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Exhibit 10.1
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
EXECUTION VERSION
 
STOCK PURCHASE AGREEMENT
 

BY AND AMONG

VIRNETX HOLDING CORPORATION

AND

PUBLIC INTELLIGENCE TECHNOLOGY ASSOCIATES
 

May 31, 2017
 

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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
TABLE OF CONTENTS
 
1.
Definitions
1
     
2.
Authorization, Purchase and Sale of Common Stock
4
       
2.1
Authorization, Purchase and Sale
4
 
2.2
Closing
4
        3.
Representations and Warranties of the Company
4
       
3.1
Organization and Power
4
 
3.2
Capitalization
4
 
3.3
Authorization
5
 
3.4
Valid Issuance
5
 
3.5
No Conflict
5
 
3.6
Consents
5
 
3.7
SEC Reports; Financial Statements.
5
       
4.
Representations and Warranties of the Purchaser
6
       
4.1
Organization
6
 
4.2
Authorization
6
 
4.3
No Conflict
6
 
4.4
Consents
6
 
4.5
Brokers and Finders
7
 
4.6
Purchase Entirely for Own Account
7
 
4.7
General Solicitation
7
 
4.8
Investor Status.
7
 
4.9
Securities Not Registered
7
 
4.10
No “Bad Actor” Disqualification Events
7
 
4.11
Reliance by the Company
8
 
4.12
Ownership of Common Stock
8
 
4.13
Representation of Non-United States Persons
8
       
5.
Conditions Precedent
8
       
5.1
Conditions to the Obligation of the Purchaser
8
 
5.2
Conditions to the Obligation of the Company
9
       
6.
Revenue Sharing; Surrender.
9
       
6.1
Purchaser Revenue Share
9
 
6.2
Surrender
9
7.
 
Company Repurchase Option
10
 
7.1
Repurchase Option
10
 
7.2
Exercise
10
       
8.
Termination
11
       
8.1
Conditions of Termination.
11
 
8.2
Effect of Termination
11

 

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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.

TABLE OF CONTENTS (CONTINUED)

9.
Miscellaneous Provisions
11
       
9.1
Public Statements or Releases
11
 
9.2
Interpretation
11
 
9.3
Notices
12
 
9.4
Severability
12
 
9.5
Governing Law; Submission to Jurisdiction; Venue; Waiver of Trial by Jury
13
 
9.6
Waiver
13
 
9.7
Expenses
13
 
9.8
Assignment
14
 
9.9
Assistance of Counsel
14
 
9.10
Confidential Information
14
 
9.11
Third Parties
15
 
9.12
Counterparts
15
 
9.13
Entire Agreement; Amendments
15
 
9.14
Additional Matters
15

 

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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
This STOCK PURCHASE AGREEMENT (this “Agreement”) is dated as of May 31, 2017, by
and between VirnetX Holding Corporation, a Delaware corporation (the “Company”),
and Public Intelligence Technology Associates, kk (Japanese Corporation)(the
“Purchaser”).

WHEREAS, the Company has authorized the issuance of the Shares (as defined
below) of common stock, $0.0001 par value per share, of the Company (the “Common
Stock);

WHEREAS, the Company desires to issue and sell to the Purchaser pursuant to the
terms and conditions of this Agreement, and the Purchaser desires to purchase
from the Company the Shares;

WHEREAS, the Shares issued and sold pursuant to this Agreement shall be
automatically proportionately reduced pursuant to surrenders of the Shares on
the schedule identified herein for no additional consideration upon payment of
each Quarterly share Revenue Payment (as defined below); and

WHEREAS, concurrently with the execution and delivery hereof, the Company and
the Purchaser have entered into the Revenue Sharing Agreement and the Gabriel
License Agreement (each, as defined below).

NOW THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants herein contained, the parties hereto agree as follows:

1.             Definitions  As used in this Agreement, the following terms shall
have the following respective meanings:

“Affiliate” shall mean, with respect to any Person, any other Person, whether or
not existing on the date hereof, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
such first Person, as such terms are used in and construed under Rule 405 under
the Securities Act.

“Agreement” has the meaning set forth in the recitals hereof.

“Beneficially Own,” “Beneficially Owned,” or “Beneficial Ownership” shall have
the meaning set forth in Rule 13d-3 of the rules and regulations promulgated
under the Exchange Act, except that for purposes of this Agreement the words
“within sixty days” in Rule 13d-3(d)(1)(i) shall not apply, to the effect that a
Person shall be deemed to be the beneficial owner of a security if that Person
has the right to acquire beneficial ownership of such security at any time.

“Board of Directors” shall mean the Board of Directors of the Company.

“Closing” has the meaning set forth in Section 2.2 hereof.

“Closing Date” has the meaning set forth in Section 2.2 hereof.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Stock” has the meaning set forth in the recitals hereof.

