Document:

exv4w1

Exhibit 4.1

WARRANT AGENCY AGREEMENT

     WARRANT AGENCY AGREEMENT (the “Agreement”) dated as of ___, 2009, by and
between VirnetX Holding Corporation, a Delaware corporation, with offices at 5615 Scotts Valley
Drive, Suite 110, Scotts Valley, California, 95066 (the “Company”), and Corporate Stock
Transfer, Inc. a Colorado corporation, with offices at 3200 Cherry Creek South Drive, Suite 430,
Denver, Colorado 80209 (“CST” or the “Warrant Agent”).

     WHEREAS,
the Company is engaged in a public offering (the
“Offering”) of up to 3,000,000 shares of the
Company’s common stock, $0.0001 par value per share (the
“Common Stock”, and warrants to purchase up to an
aggregate of 4,500,000 shares of Common Stock, which securities have
been registered for sale under a Registration Statement on
Form S-1 (File No. 333-153645) declared effective on
January      , 2009; and

     WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the
Warrant Agent is willing so to act, in connection with the issuance
by the Company at the consummation of the Offering of (a) warrants to
purchase (i) an aggregate of 1,500,000 shares of Common stock,
at an exercise price of $2.00 per share (the “$2.00 Public
Warrants”), (ii) an aggregate of 1,500,000
shares of Common Stock at an exercise price of $3.00 per share (the
“$3.00 Public Warrants”) and (iii) an aggregate of 1,500,000
shares of Common Stock at an exercise price of $4.00 per share (the
“$4.00 Public Warrants;”) (collectively, the “Public
Warrants”), and (b) a warrant (the
“Underwriter’s Warrant”) to purchase 300,000 shares
of Common Stock to Gilford Securities Incorporated (the
“Underwriter”) or its designees pursuant to an
Underwriter’s Warrant Agreement between the Company and the
Underwriter (the Underwriter’s Warrant together with the Public
Warrants, the “Warrants” subject to adjustment, and other
matters as provided herein.

     NOW, THEREFORE, for the mutual promises contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

     1. Appointment of Warrant Agent. The Company hereby appoints CST to act as Warrant
Agent for the Company in connection with the issuance, registration,
transfer, exchange, redemption and exercise of the Warrants in accordance with the provisions set forth in
the Warrants and this Agreement, and CST hereby
accepts such appointment.

     2. Form of Warrants; Incorporation by Reference. The Warrants shall be in registered
form only. The Public Warrants shall be substantially in the forms set forth in Exhibit A,
Exhibit B, and Exhibit C attached hereto. The
form of the warrant certificate issued in connection with the Underwriter’s Warrant shall be
substantially in the form set forth in Annex A attached hereto. The terms and provisions
of the Warrants are hereby incorporated by reference herein and made a part hereof.

     3. Indemnification; Limitation of Liability.

     (a) The Company agrees to indemnify the Warrant Agent and its officers, directors, employees
and agents for, and to hold them harmless against, any loss, claim, liability or expense, incurred
without gross negligence, willful misconduct or bad faith on the part of the Warrant Agent or any
such officer, director, employee or agent, arising out of or in connection with the administration
of the Warrants, including the costs and expenses of defending against any claim or liability
arising out of or resulting from the administration of the Warrants or in connection with the
exercise or performance of any of its powers or duties hereunder or under the Warrants.

     (b) The obligations of the Company under this Section 3 shall survive any termination of this
Agreement, including any termination under any bankruptcy, insolvency or similar law, or any
removal or resignation of the Warrant Agent.

     4. Miscellaneous Provisions.

 

 

          4.1. Successors. All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective
successors and assigns.

          4.2. Termination. This Agreement shall terminate upon the earlier of (a) the
expiration of the Warrants, or (b) the resignation or removal of the Warrant Agent, in each case
pursuant to the terms of the Warrants.

          4.3. Notices. Unless provided for differently elsewhere in this Agreement, any
notice, statement or demand authorized by this Agreement to be given or made by the Warrant
Agent or by the holder of any Warrant to or on the Company shall be sufficiently given when so
delivered if by hand or overnight delivery or if sent by certified mail or private courier service
within five days after deposit of such notice, postage prepaid, or sent by facsimile transmission
(with confirmation of receipt), addressed (until another address is filed in writing by the Company
with the Warrant Agent), as follows:

VirnetX Holding Corporation

5615 Scotts Valley Drive, Suite 110

Scotts Valley, California 95066

Attention: Kendall Larsen, Chief Executive Officer

with copy to:

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, California 94025

Attention: Lowell D. Ness, Esq.

