EXHIBIT 10.1

1.           Up Front Payment.  Cisco pays Network-1 $26 million within fifteen
(15) days of filing of the dismissal of the Lawsuit (the “Initial
Payment”).  This Initial Payment is non-contingent and is not refundable under
any circumstances, independent of any events, including any outcome of the
current lawsuit against the remaining defendants, except with respect to those
circumstances detailed in paragraph 5.

2.           Company.  Company includes Network-1 and Corey Horowitz and any of
their present or future Affiliates, including without limitation CMH Capitol
Management.   [“Affiliate(s)” of a Party shall mean any and all entities, now or
in the future and for so long as the following ownership and control exists,
that: (i) own or control, directly or indirectly, the Party; (ii) are owned or
controlled by, or under common control with, directly or indirectly, the Party;
or (iii) are owned or controlled, directly or indirectly, by a Parent
Company.  For purposes of the preceding sentence, “own or control” shall
mean the possession, directly or indirectly, of the power to direct, influence,
or cause the direction of the management or policies of a corporation or other
entity whether through ownership of voting securities, by contract or
otherwise.   Party includes Network-1, Corey Horowitz, CMH Capitol Management,
Cisco Systems and Cisco-Linksys.]
 
3.           Dismissal.  Network-1 will dismiss the lawsuit with prejudice
(“Lawsuit”).  The parties will agree on a form of dismissal to file with the
Court within ten (10) days of executing this Term Sheet.
 
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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4.           License to Cisco.  Company grants a nonexclusive, worldwide license
to Cisco and all current and future Affiliates of Cisco for products sold
directly or indirectly by Cisco (“Licensed Products”), including have made
rights.  This license covers any *** or ***, extends to ***, and continues until
the last of the Licensed Patents (as defined below) expires.   The license
extends up and down Cisco’s chain but only with respect to Cisco’s
products.  Each year, Cisco pays Network-1 royalties per *** sold in the United
States *** according to the following schedule.

Cumulative Total *** Sold In a Calendar Year
Royalty per ***
***
$***
***
$***
***
$***
***
$***
***
$***

In no calendar year shall Cisco’s payments exceed the “Royalty Cap”, which shall
be $8,000,000 per calendar year for calendar year 2011 through and including
calendar year 2015, $9,000,000 per calendar year for calendar years 2016 through
2019, and for calendar year 2020, $9,000,000 multiplied by the percentage of the
year 2020 that  U.S. Patent No. 6,218,930 (“Asserted Patent”) is
effective.  Payments to be made quarterly 30 days after the end of the quarter
(on a calendar year basis) with no payments due or owed for any part of calendar
year 2010 or earlier.

 

*** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT

CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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5.           License Arrangement.  For the 90 days after July 15, 2010 (the
“Diligence Period”), Network-1 shall conduct due diligence on the following
patent properties: U.S. Patent Nos. *** and *** and U.S. Patent Application No.
***, and including all foreign counterparts claiming priority from the ***
patent or the *** patent or the *** patent application (collectively “***
Patents”).  Cisco shall cooperate with Network-1 in obtaining permission for
Network-1 to review any relevant *** agreements subject to suitable
confidentiality provisions. On or before the last day of the Diligence Period,
Network-1 shall in writing either confirm or decline to accept assignment of the
*** Patents.  If Network-1 confirms to accept assignment of the *** Patents,
then:
 
·  
Cisco will cause the *** Patents to be assigned to Network-1.

·  
Cisco will retain a fully paid up irrevocable license to the *** Patents.

·  
After the Diligence Period, Network-1 (or any subsequent assignee of the PoE
Portfolio as defined below) shall use good faith efforts to license the ***
Patents together with the Asserted Patent (as defined below) (together the “PoE
Portfolio”) to any non-licensed entities.

·  
If in any year, Network-1 (or its subsequent assignee) does not use good faith
efforts to license the PoE Portfolio then no further payments are due from Cisco
but the license to Cisco will continue.

*** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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·  
At the conclusion of each calendar year during the term of any of the patents in
the PoE Portfolio (assuming good faith efforts are met), Network-1 (or its
subsequent assignee, or both if a partial interest is assigned) will provide an
accounting for royalties received by Network-1 (or its subsequent assignee, or
both if a partial interest is assigned) for the PoE Portfolio in that calendar
year.   For the calendar year following that year, the annual Royalty Cap for
that year shall be reduced by 35% of the net royalties (royalties minus expenses
reasonably incurred) received by Network-1 (or its subsequent assignee, or both
if a partial interest is assigned) for its PoE Portfolio during the immediately
preceding year.