“Company” has the meaning set forth in the recitals hereof.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
“Company Japan Revenues” means revenue recognized from cash or cash equivalents
received by Network Research Corporation Japan Ltd. from a Japanese Company that
is directly attributable to (i) patent license fees or royalties for licenses
granted under the Company’s Japanese patents with respect to the products and
services of the Japanese Company sold in Japan, (ii) licensing of the Gabriel
Collaboration Suite to the Japanese Company for end use in Japan, or (iii)
provision of other commercial services by the Company to the Japanese Company in
Japan, such as the Company’s Secure Domain Name services; but in each case
excluding any litigation- or settlement-related expenses, contingency fees,
commissions and other contractually-required payments to third parties, taxes,
and other deductions and costs associated with such revenue.

“Confidential Information” has the meaning set forth in Section 9.10 hereof.

“Control” (including the terms “controlling” “controlled by” and “under common
control with”) with respect to any Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.

“Disqualification Event” has the meaning set forth in Section 4.11 hereof.

 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
all of the rules and regulations promulgated thereunder.

“Financial Statements” has the meaning set forth in Section 3.7(b) hereof.

“GAAP” has the meaning set forth in Section 3.7(b) hereof.

“Gabriel License Agreement” means an agreement pursuant to which Purchaser shall
undertake certain marketing and promotion of the Company’s products and
services.

“Governmental Entity” means any supranational, national, state, municipal, local
or foreign government, any court, arbitrator, administrative agency, commission
or other governmental official, authority or instrumentality, in each case
whether domestic or foreign, any stock exchange or similar self-regulatory
organization or any quasi-governmental or private body exercising any
regulatory, taxing or other governmental or quasi-governmental authority.

“Japanese Company” means a Japanese company that is incorporated or otherwise
created under the laws of Japan and which Japanese company is headquartered in
Japan.

“Lockup Period” has the meaning set forth in the Stockholders Agreement.

“Material Adverse Effect” shall mean such facts, circumstances, events or
changes that are, individually or in the aggregate, materially adverse to (i)
the business, financial condition, assets or continuing operations of the
Company and its Subsidiaries taken as a whole or (ii) the Company’s ability to
perform its obligations under this Agreement, but shall not include facts,
circumstances, events or changes (a) generally affecting any of the industries
in which the Company, taken together with its Subsidiaries, operates, in the
United States or elsewhere in the world or the economy or the financial or
securities markets in the United States or elsewhere in the world, in each case,
except to the extent such facts, circumstances, events or changes
disproportionately affect the Company and its Subsidiaries; (b) political
conditions, including acts of war (whether or not declared), armed hostilities
and terrorism, or developments or changes therein; (c) any conditions resulting
from natural disasters; (d) any action taken or omitted to be taken by or at the
written request of the Purchaser; (e) any announcement of this Agreement or the
transactions contemplated in this Agreement, in each case, solely to the extent
due to such announcement; (f) resulting from changes in applicable legal
requirements, GAAP or accounting standards; (g) resulting from a change in the
Company’s stock price or the trading volume in the Common Stock in and of itself
or (h) resulting from a failure to meet securities analysts’ published revenue
or earnings predictions for the Company in and of itself.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
“NYSE” means the NYSE MKT LLC.

“Person” shall mean an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or any other entity or organization.

“Per Share Purchase Price” has the meaning set forth in Section 2.1 hereof.

“Priority Revenue Sharing Period” means the period commencing on the Closing
Date and ending on the earliest to occur of (i) when the Purchaser no longer
holds or owns any Shares acquired pursuant to this Agreement, (ii) when the
Company has made aggregate payments pursuant to Section 6.1 of this Agreement
equal to $20,000,000, it being understood that the Priority Revenue Sharing
Period shall end pursuant to this clause (ii) as soon as payment equal to
$20,000,000 is made (for the avoidance of doubt, whether payment is from a
series of transactions, one transaction, or part of one transaction in which the
Company receives Company Japan Revenues) or (iii) the end of the Lockup Period.

“Proxy” has the meaning set forth in the Stockholders Agreement.

“Purchaser” has the meanings set forth in the recitals hereof.

“Purchaser Adverse Effect” has the meaning set forth in Section 4.1 hereof.

“Quarterly Revenue Share Payment” has the meaning set forth in Section 6.1
hereof.

“Representatives” has the meaning set forth in Section 9.10 hereof.

“Repurchase Option” has the meaning set forth in Section 7.1 hereof.

“Repurchase Price Per Share” has the meaning set forth in Section 7.1 hereof.

“Repurchase Closing Date” has the meaning set forth in Section 7.2 hereof.

“Repurchased Securities” has the meaning set forth in Section 7.2 hereof.

“Revenue Sharing Agreement” means an agreement pursuant to which each of
Purchaser and the Company shall share certain portions of their revenues with
the other Party.

 “SEC” shall mean the Securities and Exchange Commission.
 
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[***] = CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
“SEC Reports” shall mean the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2016, the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2017, the Company’s Proxy Statement on
Schedule 14A for its 2017 Annual Meeting of Stockholders, and any Current
Reports on Form 8-K, filed or furnished by the Company after December 31, 2016
and on or prior to the date of hereof, together in each case with any documents
incorporated by reference therein or exhibits thereto.

“Securities Act” shall mean the Securities Act of 1933, as amended, and all of
the rules and regulations promulgated thereunder.

“Shares” shall have the meeting set forth in Section 2.1.