Unless provided for differently elsewhere in this Agreement, any notice, statement or demand
authorized by this Agreement to be given or made by the holder of any Warrant or by the Company to
or on the Warrant Agent shall be sufficiently given when so delivered if by hand or overnight
delivery or if sent by certified mail or private courier service within five days after deposit of
such notice, postage prepaid, or sent by facsimile transmission (with confirmation of receipt)
addressed (until another address is filed in writing by the Warrant Agent with the Company), as
follows:

Corporate Stock Transfer, Inc.

3200 Cherry Creek South Drive

Suite 430

Denver, Colorado 80209

Attn: Carylyn Bell

Fax No.: (303) 282-5800

with a copy to:

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, California 94025

Attention: Lowell D. Ness, Esq.

Fax No.: (650) 474-0452

and

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DLA
Piper LLP (US)

1251 Avenue of the Americas

New York, NY 10020-1104

Attention: Christopher C. Paci

Fax No.: (212) 884-8470

          4.4. Applicable Law. The validity, interpretation, and performance of this Agreement
and of the Warrants shall be governed in all respects by the laws of the State of New York, without
giving effect to conflicts of law principles that would result in the application of the
substantive laws of another jurisdiction. The Company hereby agrees that any action, proceeding or
claim against it arising out of or relating in any way to this Agreement shall be brought and
enforced in the courts of the State of New York or the United States District Court for the
Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and
that such courts represent an inconvenience forum. Any such process or summons to be served upon
the Company may be served by transmitting a copy thereof by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in Section 4.3 hereof.
Such mailing shall be deemed personal service and shall be legal and binding upon the Company in
any action, proceeding or claim.

          4.5. Examination of the Warrant Agreement. A copy of this Agreement shall be
available at all reasonable times at the office of the Warrant Agent in Denver, Colorado, for
inspection by the registered holder of any Warrant. The Warrant Agent may require any such holder
to submit his Warrant for inspection by it.

          4.6. Counterparts. This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.

          4.7. Effect of Headings. The Section headings herein are for convenience only and are
not part of this Agreement and shall not affect the interpretation thereof.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day
and year first above written.

	 	 	 	 	 
	 	VIRNETX HOLDING CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	Kendall Larsen 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

	 	 	 	 	 
	 	CORPORATE STOCK TRANSFER, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

Exhibit A

Form of Public Warrant — $2.00 Exercise Price

 

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR POST-EFFECTIVE
AMENDMENT THERETO FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY AND THE WARRANT AGENT
THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

			
	 	 	 
	Warrant No.      
	 	Date of Issuance: January ___, 2009
	 	 	 
	 
	 	Number of Shares:                     
	 
	 	(subject to adjustment)

VIRNETX HOLDING CORPORATION

COMMON
STOCK PURCHASE WARRANT
($2.00 EXERCISE PRICE)

     VirnetX Holding Corporation, a Delaware corporation (the “Company”), for value
received, hereby certifies that                                         , or its registered assigns (the
“Registered Holder”), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time after the date hereof and on or before July ___, 2010 (the “Expiration
Date”) ___ shares of the Company’s Common Stock (the “Common Stock”) at a per share
purchase price equal to two dollars ($2.00) (the “Purchase Price”), as adjusted from time
to time pursuant to the provisions of this Warrant. The shares purchasable upon exercise of this
Warrant, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the “Warrant Stock”.

     This Warrant is issued pursuant to, and is subject to the terms and conditions of:

     1. Number of Shares. Subject to the terms and conditions hereinafter set forth, the
Registered Holder is entitled, upon surrender of this Warrant, to purchase from the Company the
number of shares (subject to adjustment as provided herein) of Warrant Stock first set forth above.

     2. Exercise.

          (a) Manner of Exercise. This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as
Exhibit A duly executed by such Registered Holder or by such Registered Holder’s duly
authorized attorney, at the principal office of Corporate Stock Transfer, Inc. (the “Warrant
Agent”), or at such other office or agency as the Warrant Agent may designate, accompanied by
payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise. The Purchase Price may be paid by cash, check or wire transfer, or
under the circumstances described in Section 2(b), pursuant to the cashless exercise provisions of
Section 2(b).

