the avoidance of doubt, IPVALUE’s right to continue receiving Commissions payable to IPVALUE for Transactions closed prior to termination will survive. |
9.5 | Within one (1) year of the expiration of this Agreement, if VIRNETX or any of its Affiliates enters into any Transaction (including post-term Transactions) with an Approved Counterparty without any prior litigation with the Approved Counterparty and IPVALUE was actively involved in negotiations with that Approved Counterparty prior to such expiration, then such post-term Transaction shall be deemed a Transaction, and IPVALUE shall be entitled to its Commissions to which IPVALUE would have been entitled if the Agreement were still in force less any Stop Notice Fee paid to IPVALUE with respect to that Approved Counterparty. |
10. | CONFIDENTIALITY |
10.1 | Each party (the “discloser”) may from time to time communicate certain confidential information to the other party (the “recipient”). The recipient shall not use or disclose any such confidential information, save as may be necessary to perform its rights and obligations pursuant to this Agreement. |
10.2 | The recipient shall not disclose any confidential information of the discloser to any third party without the discloser’s express approval, except to recipient’s employees, agents, and sub-contractors who have a need to know for purposes of this Agreement (and provided that any agents or sub-contractors of IPVALUE under this Agreement are approved in advance by VIRNETX). Recipient shall ensure that recipient’s employees, agents, and sub-contractors to whom any confidential information is disclosed are bound by confidentiality agreements to observe and perform the obligations set out in this Article 10. Each party shall be solely responsible for its employees’, agents’, and sub-contractors’ compliance with such obligations. |
10.3 | The obligations imposed by this Article 10 shall not apply to confidential information: |
(A) | which is in or comes into the public domain through no fault of the recipient or its agents; |
(B) | which is already known to the recipient at the time of disclosure by the disclosing party; |
(C) | which the recipient lawfully learns or receives from some source other than directly or indirectly from the other party; or |
(D) | which the recipient can demonstrate has been independently developed by that party without reference to any confidential information of the other party. |
10.4 | Notwithstanding the other provisions of this Article 10, a party may disclose confidential information: |
(A) | if and to the extent required by law or ordered by any judicial, quasi-judicial or regulatory authority (including without limitation relevant stock exchange or exchanges) and in such case that party shall consult with the other party in advance of such disclosure and on the manner of such disclosure; and |
(B) | to its professional advisers, investors, auditors and bankers provided that in the case of all such parties save for retained lawyers, such disclosure is subject to obligations of confidentiality no less onerous than those set out in this Article 10. |
10.5 | Notwithstanding the other provisions of this Article 10, each party shall be permitted to: |
(A) | disclose the existence of this Agreement to any Approved Counterparty; |
(B) | disclose the existence of this Agreement to any current or prospective client of IPVALUE; |
(C) | refer to the existence of this Agreement in any marketing or other promotional information relating to such party's business; and |
(D) | represent, solely to an Approved Counterparty, that IPVALUE has the right to conduct the activities contemplated by this Agreement, subject to the terms of this Agreement. |
11. | NOTICES |
11.1 | Any notice required or authorized to be given under this Agreement shall be served personally or be sent by FedEx Next Day or equivalent service to the relevant address as set out below for the attention of the individual as set out below; provided, however, that except for notices provided or required pursuant to Section 9.2, notice provided by E-mail to the relevant address as set out below shall be sufficient to constitute notice if and when the recipient acknowledges receipt of such notice by E-mail: |
Name
|
Address
|
E-mail
|
For IPVALUE:
Keith Wilson,
Sr. Vice President, Legal,
IPVALUE Management,
Inc.