·  
If in any year that calculation would result in a negative Royalty Cap,
Network-1 (or its subsequent assignee, or both if a partial interest is
assigned) shall reimburse Cisco the amount by which the Royalty Cap would be
negative, provided, however, that Network-1 (or its subsequent assignee, or both
if a partial interest is assigned) shall not reimburse Cisco more than Cisco’s
Initial Payment to Network-1 under the Agreement and such reimbursements shall
end when the Asserted Patent expires or the last royalty payment is received
from Cisco whichever is later.  Royalties received by Network-1 that can be
shown to result solely from licensing the Asserted Patent will not be included
in net royalties.  If, prior to the expiration of the Asserted Patent, Cisco’s
obligation to pay according to paragraph 4 is terminated for any reason, 35% of
the net royalties shall be reimbursed each calendar year to Cisco provided,
however, that Network-1 (or its subsequent assignee, or both if a partial
interest is assigned) shall not reimburse Cisco more than Cisco’s Initial
Payment to Network-1 under the Agreement and such reimbursements shall end with
the expiration of the Asserted Patent.

 
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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6.           Ninety Day Window.  During the Diligence Period after this Term
Sheet, Network-1 and Cisco will endeavor to discuss with the current defendants
a resolution and license arrangement including letting them know about the
potential agreement with respect to the *** Patents.  During that period of
time, Network-1 shall not enforce or seek to enforce the *** Patents against any
of the current defendants.

7.           Licensed Patents.  Cisco gets a license (to the extent that such
license can be granted by Company and if not a license, than the most rights the
Company can grant) to any and all classes and types of patents, patent
applications, and patent rights recognized anywhere in the world having a filing
date or priority date on or before five (5) years from the Effective Date that
Company or any of its Affiliates owns, has, or acquires, now or in the future,
the right to enforce or grant licenses, rights, releases, covenants, or
immunities, all patents related thereto, and all patents claiming benefit, in
whole or in part, of any of their filing dates including, but not limited to,
extensions, divisionals, continuations, continuations-in-part, reissues,
reexaminations, substitutions and foreign counterparts of any of the foregoing,
including without limitation U.S. Patent No. 6,218,930 (the “Asserted Patent”).

8.           Release.  Company releases Cisco (including all Affiliates, up and
down Cisco’s chain but only with respect to Cisco’s products or *** but only
with respect to the use of the Cisco products, and ***) for all past causes of
action, including but not limited to any claim of infringement of a Licensed
Patent. Cisco releases Company and its Affiliates for all past causes of action
that were, or might have been raised in this litigation.  Notwithstanding the
foregoing, these releases do not release any obligation set forth in this Term
Sheet.  *** shall expressly exclude *** and the release in this section does not
release any of these entities in any way.

 
*** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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9.           Invalidity or Non-Infringement Finding.  In the event of any
finding of invalidity, unenforceability or a Non-Infringement finding as to
claims 6 and 9 of the Asserted Patent as part of any judicial, regulatory or
administrative proceeding (“Body”), then no further payments shall be due from
Cisco (subject to the qualification below) but the license to Cisco shall
continue.  A Non-Infringement finding arises if, for example, a Body finds that
a product accused of infringing claim 6 or claim 9 of the Asserted Patent either
(i) lacks any claim element of claim 6 or claim 9 of the Asserted Patent; (ii)
is covered by an implied license to the Asserted Patent that would apply in the
same way to Cisco; (iii) is subject to patent exhaustion that would apply in the
same way to Cisco; or (iv) is subject to legal estoppel that would apply in the
same  way to Cisco.  If the parties disagree with the effect the ruling has on
Cisco’s obligation to pay royalties under this Agreement, the parties may submit
the issue of whether the finding would be applicable to Cisco’s products to a
mutually agreed upon mediator for mediation followed, if necessary, by a one day
binding arbitration before an arbitration panel pursuant to the rules of
JAMS.  If such invalidity, unenforceability, and Non-Infringement findings later
are reversed by a competent appellate body (“Appellate Body”), then Cisco’s
payments shall resume and Cisco shall pay the royalties that were not paid
during any period of time ***.  However, if the original finding later is
reinstated by a subsequent competent appellate body, then no futher payments
shall be due from Cisco but the license to Cisco shall continue.  Cisco agrees
that Cisco will not directly challenge or affirmatively encourage others to
challenge the validity or infringement of the Asserted Patent.  Notwithstanding
the foregoing, Company agrees that Cisco may provide assistance to any of the
defendants in this matter through the life of this case, including any and all
trials and appeals.

10.         MFN.  Network-1 represents and warrants that the royalty rate paid
by Cisco is the lowest granted to any other licensee.  If Network-1 grants or
has granted a license with a lower royalty rate ***, then Cisco shall be
entitled to obtain the benefit of such lower royalty rate if it agrees to the
other material terms of the license.