 

 

          (b) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
an effective registration statement covering the Warrant Stock that is the subject of the Exercise
Notice is not available for the resale of such Warrant Stock (the “Unavailable Warrant
Shares”), the Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the Warrant Agent upon
such exercise in payment of the Purchase Price, elect instead to receive upon such exercise the
“Net Number” of shares of Common Stock determined according to the following formula (a
“Cashless Exercise”):

Net Number = (A x B) - (A x C)

     B

               For purposes of the foregoing formula:

          A= the total number of shares with respect to which this Warrant is then being exercised.

          B= the closing sale price of the shares of Common Stock on the date immediately preceding the
date of the Exercise Notice.

          C= the Purchase Price then in effect for the applicable Warrant Stock at the time of such
exercise.

          (c) Effective Time of Exercise. Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which this Warrant shall
have been surrendered to the Warrant Agent as provided in Section 2(a). At such time, the person
or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such
exercise as provided in Section 2(d) shall be deemed to have become the holder or holders of record
of the Warrant Stock represented by such certificates.

          (d) Notification to Company. The Warrant Agent shall notify the Company immediately
upon receipt by the Warrant Agent of payment of the applicable Purchase Price from the Registered
Holder pursuant to Section 2(a). The Warrant Agent shall transfer each payment made by the
Registered Holder hereof pursuant to Section 2(a) to the Company in immediately available funds no
later than 5:00 p.m. (New York City time) on the date of exercise of the Warrant (and, pending such
transfer, shall hold each such payment for the benefit of the Registered Holder hereof in a
segregated trust account).

          (e) Delivery to Holder. As soon as practicable after the exercise of this Warrant in
whole or in part, and in any event within twenty (20) days
thereafter, the Warrant Agent, at the Company’s
expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such
Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may
direct:

               (i) a certificate or certificates, or book-entry position, for the number of shares of Warrant
Stock to which such Registered Holder shall be entitled, and

               (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof)
of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of
Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Sections 2(a) or 2(b), as applicable.

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          (f) The Company’s obligations to issue and cause the Warrant Agent to deliver Warrant Stock in
accordance with the terms hereof are absolute and unconditional upon satisfaction by the Registered
Holder of the conditions to exercise this Warrant set forth in
Sections 2(a) or 2(b), as applicable, irrespective of any
action or inaction by the Registered Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation, or termination, or any breach or
alleged breach by the Registered Holder or any other person of any obligation to the Company (other
than the Registered Holder’s obligations with respect to the exercise hereof in accordance with
Sections 2(a) or 2(b), as applicable,), or any violation or alleged violation of law by the Registered Holder or any other
person, and irrespective of any other circumstance which might otherwise limit such obligations of
the Company or the Warrant Agent to the Registered Holder in connection with the issuance of
Warrant Stock. Nothing herein shall limit a Registered Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Warrant Agent’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant
to the terms hereof.

     3. Company Call. If, prior to the exercise or earlier expiration of this Warrant
pursuant to the terms hereof, the average closing stock price of the Common Stock on the
American Stock Exchange, or any successor national securities exchange thereto, equals or exceeds
two (2) times the Purchase Price on any five
(5) consecutive trading days, the Company shall
be entitled, at its option, to direct the Warrant Agent to issue a notice (a “Call Notice”) to the Registered
Holder of this Warrant to the effect that the Company is exercising its rights pursuant to this
Section 3. Upon receipt of a Call Notice (which receipt will be deemed to occur on the one (1)
business day following the dispatch of such Call Notice by the Warrant Agent by a nationally
recognized overnight courier), the Registered Holder shall have until 5.00 p.m., Denver, Colorado
time, on the 10th business day following receipt of the Call Notice to exercise the Warrant, for
that number of shares of Warrant Stock covered by the Call Notice, in accordance with Section 2
hereof. Upon the expiration of such 10 business day period, if not sooner exercised, this Warrant will
terminate with respect to the number of shares specified in the Call Notice and the Registered
Holder’s rights and the Company’s obligations hereunder with respect to the number of shares
specified in the Call Notice will cease without payment of consideration. Notwithstanding the
foregoing provisions of this Section 3, the Company may not issue a Call Notice unless and until a
registration statement is effective, or no longer required, with respect to the resale of the
Warrant Stock.

