ITEM 1.01.
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ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
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As previously disclosed in the Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) by VirnetX Holding Corporation (the “Company”) on June 6, 2017, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”), a Revenue Sharing Agreement and a Gabriel License Agreement with Public Intelligence Technology Associates, kk (Japanese Corporation) (“Investor”). Pursuant to the Purchase Agreement, the Company agreed to issue and sell to Investor 5,494,505 shares of Common Stock (the “Shares”) in a private placement pursuant to an exemption from registration provided by 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for a total purchase price of approximately $20,000,000, or $3.64 per share (the “Share Purchase”).
Stock Purchase Agreement
As previously disclosed in the Current Report on Form 8-K filed with the SEC by the Company on June 28, 2017, on June 27, 2017, Company and Investor mutually agreed that the date for the closing of the Share Purchase shall be extended to July 17, 2017.
As previously disclosed in the Current Report on Form 8-K filed with the SEC by the Company on July 14, 2017, Investor informed the Company that the closing of the Shares Purchase will not occur on July 17, 2017 due to Investor’s financing sources having not yet completed their diligence of Investor. Additionally, the Company disclosed that it could not provide assurance that Investor will be able to obtain financing and consummate the closing of the Share Purchase. The closing of the Share Purchase has not occurred.
After ongoing discussions with Investor, and in light of the increase in the Company’s trading price, the Company and Investor determined not to proceed with the Share Purchase. The Company and Investor agreed to terminate the Purchase Agreement and retain the revenue share and marketing and promotion arrangements under the Revenue Sharing Agreement and Gabriel License Agreement, respectively, with the amendments to each such agreement as described below.
On October 18, 2017, the Company and Investor signed a termination letter mutually agreeing that the Purchase Agreement would be terminated effective as of October 18, 2017.
Revenue Sharing Agreement
In connection with the termination of the Purchase Agreement, the Company and Investor have amended and restated the Revenue Sharing Agreement to govern all revenue sharing arrangements between the parties, and to have it survive the termination of the Purchase Agreement (the “Amended Revenue Sharing Agreement”). Under the Amended Revenue Sharing Agreement (i) Investor shall make quarterly payments to the Company equal to a percentage set forth in the Amended Revenue Sharing Agreement of the worldwide revenues of Investor and its affiliates, including without limitation the amounts received from the licensing or sale of any products, services or intellectual property rights or received in rent, returns and other distributions from real estate and real estate investment trusts; and (ii) the Company shall make quarterly payments to Investors of a percentage of the revenues set forth in the Amended Revenue Sharing Agreement recognized from cash or cash equivalents received by Network Research Corporation Japan Ltd., the Company’s Japanese subsidiary, from a Japanese company that is incorporated or otherwise created under the laws of Japan and is headquartered in Japan (a “Japanese Company”) that is directly attributable to (a) patent license fees or royalties for licenses granted under the Company’s Japanese patents with respect to the products and services of a Japanese Company sold in Japan, (b) licensing of the Gabriel Collaboration Suite to a Japanese Company for end use in Japan, or (c) provision of other commercial services by the Company to a Japanese Company in Japan, such as the Company’s Secure Domain Name services.
Gabriel License Agreemen
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In connection with the termination of the Purchase Agreement, the Company and Investor have amended and restated the Gabriel License Agreement to have it survive the termination of the Purchase Agreement (the “Amended Gabriel Agreement).” The Amended Gabriel Agreement provides for the marketing and promotion of the Company’s products and services by Investor in Japan. Investor’s sole compensation for the services provided under the Amended Gabriel License Agreement are the payments made to Investor under the Amended Revenue Sharing Agreement.
The foregoing summaries of the Amended Revenue Sharing Agreement and Amended Gabriel License Agreement do not purport to be complete. The Company will file the Amended Revenue Sharing Agreement and Amended Gabriel License Agreement with the SEC as exhibits to the Company’s next Quarterly Report on Form 10-Q.