 
 
 
*** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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11.         Representations and Warranties.  Network-1 represents and warrants
authority, title, and right to grant licenses and releases to the Asserted
Patent.  .  Cisco represents and warrants that, in its reasonable estimation,
the total number of Ports that will be sold in the United States in calendar
year 2010 will be approximately *** Ports.

12.         Assignment.  Any assignment of the Licensed Patents is subject to
the terms of this Term Sheet and the terms of the Agreement.

13.         No Circumvention.  Neither Company nor Cisco will take any actions
designed to circumvent the protections in this Term Sheet or the Agreement.

14.         Breach.  If Company materially breaches the Term Sheet or the
Agreement and does not cure within 30 days of Notice from Cisco, then no further
payments will be due from Cisco, and all licenses granted by Company become
fully paid-up, royalty-free, and irrevocable.  The parties agree that a
violation of paragraph 15 by Network-1 constitutes a material breach of this
Term Sheet and the Agreement, which cannot be cured.  If the parties cannot
agree whether Company has materially breached, or if the parties cannot agree
whether there has been a violation of paragraph 15 by Network-1, the issue will
be determined by Judge *** in a private session.

*** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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15.         Confidentiality.  The discussions between the parties, all
information exchanged between Cisco and the Company during the discussions, the
terms exchanged by the parties, the terms of this Term Sheet and the terms of
any long form agreement (the “Agreement”) (collectively “Confidential Terms”)
shall be confidential and only disclosed in accordance with the provisions of
this Term Sheet or the Agreementor if required by court order, governmental
agency or as otherwise may be required by law, provided the Party required to
disclose gives the other Party written notice at least ten (10) days prior to
disclosure (unless otherwise provided for in this Term Sheet) to enable the
other Party to seek a protective order, and reasonable steps are taken by the
disclosing Party to maintain the confidentiality of the Confidential Terms.  The
Confidential Terms shall remain confidential and be used only for the purpose of
negotiating and entering into the Agreement.  Network-1 or Cisco may issue a
press release regarding the settlement subject to approval in writing from the
other regarding the content of such press release.  The parties shall work in
good faith towards an appropriate mutually agreed upon press release(s) intended
to be disclosed upon the conclusion of the trial in the district court whether
the conclusion is by jury verdict, settlement or otherwise.
 
Network-1 believes that, in order to comply with its obligations under the
securities laws, that, in addition to issuing  a press release regardingthe
settlement, Network-1 will need to file a Form 8-K including a copy of the Term
Sheet as an exhibit (“Initial 8-K”) and will need to file an additional Form 8-K
including the the executed Agreement between the parties (“Second 8-K”).  With
respect to the Initial 8-Kand the Second 8-K, Network-1 agrees to seek
confidential treatment under SEC rules of certain provisions (as the parties
mutually agree in good faith) of the Term Sheet and the Agreement.
 
The Company agrees that, except as otherwise required by applicable SEC
disclosure rules, Network-1 will only disclose the amount of royalty payments
received from Cisco in the aggregate with royalty payments received from other
parties (unless Network-1 has received payments only from Cisco during such
reporting period).
 
Nothing herein shall preclude Network-1 from complying with its obligations
under applicable  securities laws.
 
It shall be a material breach of the Agreement for the Company to violate any of
the foregoing provisions in this paragraph 15.
 

CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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16.         Within 30 days of this Term Sheet, the parties shall enter into a
long form agreement (the “Agreement”) consistent with the terms of this Term
Sheet.  The Company and Cisco agree to consult with Judge *** regarding any
dispute regarding the implementation of a provision of this Term Sheet into the
Agreement.

signatures on the following pages

 

*** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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IN WITNESS WHEREOF, the Parties have executed this Agreement through their duly
authorized representatives on ___________________________:

CISCO SYSTEMS INC.

By: /s/ Neal A. Rubin                                       

Name: Neal A. Rubin                                       

Title: Vice President, Legal Services             

CISCO-LINKSYS LLC

By:  /s/ Neal A. Rubin                                      

Name:  Neal A. Rubin                                       

Title:  Vice President, Legal Services             

NETWORK-1 SECURITY SOLUTIONS INC.

By: /s/ Corey M. Horowitz                               

Name: Corey M. Horowitz                               

Title: Chairman & CEO                                     

Corey Horowitz:

By:  /s/ Corey M. Horowitz                              

Name:   Cory Horowitz                                     

Title:     Individual                                             
 
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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CMH CAPITAL MANAGEMENT

By:  /s/ Corey M. Horowitz                              

Name: Cory Horowitz                                        

Title:   CEO                                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONFIDENTIAL ATTORNEYS’ EYES ONLY
 
 

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