“Stockholders Agreement” has the meaning set forth in Section 5.1(e) hereof.

“Subsidiary” when used with respect to any party shall mean any corporation or
other organization, whether incorporated or unincorporated, at least a majority
of the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.

“Transaction Agreements” shall mean this Agreement, the Gabriel Licensing
Agreement, the Revenue Sharing Agreement and the Stockholders Agreement.

2.             Authorization, Purchase and Sale of Common Stock.
 
2.1           Authorization, Purchase and Sale.  The Company has authorized the
sale and issuance to the Purchaser of the Shares.  Subject to the conditions,
and upon the terms, set forth in this Agreement, at the Closing, the Company
shall issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company, 5,494,505 shares of Common Stock (the “Shares”) at a purchase price per
share of $3.64 (the “Per Share Purchase Price”) for an aggregate purchase price
of $19,999,998.20.

2.2           Closing.  The closing of the purchase and sale of the Shares (the
“Closing”) shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California, 94304, as
promptly as practicable following the satisfaction or waiver of the conditions
set forth in Section 5, but in any case no later than June 19, 2017, or such
other date as is mutually agreed upon in writing by the Company and the
Purchaser (the “Closing Date”).  At the Closing, the Shares shall be transferred
and duly registered in the name of the Purchaser against payment to the Company
of the purchase price therefor by wire transfer to the Company of immediately
available funds to an account to be designated by the Company.

3.             Representations and Warranties of the Company.  Except as set
forth in the SEC Reports, the Company hereby represents and warrants to the
Purchaser as follows:

3.1           Organization and Power.  Each of the Company and VirnetX, Inc. is
a corporation duly organized, validly existing and in good standing (where
relevant) under the laws of its jurisdiction of organization, has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as now conducted and as described in the SEC Reports and is qualified
to do business in each jurisdiction in which the character of its properties or
the nature of its business requires such qualification, except where such
failures of VirnetX, Inc. be so organized or existing, or of the Company or
VirnetX, Inc. to be in good standing or to have such power and authority or to
so qualify, would not reasonably be expected to have a Material Adverse Effect.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
3.2           Capitalization.  The authorized and outstanding capital stock of
the Company as of March 31, 2017 are as set forth in the Company’s Form 10-Q as
filed with the SEC on May 8, 2017.  All outstanding shares of capital stock of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any pre-emptive rights, liens or encumbrances
other than any liens of encumbrances created by or imposed upon the holders
thereof.

3.3           Authorization.  All corporate action on the part of the Company
necessary for the authorization, execution and delivery of, and the performance
of all obligations of the Company under, the Transaction Agreements has been
taken, and the Transaction Agreements, when executed and delivered, will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except (a) as may
be limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors’ rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies and (b) as rights to indemnity or
contribution may be limited under federal or state securities laws or by
principles of public policy thereunder.

3.4           Valid Issuance.  The Shares, upon issuance pursuant to the terms
hereof and the terms of the Company’s Amended and Restated Certificate of
Incorporation, will be duly and validly issued, fully paid and non-assessable. 
Subject to the accuracy of the representations made by the Purchaser in Section
4 hereof, the Shares will be issued to the Purchaser in compliance with
applicable exemptions from (i) the registration and prospectus delivery
requirements of the Securities Act and (ii) the registration and qualification
requirements of applicable securities laws of the states of the United States.

3.5           No Conflict.  The execution, delivery and performance of the
Transaction Agreements by the Company, the issuance of the Shares and the
consummation of the other transactions contemplated in this Agreement will not
(i) conflict with or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, a change of control right or to
a loss of a benefit under any agreement or instrument, credit facility,
franchise, license, judgment, order, statute, law, ordinance, rule or
regulations, applicable to the Company or its Subsidiaries or their respective
properties or assets or (ii) violate any provision of the Amended and Restated
Certificate of Incorporation or Amended and Restated Bylaws of the Company,
except, in the case of clause (i), as would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect.

3.6           Consents.  All consents, approvals, orders and authorizations
required on the part of the Company in connection with the execution, delivery
or performance of this Agreement and the issuance of the Shares have been
obtained or made, other than (i) the filing of such qualifications or filings
under the Securities Act and all applicable state securities laws as may be
required in connection with the transactions contemplated by this Agreement,
(ii) the filing of any reports and other documents pursuant to the Exchange Act
relating to the transactions contemplated hereby, (iii) any supplemental listing
application in respect of the Shares on NYSE, and (iv) such consents, approvals,
orders and authorizations the failure of which to make or obtain would not
reasonably be expected to have a Material Adverse Effect.

3.7           SEC Reports; Financial Statements.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
(a)           The Company has filed all required reports, schedules, forms,
statements and other documents required to be filed by it with the SEC since
December 31, 2016. The information contained or incorporated by reference in the
SEC Reports was true and correct in all material respects as of the respective
dates of the filing thereof with the SEC (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing);
and, as of such respective dates, the SEC Reports did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  All of the SEC
Reports, as of their respective dates, complied as to form in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder.