     4. Adjustments.

          (a) Stock Splits and Dividends. If outstanding shares of the Company’s Common Stock
shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in
respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at
the record date of such dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in
effect immediately prior to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the
Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.

          (b) Reclassification, Etc. In case there occurs any reclassification or change of the
outstanding securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the time receivable upon the exercise of this
Warrant) or any similar

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corporate reorganization on or after the date hereof, then and in each such case the
Registered Holder, upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or
other securities and property receivable upon the exercise hereof prior to such consummation, the
stock or other securities or property to which such Holder would have been entitled upon such
consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to
further adjustment pursuant to the provisions of this Section 4.

          (c) Adjustment Certificate. When any adjustment is required to be made in the Warrant
Stock or the Purchase Price pursuant to this Section 4, the Company shall promptly mail to the
Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such
adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or
other securities or property into which this Warrant shall be exercisable after such adjustment.

          (d) Reorganizations, Mergers and Consolidations. If at any time or from time to time
after the date hereof there is a reorganization of the Company (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for elsewhere in this
Section 4) or a merger or consolidation of the Company with or into another corporation, then, as a
part of such reorganization, merger or consolidation, provision shall be made so that the
Registered Holder of this Warrant thereafter shall be entitled to receive, upon exercise of this
Warrant, the number of shares of stock or other securities or property of the Company, or of such
successor corporation resulting from such reorganization, merger or consolidation, to which a
holder of Common Stock would have been entitled on such reorganization, merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the provisions of this
Section 4 with respect to the rights of the Registered Holder of this Warrant after the
reorganization, merger or consolidation to the end that the provisions of this Section 4 (including
adjustment of the Purchase Price then in effect and number of shares issuable upon exercise of this
Warrant, as applicable) shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable. This Section 4(d) shall similarly apply to successive
reorganizations, mergers and consolidations. Notwithstanding the foregoing, if any such
reorganization, merger or consolidation constitutes or results in (a) a “going private” transaction
as defined in Rule 13e-3 under the Exchange Act, (b) an acquisition of the Company primarily for
cash, or (c) an acquisition, merger or sale with or into a Person not traded on an Eligible Market
(as defined below), then the Company (or any such successor or surviving entity) shall require that
the Registered Holder waive the above requirements of this Section 4(d) in exchange for a payment
of cash on the closing date of such reorganization, merger or consolidation, equal to the Black
Scholes Value of the remaining unexercised portion of this Warrant on the closing date of such
reorganization, merger or consolidation, provided that the per share consideration to be received
by the holders of shares of Common Stock upon the consummation of such reorganization, merger or
consolidation is less than the Exercise Price. Concurrently with such payment, this Warrant shall
be cancelled. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day
immediately following the public announcement of the applicable reorganization, merger or
consolidation and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the remaining term of this Warrant as of such date and (ii) an expected
volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg. “Eligible
Market” means the American Stock Exchange, The New York Stock Exchange, Inc., The Nasdaq Capital
Market, The NASDAQ Global Market or The NASDAQ Global Select Market.

          (e) Pro Rata Rights Upon Distributions of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its assets) to holders
of shares of Common Stock (which dividend or other distribution has not already been given to the
Registered Holders of the Warrants), including, without limitation, any distribution of cash,
equity or debt securities or rights or warrants to subscribe for or purchase any equity or debt
security, or other property or assets at

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any time after the issuance of this Warrant and prior to the Expiration Date, then, in each
such case (in each case, “Distributed Property”), the Registered Holder shall be entitled
upon exercise of this Warrant for the purchase of any or all of the Warrant Stock, to receive the
amount of Distributed Property which would have been payable to the Registered Holder had such
Registered Holder been the holder of such Warrant Stock on the record date for the determination of
shareholders entitled to such Distributed Property. The Company will at all times set aside and
keep available for distribution to such holder upon exercise of this Warrant a portion of the
Distributed Property to satisfy the distribution to which such Registered Holder is entitled
pursuant to the preceding sentence.