|
3945 Freedom Circle, Suite 900, Santa Clara, CA 95054
|
keith.wilson@IPVALUE.com
|
For VIRNETX:
Sameer Mathur
Vice President, Corporate
Development and
Marketing
|
308 Dorla Court, Zephyr Cove, Nevada
|
Sameer_Mathur@virnetx.com
|
12. | DISPUTE RESOLUTION |
12.1 | The parties shall, in good faith, attempt to resolve any dispute or difference which may arise between them under this Agreement (“Dispute”) by meeting to discuss and identify a resolution of the Dispute. The above meeting shall be held in a timely matter after one party has given written notice to the other party that a Dispute has arisen. If the Dispute has not been resolved within forty (40) Business Days of the meeting, either party may initiate binding arbitration as provided in this Section. For purposes of clarity, a dispute concerning the validity, scope, infringement or essentiality of a VIRNETX Patent or a patent claim thereof shall not be deemed a dispute arising under this Agreement and shall not be required to be resolved in accordance with this Section 12. For further clarity, any such dispute will not be required to be resolved by binding arbitration, and matters concerning the validity, scope, infringement or essentiality of any VIRNETX Patent or a patent claim will not be the subject of any discovery, testimony, or hearing in any arbitration. |
12.2 | Unless otherwise agreed, any arbitration of any Dispute shall be conducted on a confidential basis under the then current commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be conducted before a panel of three arbitrators in San Jose, California, pursuant to the substantive law of the State of New York (excluding the conflicts of laws principles of that State). Each party shall appoint an arbitrator; the two appointed arbitrators together shall select the third arbitrator who shall be the panel chairperson. The determinations of the arbitrators in such arbitration shall be binding on the parties. All arbitration fees and costs shall be shared equally by the parties. The judgment upon the award rendered by the arbitrators may be entered and enforced in any court of competent jurisdiction and the parties agree to make themselves subject to that jurisdiction for the limited purpose of enforcing the judgment. |
12.3 | Notwithstanding anything in this Agreement, no party shall be precluded from seeking provisional remedies in the courts of any jurisdiction including, but not limited to, temporary restraining orders and preliminary injunctions, to protect its rights and interests, but such proceedings shall not be used as a means of delaying or avoiding the dispute resolution process set out in this Agreement. |
13. | MISCELLANEOUS |
13.1 | To the extent permissible under applicable law, VIRNETX agrees, during the term of this Agreement and for one (1) year thereafter, that VIRNETX shall not directly or indirectly solicit or entice away from the employment of IPVALUE any of the employees of IPVALUE directly involved in the provision of the services to VIRNETX under this Agreement, except for those that answer a public advertisement which is not specifically aimed at the employees of IPVALUE. Without limiting the foregoing, to the extent permissible under applicable law, if VIRNETX hires an employee of IPVALUE during the term of this Agreement who is directly involved in the provision of the services to VIRNETX under this Agreement, then IPVALUE may request VIRNETX to pay fair compensation to IPVALUE and the parties agree to discuss such compensation in good faith. |
13.2 | Any amount properly due from one party to the other pursuant to this Agreement and remaining unpaid after the date when payment was due shall bear interest. The interest shall accrue monthly and shall be calculated (whether before or after judgment) at the rate per annum equal to LIBOR plus 4% (four percent) from the date when payment was due until the amount due is actually received by the payee. |
13.3 | Each party shall co-operate with the other and make commercially reasonable efforts to execute and deliver to the other such instruments and documents and take such other actions as may be reasonably requested from time to time in order to evidence and confirm the rights of the requesting party and to enable the requesting party to carry out such party’s obligations under this Agreement. |
13.4 | No exercise or failure to exercise a right under this Agreement or otherwise or to invoke a remedy will constitute a waiver of that right and remedy by the relevant party. |
13.5 | No party shall assign or transfer any or all of its rights or obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld. Any attempt to assign this Agreement without such consent will be null and void. Notwithstanding the foregoing, VIRNETX may assign this Agreement and the rights and obligations hereunder without the prior written consent of IPVALUE in connection with a merger, acquisition, or sale of all or substantially all of VIRNETX’s assets to which this Agreement relates or the VIRNETX Patents. |
13.6 | If any one or more of the provisions contained in this Agreement shall be declared or become unenforceable, invalid or illegal for any reason whatsoever, the other terms and provisions of this Agreement shall remain in full force and effect as if this Agreement had been executed without such part and the parties shall negotiate in good faith to agree on an enforceable, valid and legal replacement part that most nearly effects the parties’ original intent with respect to the provision declared or that became unenforceable, invalid or illegal. |
13.7 | The parties acknowledge and agree that as to each other they are independent contractors. Nothing set forth in this Agreement shall be construed or claimed as constituting the parties as partners, joint-venturers or create any fiduciary relationship or other form of legal association except as expressly set forth in this Agreement. Unless otherwise expressly provided in this Agreement, IPVALUE shall be entitled to perform its obligations and exercise its powers pursuant to this Agreement in such a manner as it may decide. |
13.8 | The headings in this Agreement are for convenience only and shall not affect its interpretation. The Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement, and any reference to this Agreement shall include the Schedules. Any list or examples following the word "including" shall be interpreted without limitation to the generality of the preceding words. |
13.9 | This Agreement (including the Schedules) constitutes the entire understanding between the parties in respect of the subject matter of this Agreement and supersedes and extinguishes all prior undertakings, representations, warranties and arrangements of any nature whatsoever, whether or not in writing relating thereto. No party shall have any liability in respect of any representations or undertakings relating thereto (unless fraudulently made) which are not expressly set out or referred to in this Agreement. |
13.10 | No amendment or modifications of this Agreement or waiver of the terms or conditions thereof shall be binding upon any party unless agreed upon in writing and signed by authorized representatives of all parties. |
13.11 | This Agreement may be executed in any number of counterparts, and by the parties on separate counterparts, but shall not be effective until each party has executed at least one counterpart. Each counterpart shall constitute an original of this Agreement, but all the counterparts shall together constitute but one and the same instrument. Such counterparts may be exchanged by fax, or scanned and exchanged by electronic mail, but shall be effective upon receipt of fax/electronic mail as applicable. The Parties agree that facsimile or electronic copies of signatures shall be deemed originals for all purposes hereof and that either Party may produce such copies, without the need to produce original signatures, to prove the existence of this Agreement in any proceeding brought hereunder. |
13.12 | The validity, construction, and performance of this Agreement and any dispute between the parties relating thereto shall be governed by and interpreted and determined in accordance with the laws of the State of New York (excluding the conflicts of laws principles thereof). |
VIRNETX INC.