(b)           The financial statements of the Company included in the SEC
Reports (collectively, the “Financial Statements”) fairly present in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of the dates indicated, and the results of its operations and
cash flows for the periods therein specified, all in accordance with United
States generally accepted accounting principles applied on a consistent basis
(“GAAP”) throughout the periods therein specified (except as otherwise noted
therein, and in the case of quarterly financial statements except for the
absence of footnote disclosure and subject, in the case of interim periods, to
normal year-end adjustments).

4.             Representations and Warranties of the Purchaser.  The Purchaser
represents and warrants to the Company as follows:

4.1          Organization.  The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has the requisite power and authority to (a) carry on its
business as presently conducted, and (b) enter into the Transaction Agreements
and to consummate the transactions contemplated thereby.  The Purchaser is
qualified to do business and is in good standing in each jurisdiction in which
the failure to so qualify would reasonably be expected, individually or in the
aggregate, to have a Purchaser Adverse Effect.  A “Purchaser Adverse Effect”
means a material adverse effect on the authority or ability of the Purchaser to
perform its obligations under the Transaction Agreements or to consummate the
transactions contemplated hereby or thereby.

4.2           Authorization.  All corporate action on the part of the Purchaser
necessary for the authorization, execution and delivery of, and the performance
of all obligations of the Purchaser under the Transaction Agreements has been
taken.  The Transaction Agreements constitute valid and legally binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms, except (a) as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or others laws of general application
relating to or affecting the enforcement of creditors’ rights generally and (ii)
the effect of rules of law governing the availability of equitable remedies and
(b) as rights to indemnity or contribution may be limited under federal or state
securities laws or by principles of public policy thereunder.

4.3           No Conflict.  The execution, delivery and performance of the
Transaction Agreements by the Purchaser, the purchase of the Shares and the
consummation of the other transactions contemplated in this Agreement will not
conflict with or result in any violation of or default by such Purchaser (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation, a change of control
right or to a loss of a material benefit under (i) any provision of the
organizational documents of such Purchaser or (ii) any agreement or instrument,
credit facility, franchise, license, judgment, order, statute, law, ordinance,
rule or regulations, applicable to such Purchaser or its respective properties
or assets, except, in the case of clause (ii), as would not, individually or in
the aggregate, have a Purchaser Adverse Effect.
 
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[***] = CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.

4.4           Consents.  All consents, approvals, orders and authorizations
required on the part of the Purchaser in connection with the execution, delivery
or performance of this Agreement, the purchase of the Shares and the
consummation of the other transactions contemplated herein have been obtained or
made, other than such consents, approvals, orders and authorizations the failure
of which to make or obtain, individually or in the aggregate, would not
reasonably be expected to have a Purchaser Adverse Effect.

4.5           Brokers and Finders.  The Purchaser has not retained, utilized or
been represented by any broker or finder in connection with the transactions
contemplated by this Agreement.

4.6           Purchase Entirely for Own Account.  The Purchaser is acquiring the
Shares for its own account and not with a view to, or for sale in connection
with, any distribution of the Shares in violation of the Securities Act. Except
as specifically provided for in the Agreement, the Purchaser has no present
agreement, undertaking, arrangement, obligation or commitment providing for the
disposition of the Shares except as provided in Section 6.2 of this Agreement.

4.7           General Solicitation.  The Purchaser is not purchasing the Shares
as a result of any general solicitation or general advertising (within the
meaning of Regulation D of the Securities Act), including, but not limited to,
any advertisements, articles, notices or other communications published in any
newspaper, magazine or similar media or on the Internet or broadcast over radio,
television or the Internet, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising.

4.8           Investor Status.

(a)           The Purchaser certifies and represents to the Company that the
Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act.

(b)           The Purchaser (i) is able to fend for itself in the transactions
contemplated by this Agreement, (ii) has such knowledge and experience in
financial and business matters as to be able to evaluate the risks and merits of
its prospective investment in the Shares, and (iii) has the ability to bear the
economic risks of its prospective investment and can afford the complete loss of
such investment.

(c)           The Purchaser (i) has conducted its own investigation of the
Company and the terms of the Shares, (ii) has had access to the Company’s public
filings, including the SEC reports, and to such business, financial and other
information as it deems necessary to make its investment decision, (iii) has
been afforded the opportunity to ask questions of and receive answers from the
management of the Company concerning this investment, and (iv) has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Shares.

4.9           Securities Not Registered.  The Purchaser understands that the
issuance of the Shares has not been registered under the Securities Act, and
that the Shares must continue to be held by the Purchaser unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration and in each case in accordance with any applicable securities
laws of any state of the United States.  The Purchaser understands that the
Shares are “restricted securities” within the meaning of Rule 144 and will bear
restrictive legends as set forth in the Stockholders Agreement (as defined
below).  The Purchaser understands that the exemptions from registration
afforded by Rule 144 (the provisions of which are known to it) promulgated under
the Securities Act depend on the satisfaction of various conditions including,
but not limited to, the time and manner of sale, the holding period and on
requirements relating to the Company, which are outside of the Purchaser’s
control and which the Company is under no obligation to satisfy and may not be
able to satisfy, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
 
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[***] = CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
4.10         No “Bad Actor” Disqualification Events.  Neither (i) the Purchaser,
(ii) any of its directors, executive officers, other officers that may serve as
a director or officer of any company in which it invests, general partners or
managing members, nor (iii) any beneficial owner of the Company’s voting equity
securities (in accordance with Rule 506(d) of the Securities Act) held by the
Purchaser is subject to any of the “bad actor” disqualifications described in
Rule 506(d)(1)(i) through (viii) under the Securities Act (“Disqualification
Events”), except for Disqualification Events covered by Rule 506(d)(2) or (d)(3)
under the Securities Act and disclosed reasonably in advance of the Closing in
writing in reasonable detail to the Company.