     5. Transfers.

          (a) Registration Statement. Each holder of this Warrant acknowledges that this
Warrant and the Warrant Stock have been registered under the Securities Act of 1933, as amended
(the “Securities Act”), pursuant to a registration
statement on Form S-1 (File No. 333-153645) which must be
amended on a post-effective basis from time to time in order to maintain its accuracy and keep it
up-to-date, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an
effective registration statement under the Securities Act as to the sale of any such securities and
registration or qualification of such securities under any applicable U.S. federal or state
securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that
such registration and qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the
foregoing effect and as described in Section 15.

          (b) Transferability. Prior to the Expiration Date and subject to compliance with any
applicable securities laws and the conditions set forth in this Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Warrant Agent, together with a written assignment of this Warrant
substantially in the form attached hereto as Exhibit B duly executed by the Registered
Holder or its agent or attorney, and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. If a registration statement is not then
effective, the transferee shall also sign an investment letter in form and substance
reasonably satisfactory to the Warrant Agent and the Company. Upon such surrender and, if
required, such payment, the Warrant Agent shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of
this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Stock without having a new
Warrant issued.

     6. No Impairment. The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will
(subject to Section 13) at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.

     7. Notices of Certain Transactions. In case:

          (a) the Company shall take a record of the holders of its Common Stock (or other stock or
securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling
or enabling them to receive any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or

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          (b) of any capital reorganization of the Company, any reclassification of the capital stock of
the Company, any consolidation or merger of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets of the Company, or

          (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder
of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption
or conversion is to take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least
ten (10) days prior to the record date or effective date for the event specified in such notice.

     8. Reservation of Stock. The Company will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant
Stock and other stock, securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.

     9. Fully Paid and Non-assessable. The Company covenants that all Warrant Stock shall,
upon issuance and the payment of the applicable Purchase Price in accordance with the terms hereof,
be duly and validly authorized, issued and fully paid and non-assessable.

     10. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant
or Warrants, properly endorsed, to the Warrant Agent at the principal
office of the Warrant Agent, the Warrant Agent will, subject to the provisions of Section 5, issue and deliver to or upon the order of such
Registered Holder, at the Company’s expense, a new Warrant or Warrants of like tenor, in the name
of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the Warrant or
Warrants so surrendered.

     11. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Warrant Agent of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required)
in an amount reasonably satisfactory to the Warrant Agent, or (in the case of mutilation) upon surrender
and cancellation of this Warrant, the Warrant Agent will issue, in lieu thereof, a new Warrant of like
tenor.

     12. Notices. Any notice required or permitted pursuant to this Warrant shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally or by overnight
courier or sent by email or fax (upon customary confirmation of receipt), or forty-eight (48) hours
after being deposited in the regular mail, as certified or registered mail (airmail if sent
internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address
of the Registered Holder most recently furnished in writing to the Warrant Agent and (b) if to the
Warrant Agent, to the address set forth below or subsequently modified by written notice to the
Registered Holder.

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Corporate Stock Transfer, Inc.

3200 Cherry Creek South Drive

Suite 430

Denver, Colorado 80209

Attn: Carylyn Bell

Fax No.: (303) 282-5800

with a copy to:

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, California 94025

Attention: Lowell D. Ness, Esq.

Fax No.: (650) 474-0452

     13. No Rights as Stockholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of
the Company. Notwithstanding the foregoing, the Company shall provide the Registered Holder with
copies of the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

     14. No Fractional Shares. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable upon
exercise of this Warrant, the Company shall round up such fractional interest to the next whole
share.

     15. Warrant Legends. 

     (a) Each Warrant shall contain a legend in substantially the following form:

“THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR POST-EFFECTIVE AMENDMENT
THERETO FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”) OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY AND THE WARRANT AGENT THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.”

     (b) Each
certificate representing the Warrant Stock, unless a registration
statement is not then effective, shall contain a legend substantially in the following form:

-7-

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
TRANSFERRED WITHOUT AN EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR
POST-EFFECTIVE AMENDMENT THERETO FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, (THE “ACT”) OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.”

     16. [RESERVED]

     17. Headings. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this Warrant.

     18. Governing Law. This Warrant shall be governed, construed and interpreted in
accordance with the laws of the State of New York, without giving effect to principles of conflicts
of law.

     19. Survival of Representations. Unless otherwise set forth in this Warrant, the
representations, warranties and covenants contained in or made pursuant to this Warrant shall
survive the execution and delivery of this Warrant.