|
IPVALUE MANAGEMENT, INC.
|
|||
By
|
/s/ Sameer Mathur
|
By
|
/s/ Paul A. Seaman
|
|
Name: Sameer Mathur
|
Name: Paul A. Seaman
|
|||
Title: VP of Corporate Development & Product Marketing
|
Title: Sr. Vice President
|
|||
Date: May 8, 2015
|
Date: May 8, 2015
|
(i) | If the Revenue is generated as part of settlement of patent enforcement litigation against an Approved Counterparty or its Affiliate, then VIRNETX shall deduct any amounts, including without limitation any reimbursable costs, that are payable to Science Applications International Corporation.(“SAIC”) or its designees based on such Revenue pursuant to the existing agreement between SAIC and VIRNETX, a copy which agreement shall be provided to IPVALUE within thirty (30) days after the Effective Date; as used in this Schedule 1, “litigation” includes without limitation any action, suit or proceeding (including without limitation any ITC action or district court action, but excluding patent office proceedings); |
(ii) | If the Transaction is entered into after the commencement of any litigation between VIRNETX or its Affiliate and the Approved Counterparty or its Affiliate, then VIRNETX shall also deduct any Litigation Expenses incurred by VIRNETX and its Affiliates with respect to such litigation through the date of receipt of the Revenue, and then reimburse IPVALUE for any reasonable expenses incurred by IPVALUE in responding to third-party subpoenas with respect to such litigation; |
(iii) | Out of any remaining Revenue,: |
Stage
|
Activity
|
Compensation
|
||
1.
|
After proposal approved by VIRNETX
|
First Termination Fee Component plus Base Termination Fee
|
||
2.
|
First Draft Technical Presentation evidencing Use of Patent (“claim chart”) Delivered to and approved by VIRNETX
|
First Termination Fee Component plus 2 times the Base Termination Fee
|
||
3.
|
First letter sent to Approved Counterparty
|
First Termination Fee Component plus 2 times the Base Termination Fee
|
||
4.
|
Received first financial proposal from Approved Counterparty
|
First Termination Fee Component plus 3 times the Base Termination Fee)
|
||
5.
|
Received first financial offer from Approved Counterparty in excess of the minimum pricing guidelines previously provided to IPVALUE by VIRNETX
|
First Termination Fee Component plus 4 times the Base Termination Fee)
|
||
6.
|
Agreement reached on all material terms and VIRNETX actually enters into a Transaction on those terms prior to or within one (1) year after the issuance of the Stop Notice
|
Commission that would have been paid to IPVALUE if no Stop Notice had been issued with respect to that Approved Counterparty as set forth in the last paragraph of this Schedule 2, less any Stop Notice Fee paid to IPVALUE with respect to that Approved Counterparty
|
1. | By the four-month anniversary of the party being added to the list of Approved Counterparties, a notice letter has been sent to the Approved Counterparty |
2. | By the six-month anniversary of the party being added to the list of Approved Counterparties, IPVALUE has contacted the Approved Counterparty to initiate license discussions |
3. | By the one-year anniversary of the party being added to the list of Approved Counterparties, IPVALUE has shared a first financial proposal with the Approved Counterparty and begun technical and business discussions |
4. | By the two-year anniversary of the party being added to the list of Approved Counterparties, IPVALUE has received a financial proposal from the Approved Counterparty |
/s/ Kendall Larsen
|
|
Kendall Larsen
|
|
President and Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
Date: May 11, 2015
|
/s/ Richard H. Nance
|
|
Richard H. Nance
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
Date: May 11, 2015
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
/s/ Kendall Larsen
|
|
Kendall Larsen
|
|
President and Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
Date: May 11, 2015
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
/s/ Richard H. Nance
|
|
Richard H. Nance
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
Date: May 11, 2015
|