4.11         Reliance by the Company.  The Purchaser acknowledges that the
Company will rely upon the truth and accuracy of, and the Purchaser’s compliance
with, the representations, warranties, agreements, acknowledgements and
understandings of the Purchaser set forth herein.

4.12         Ownership of Common Stock.  Other than the Shares, the Purchaser
does not, and during the period beginning on the date of this Agreement and
ending immediately prior to the Closing will not, own any shares of Common
Stock.

4.13         Representation of Non-United States Persons.  The Purchaser hereby
represents that the consummation of the transactions contemplated hereby is
satisfied as to the full observance of the laws of the Purchaser’s jurisdiction
in connection with any invitation to subscribe for the Shares or any use of the
Transaction Agreements, including (i) the legal requirements within the
Purchaser’s jurisdiction for the purchase of the Shares, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of such securities. The Purchaser’s subscription
and payment for, and the Purchaser’s continued beneficial ownership of, the
Shares will not violate any applicable securities or other laws of the
Purchaser’s jurisdiction.

5.             Conditions Precedent.

5.1           Conditions to the Obligation of the Purchaser.  The obligations of
the Purchaser to consummate the transactions to be consummated at the Closing,
and to purchase and pay for the Shares being purchased by it at the Closing
pursuant to this Agreement, are subject to the satisfaction or waiver of the
following conditions precedent:

(a)           The representations and warranties of the Company contained herein
shall be true and correct on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date (it being understood and
agreed by the Purchaser that for purposes of this Section 5.1(a), in the case of
any representation and warranty of the Company contained  herein (i) which is
not qualified above in this Agreement by application thereto of a materiality
standard, such representation and warranty need be true and correct only in all
material respects or (ii) which is made as of a specific date, such
representation and warranty need be true and correct only as of such specific
date).
 
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WITH RESPECT TO THIS OMITTED INFORMATION.
 
(b)           The Company shall have performed in all material respects all
obligations and conditions herein required to be performed or observed by the
Company on or prior to the Closing Date.

(c)           The purchase of and payment for the Shares by the Purchaser shall
not be prohibited or enjoined by any law or governmental or court order or
regulation.

(d)           The Company shall have executed and delivered the Stockholders
Agreement (the “Stockholders Agreement”) to the Purchaser.

5.2           Conditions to the Obligation of the Company. The obligation of the
Company to consummate the transactions to be consummated at the Closing, and to
issue and sell to the Purchaser the Shares at the Closing pursuant to this
Agreement, is subject to the satisfaction or waiver of the following conditions
precedent:

(a)           The representations and warranties contained herein and in the
other Transaction Agreements of the Purchaser shall be true and correct on and
as of the Closing Date, with the same force and effect as though made on and as
of the Closing Date.

(b)           The Purchaser shall have performed in all material respects all
obligations and conditions herein required to be performed or observed by such
Purchaser on or prior to the Closing Date.

(c)           The purchase of and payment for the Shares by the Purchaser shall
not be prohibited or enjoined by any law or governmental or court order or
regulation.

(d)           The Purchaser shall have executed and delivered the Stockholders
Agreement to the Company.

(e)           The Purchaser shall have executed and delivered the Proxy to the
Company.

6.             Revenue Sharing; Surrender.

6.1           Purchaser Revenue Share.  Within sixty (60) days of the end of
each calendar quarter during the Priority Revenue Sharing Period, the Company
will pay to Purchaser [***] of the Company Japan Revenues earned during such
quarter (the “Quarterly Revenue Share Payment”).  Except as may be otherwise
provided in this Agreement, all payments pursuant to this Section 6.1 will be
made in accordance with payment terms set forth in the Revenue Sharing
Agreement, and Sections 2.3, 2.4 and 3 of the Revenue Sharing Agreement shall
apply to such payments.  Notwithstanding the foregoing, the Company makes no,
and the Purchaser does not rely on any, warranties and representations regarding
the Company Japan Revenues or that the Company’s activities will result in any
Company Japan Revenues. The Company has the sole right and discretion to enter
into any transactions that may result in Company Japan Revenues.  In no event
shall the Company be required to make any payments under this Agreement with
respect to any period other than the Priority Revenue Sharing Period, nor shall
the aggregate payments made pursuant to this Section 6.1 exceed twenty million
dollars ($20,000,000.00). For the avoidance of doubt, any payments made pursuant
to any revenue sharing arrangement with respect to the Company Japan Revenue
subsequent to the Priority Revenue Sharing Period shall be governed solely by
the Revenue Sharing Agreement.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.