     20. Successors and Assigns. The terms and conditions of this Warrant shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties. Nothing
in this Warrant, express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Warrant, except as expressly provided in this Warrant.

     21. Counterparts. This Warrant may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one instrument.

     22. Attorney’s Fees. If any action at law or in equity (including arbitration) is
necessary to enforce or interpret the terms of any of this Warrant, the prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

-8-

 

     23. Severability. If one or more provisions of this Warrant are held to be
unenforceable under applicable law, the parties agree to renegotiate such provision in good faith.
In the event that the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (a) such provision shall be excluded from this Warrant, (b) the balance of
this Warrant shall be interpreted as if such provision were so excluded and (c) the balance of this
Warrant shall be enforceable in accordance with its terms.

     24. Delays or Omissions. No delay or omission to exercise any right, power or remedy
accruing to any party under this Warrant, upon any breach or default of any other party under this
Warrant, shall impair any such right, power or remedy of such non-breaching or non-defaulting party
nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein,
or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Warrant, or any waiver on the part of any party of any
provisions or conditions of this Warrant, must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this Warrant or by law
or otherwise afforded to any party, shall be cumulative and not alternative.

     25. Remedies, Other Obligations, Breaches and Injunctive Relief. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant, at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Registered Holder to pursue
actual damages for any failure by the Company to comply with the terms of this Warrant. The
Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Registered Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened breach, the Registered
Holder shall be entitled to seek, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and without any bond or
other security being required

     26. Warrant Agent.

     (a) Registration of Warrants. The Warrant Agent will keep a register in which the
Warrant Agent will provide for the registration of Warrants and the registration of transfers of
Warrants representing whole numbers of Warrants. The Company and the Warrant Agent may treat the
person in whose name any Warrants is registered on such register as the owner thereof for all
purposes. Any Registered Holder may change such Registered Holder’s address as shown on the
warrant register by written notice to the Warrant Agent in accordance with Section 12 requesting
such change.

     (b) Limitation on Liability. The Warrant Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in connection with its
administration of the Warrants in reliance upon any instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or
other paper or document in good faith believed by it to be genuine and to be signed, executed and,
where necessary, verified and acknowledged, by the proper person or persons.

     (c) Duties of Warrant Agent. The Warrant Agent shall undertake only the specific
duties and obligations imposed hereunder upon the following terms and conditions, by all of which
the Company and the Registered Holder shall be bound:

          (i) The Warrant Agent may consult with legal counsel (who may or may not be legal counsel for
the Company), and the opinion of such counsel shall be full and complete authorization and

-9-

 

protection to the Warrant Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion, provided the Warrant Agent shall have exercised reasonable care in
the selection by it of such counsel.

          (ii) Whenever in the performance of its duties hereunder the Warrant Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter may be deemed to be conclusively
proved and established by a certificate signed by an executive officer of the Company and delivered
to the Warrant Agent and such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it hereunder in reliance upon such certificate.

          (iii) The Warrant Agent shall be liable hereunder only for its own gross negligence, willful
misconduct or bad faith.

          (iv) The Warrant Agent shall not be liable for or by reason of any of the statements of fact
or recitals contained herein or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.

          (v) The Warrant Agent shall not have any responsibility in respect of and makes no
representation as to the validity of this Warrant or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent), nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Warrant, nor shall it by any act hereunder
be deemed to make any representation or warranty as to the Warrant Shares.

          (vi) The Warrant Agent is hereby authorized and directed to accept instructions with respect
to the performance of its duties hereunder from the Chief Executive Officer and the Chief Financial
Officer of the Company, and to apply to such officers for advice or instructions in connection with
its duties, and it shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer.

          (vii) The Warrant Agent and any stockholder, director, officer, or employee of the Warrant
Agent may buy, sell, or deal in any of the Warrants or other securities of the Company or otherwise
act as fully and freely as though it were not Warrant Agent hereunder, so long as such persons do
so in full compliance with all applicable laws. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.

          (viii) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in
it or perform any duty hereunder either by itself or by or through its attorneys or agents.