6.2           Surrender.  Upon each Quarterly Revenue Share Payment made during
the Priority Revenue Sharing Period by the Company to Purchaser as set forth in
Section 6.1 above, the Shares acquired by Purchaser pursuant to this Agreement
and then held by Purchaser shall be automatically surrendered to the Company for
no consideration according to the following schedule:

(a)           For each Quarterly Revenue Share Payment made during the period
commencing on the Closing Date and ending on the earlier of (i) the day
immediately preceding the six-month anniversary of the Closing Date and (ii) the
expiration of the Priority Revenue Sharing Period, the number of Shares
surrendered shall equal such Quarterly Revenue Share Payment divided by the Per
Share Purchase Price, rounded up to the nearest whole share of Common Stock;

(b)           For each Quarterly Revenue Share Payment made during the period
commencing on the six-month anniversary of the Closing Date and ending on the
earlier of (i) the day immediately preceding the twelve-month anniversary of the
Closing Date and (ii) the expiration of the Priority Revenue Sharing Period, the
number of Shares surrendered shall equal such Quarterly Revenue Share Payment
divided by the product of (i) 1.025 and (ii) the Per Share Purchase Price,
rounded up to the nearest whole share of Common Stock; and

(c)           For each Quarterly Revenue Share Payment made during the period
commencing on the twelve-month anniversary of the Closing Date and ending on the
expiration of the Priority Revenue Sharing Period, the number of Shares
surrendered shall equal such Quarterly Revenue Share Payment made divided by the
product of (i) 1.05 and (ii) the Per Share Purchase Price, rounded up to the
nearest whole share of Common Stock.

7.             Company Repurchase Option.

7.1           Repurchase Option. During the Lockup Period, the Company shall
have an irrevocable and exclusive option to repurchase (the “Repurchase
Option”), exercisable by the Company in its sole discretion, any and all Shares
acquired by the Purchaser pursuant to this Agreement that have not been
automatically surrendered pursuant to Section 6.2 above, at a price per share
determined as follows (the “Repurchase Price Per Share”):

(a)           If the Repurchase Option is exercised during the period commencing
on the Closing Date and ending on the day immediately preceding the six-month
anniversary of the Closing Date, the Repurchase Price Per Share shall be the Per
Share Purchase Price;

(b)           If the Repurchase Option is exercised during the period commencing
on the six-month anniversary of the Closing Date and ending on the day
immediately preceding the twelve-month anniversary of the Closing Date, the
Repurchase Price Per Share shall be the Per Share Purchase Price multiplied by
1.025; and

(c)           If the Repurchase Option is exercised during the period commencing
on the twelve-month anniversary of the Closing Date and ending on the expiration
of the Lockup Period, the Repurchase Price Per Share shall be the Per Share
Purchase Price multiplied by 1.05.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
7.2           Exercise. The Repurchase Option shall be exercised at any time by
the Company by written notice to the Purchaser, and such notice shall indicate
the number of Shares to be repurchased by the Company (the “Repurchased
Securities”). Within five business days of the receipt of such notice (the
“Repurchase Closing Date”), the Company shall deliver payment of the aggregate
purchase price, based on the Repurchase Price Per Share as determined pursuant
to Section 7.1 above, by check or wire transfer of immediately available funds
to an account designated by the Purchaser at least one (1) business day prior to
the Repurchase Closing Date and the Purchaser shall deliver to the Company the
Repurchased Securities and any stock certificates representing such Repurchased
Securities free and clear of liens and encumbrances, and the Purchaser shall
execute and deliver to the Company such instruments of conveyance as the Company
may reasonably request.

8.             Termination.

8.1           Conditions of Termination.  This Agreement may be terminated at
any time prior to the Closing by (i) a writing executed by the Company and the
Purchaser; (ii) by the Company, in its sole discretion, prior to the fifth (5th)
calendar day prior to the Closing Date, which termination will be effective upon
delivery of written notice by the Company to the Purchaser; or (iii) either the
Company or the Purchaser, upon written notice to the other party, in the event
that any Governmental Entity shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.  In addition, this
Agreement will terminate automatically, with no further action by either party
hereto, if, prior to the Closing Date, either the Revenue Sharing Agreement or
the Gabriel Licensing Agreement is terminated in accordance with its terms.

8.2           Effect of Termination.  In the event of any termination pursuant
to Section 8.1 hereof, this Agreement shall become null and void and have no
effect, with no liability on the part of the Company or the Purchaser, or their
directors, officers, agents or stockholders, with respect to this Agreement,
except for liability for any willful breach of, or failure to comply with, this
Agreement.

9.             Miscellaneous Provisions.

9.1           Public Statements or Releases.  Neither the Company nor the
Purchaser shall make any public announcement with respect to the existence or
terms of this Agreement or the transactions provided for herein without the
prior approval of the other party, which shall not be unreasonably withheld or
delayed, other than a statement consistent with public announcements that were
previously made by a party hereto in accordance with this Section 9.1.
Notwithstanding the foregoing, nothing in this Section 9.1 shall prevent any
party from making any public announcement it considers necessary in order to
satisfy its obligations under the law or under the rules of any national
securities exchange, provided that such party shall notify the other party prior
to making such disclosure, shall use its commercially reasonable efforts to give
the other party an opportunity (as is reasonable under the circumstances) to
comment on such disclosure, and shall make only such disclosure as it is so
obligated to disclose.

9.2           Interpretation.  The words “hereof,” “herein” and “hereunder” and
words of similar import when used in this Agreement will refer to this Agreement
as a whole and not to any particular provision of this Agreement, and section
and subsection references are to this Agreement unless otherwise specified. The
headings in this Agreement are included for convenience of reference only and
will not limit or otherwise affect the meaning or interpretation of this
Agreement. Whenever the words “include,” “includes” or “including” are used in
this Agreement, they will be deemed to be followed by the words “without
limitation.” The phrases “the date of this Agreement,” “the date hereof” and
terms of similar import, unless the context otherwise requires, will be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
meanings given to terms defined herein will be equally applicable to both the
singular and plural forms of such terms. All matters to be agreed to by any
party hereto must be agreed to in writing by such party unless otherwise
indicated herein.  References to agreements, policies, standards, guidelines or
instruments, or to statutes or regulations, are to such agreements, policies,
standards, guidelines or instruments, or statutes or regulations, as amended or
supplemented from time to time (or to successors thereto).
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
9.3           Notices.  Any notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to be given when delivered in person or by private courier with
receipt, if telefaxed when verbal or email confirmation from the recipient is
received, or three (3) days after being deposited in the United States mail,
first-class, registered or certified, return receipt requested, with postage
paid and:

(a)           If to the Company, addressed as follows:

308 Dorla Ct.
Zephyr Cove, NV 89448
Attention: Kendall Larsen, Chief Executive Officer
Facsimile: (775) 580-7527
E-mail: Kendall_Larsen@virnetx.com

with a copy to:

Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Bradley L. Finkelstein
E-mail: bfinkelstein@wsgr.com

(b)           If to the Purchaser, at the Purchaser’s address, facsimile number
or electronic mail address as provided by Purchaser to the Company prior to the
Closing Date.

Any Person may change the address to which notices and communications to it are
to be addressed by notification as provided for herein.

9.4           Severability. If any part or provision of this Agreement is held
unenforceable or in conflict with the applicable laws or regulations of any
jurisdiction, the invalid or unenforceable part or provisions shall be replaced
with a provision which accomplishes, to the extent possible, the original
business purpose of such part or provision in a valid and enforceable manner,
and the remainder of this Agreement shall remain binding upon the parties
hereto.

9.5           Governing Law; Submission to Jurisdiction; Venue; Waiver of Trial
by Jury.
 
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WITH RESPECT TO THIS OMITTED INFORMATION.
 
(a)           This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware without regard to choice of laws or
conflicts of laws provisions thereof that would require the application of the
laws of any other jurisdiction, except to the extent that mandatory principles
of Delaware law may apply.

(b)           The Company and the Purchaser each hereby irrevocably and
unconditionally:

(i)          submits for itself and its property in any legal action or
proceeding relating solely to this Agreement or the transactions contemplated in
this Agreement, to the general jurisdiction of the State of Delaware or United
States Federal court sitting in the State of Delaware;

(ii)         consents that any such action or proceeding may be brought in such
courts, and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same to the extent permitted by applicable law;

(iii)        agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the party, as the case
may be, at its address set forth in Section 9.3 or at such other address of
which the other party shall have been notified pursuant thereto;

(iv)        agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction for recognition and enforcement of any judgment or if
jurisdiction in the courts referenced in the foregoing clause (i) are not
available despite the intentions of the parties hereto;

(v)         agrees that final judgment in any such suit, action or proceeding
brought in such a court may be enforced in the courts of any jurisdiction to
which such party is subject by a suit upon such judgment, provided that service
of process is effected upon such party in the manner specified herein or as
otherwise permitted by law;

(vi)        agrees that to the extent that such party has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
with respect to itself or its property, such party hereby irrevocably waives
such immunity in respect of its obligations under this Agreement, to the extent
permitted by law; and

(vii)       irrevocably and unconditionally waives trial by jury in any legal
action or proceeding in relation to this Agreement.

9.6           Waiver.  No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or be construed as, a further or continuing waiver of any such
term, provision or condition or as a waiver of any other term, provision or
condition of this Agreement.

9.7           Expenses.  Each of the Company and the Purchaser shall bear their
respective fees and expenses, incurred in connection with the proposed
investment in the Shares, the negotiation of the Transaction Agreements,
obtaining necessary consents or approvals, and the consummation of the
transactions contemplated in the Transaction Agreements.
 
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[***] = CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
9.8           Assignment.  None of the parties may assign its rights or
obligations under this Agreement or designate another person (i) to perform all
or part of its obligations under this Agreement or (ii) to have all or part of
its rights and benefits under this Agreement, in each case without the prior
written consent of (x) the Company and (y) the Purchaser. In the event of any
assignment in accordance with the terms of this Agreement, the assignee shall
specifically assume and be bound by the provisions of the Agreement by executing
a writing agreeing to be bound by and subject to the provisions of this
Agreement and shall deliver an executed counterpart signature page to this
Agreement and, notwithstanding such assumption or agreement to be bound by this
Agreement by an assignee, no such assignment shall relieve any party assigning
any interest pursuant to this Agreement from its obligations or liability
pursuant to this Agreement.

9.9           Assistance of Counsel.  Each of the parties hereto acknowledges
that it has been represented by counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement, and that it has
executed this Agreement with the advice of such counsel. Each party hereto and
its counsel cooperated and participated in the drafting and preparation of this
Agreement, and any and all drafts of this Agreement exchanged among the parties
will be deemed the work product of all of the parties and may not be construed
against any party by reason of its drafting or preparation. Accordingly, any
rule of law or any legal decision that would require interpretation of any
ambiguities in this Agreement against any party that drafted or prepared it is
of no application and is expressly waived by each of the parties, and any
controversy over interpretations of this Agreement will be decided without
regard to events of drafting or preparation.

9.10         Confidential Information.  The Purchaser acknowledges that
Purchaser has been given access to, and from time to time in the future may be
given access to, non-public, proprietary information with respect to the Company
(“Confidential Information”). Confidential Information shall include all
information pertaining to the Company Japan Revenues. For purposes hereof, 
Confidential Information does not include, however, (i) information which is or
becomes generally available to the public in accordance with law other than as a
result of a disclosure by the Purchaser or its directors, managing members,
officers, employees, agents, legal counsel, financial advisors, accounting
representatives or potential funding sources (“Representatives”) or its
Affiliates, subsidiaries or franchisees in violation of this Section 9.10 or any
other confidentiality agreement to which the Company is a party or beneficiary,
(ii) is, or becomes, available to the Purchaser on a non-confidential basis from
a source other than the Company or any of its Affiliates or any of its
Representatives, provided, that such source was not known to the Purchaser
(after reasonable investigation) to be bound by a confidentiality agreement
with, or any other contractual, fiduciary or other legal obligation of
confidentiality to the Company or any of its Affiliates or any of its
Representatives, (iii) is already in the Purchaser’s possession (other than
information furnished by or on behalf of the Company or directors, officers,
employees, representatives and/or agents of the Company), or (iv) is
independently developed by the Purchaser without violating any of the
confidentiality terms herein. The Purchaser agrees (i) except as required by law
or regulatory or legal process, to keep all Confidential Information
confidential and not to disclose or reveal any such Confidential Information to
any person other than those of its Representatives who need to know the
Confidential Information for the purpose of evaluating, monitoring or taking any
other action with respect to the investment by the Purchaser in the Common Stock
and to cause those Representatives to observe the terms of this Section 9.10 and
(ii) not to use Confidential Information for any purpose other than in
connection with evaluating, monitoring or taking any other action with respect
to the investment by the Purchaser in the Common Stock.
 
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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 
9.11         Third Parties.  Nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties to this Agreement any
rights, remedies, claims, benefits, obligations or liabilities under or by
reason of this Agreement, and no Person that is not a party to this Agreement
(including, without limitation, any partner, member, shareholder, director,
officer, employee or other beneficial owner of any party to this Agreement, in
its own capacity as such or in bringing a derivative action on behalf of a party
to this Agreement) shall have any standing as a third party beneficiary with
respect to this Agreement or the transactions contemplated in this Agreement.

9.12         Counterparts.  This Agreement may be signed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

9.13         Entire Agreement; Amendments.  This Agreement constitute the entire
agreement between the parties hereto respecting the subject matter hereof and
supersede all prior agreements, negotiations, understandings, representations
and statements respecting the subject matter hereof, whether written or oral. No
modification, alteration, or change in any of the terms of this Agreement shall
be valid or binding upon the parties hereto unless made in writing and duly
executed by the Company and the Purchaser.  The Company, on the one hand, and
the Purchaser, as the case may be, on the other hand, may by an instrument
signed in writing by such parties waive the performance, compliance or
satisfaction by the Purchaser or the Company, respectively, with any term or
provision hereof or any condition hereto to be performed, complied with or
satisfied by the Purchaser or the Company, respectively.

9.14         Additional Matters.  For the avoidance of doubt, the parties
acknowledge and confirm that the terms and conditions of the Shares were
determined as a result of arm’s-length negotiations.

[Remainder of Page Intentionally Left Blank.]
 
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WITH RESPECT TO THIS OMITTED INFORMATION.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
 

 
COMPANY:
     
VIRNETX HOLDING CORPORATION
       
By:
/s/ Kendall Larsen
 
Name:
Kendall Larsen
 
Title:
President & Chief Executive Officer

 
[Signature Page to Stock Purchase Agreement]
 

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SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THIS OMITTED INFORMATION.
 

 
PURCHASER:
     
PUBLIC INTELLIGENCE TECHNOLOGY ASSOCIATES, KK
       
By:
/s/ Eriya Unten
 
Name:
Eriya Unten
 
Title:
Executive Director

 
[Signature Page to Stock Purchase Agreement]
 

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