          (ix) The Warrant Agent shall act solely as the agent of the Company hereunder. The Warrant
Agent shall not be liable except for the failure to perform such duties as are specifically set
forth herein, and no implied covenants or obligations shall be read into this Warrant against the
Warrant Agent, whose duties shall be determined solely by the express provisions hereof. The
Warrant Agent shall not be deemed to be a fiduciary.

          (x) The Warrant Agent shall not have any duty to calculate or determine any adjustments with
respect either to the Purchase Price or to the kind and amount of property receivable by the
Registered Holder upon the exercise of this Warrant.

          (xi) The Warrant Agent shall not be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained herein.

-10-

 

          (xii) The Warrant Agent shall not be under any obligation or duty to institute, appear in, or
defend any action, suit, or legal proceeding in respect hereof, unless first indemnified to its
satisfaction, provided that this provision shall not affect the power of the Warrant Agent to take
such action as the Warrant Agent may consider proper, whether with or without such indemnity. The
Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or,
proceeding instituted against it arising out of or in connection with this Warrant.

          (xiii) The Company will perform, execute, acknowledge, and deliver or cause to be performed,
executed, acknowledged, and delivered all such further acts, instruments, and assurances as may be
required by the Warrant Agent in order to enable it to carry out or perform its duties hereunder.

     (d) Change of Warrant Agent. The Warrant Agent may resign and be discharged from its
duties hereunder upon thirty (30) days notice in writing sent to the Company by registered or
certified mail, and to the Registered Holders of the Warrants by first class registered or
certified mail, return receipt requested, at the expense of the Warrant Agent; provided, however,
that no such resignation or discharge shall become effective until a successor Warrant Agent shall
have been appointed hereunder. The Company may remove the Warrant Agent or any successor Warrant
Agent upon thirty (30) days, notice in writing, sent to the Warrant Agent or successor Warrant
Agent, as the case may be, and to the Registered Holders of the Warrants by first class registered
or certified mail, return receipt requested; provided, further, however, that no such removal shall
become effective until a successor Warrant Agent shall have been appointed hereunder. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company
shall promptly appoint a successor to the Warrant Agent, which may be designated as an interim
Warrant Agent. If an interim Warrant Agent is designated, the Company shall then appoint a
permanent successor to the Warrant Agent, which may be the interim Warrant Agent. If the Company
shall fail to make such appointment of a permanent successor within a period of thirty (30) days
after such removal or within sixty (60) days after notification in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the Registered Holder of a
Warrant, then the Warrant Agent or any Registered Holder of a Warrant may apply to any court of
competent jurisdiction for the appointment of such a successor. Any entity which may be merged or
consolidated with or which shall otherwise succeed to substantially all of the trust or agency
business of the Warrant Agent shall be deemed to be the successor Warrant Agent without any further
action.

     27. Entire Agreement. This Warrant and the documents referred to herein constitute
the entire agreement between the parties hereto pertaining to the subject matter hereof, and any
and all other written or oral agreements relating to the subject matter hereof existing between the
parties hereto are expressly canceled.

[Signature Page Follows]

-11-

 

     IN
WITNESS WHEREOF, the Company and the Warrant Agent have caused this Warrant to be duly executed as of the day and
year first above written.

	 	 	 	 	 
	 	 	THE COMPANY:
	 
	 	 	 	 
	 	 	VIRNETX HOLDING CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Address:

5615 Scotts Valley Drive, Suite 110

Scotts Valley, California 95066

Fax: (831) 438-8700

	 	 	 	 	 
	 	 	THE WARRANT AGENT:
	 
	 	 	 	 
	 	 	CORPORATE STOCK TRANSFER, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Address:

3200 Cherry Creek South Drive, Suite 430

Denver, Colorado 80209

Fax: (303) 282-5800

VirnetX Holding Corporation — $2.00 Common Stock Purchase Warrant

 

 

EXHIBIT A

PURCHASE/EXERCISE FORM

To:      Corporate Stock Transfer, Inc.                    Dated:

     The undersigned, pursuant to the provisions set forth in the attached Warrant No.      , hereby
irrevocably elects to purchase                                         shares of the Common Stock covered by such
Warrant and herewith makes payment of $                                        , representing the full Purchase Price
for such shares at the price per share provided for in such Warrant.

     Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o the cancellation of such amount of Warrant Stock as is necessary, in accordance
with the formula set forth in Section 2(b), to exercise this Warrant with respect to the
maximum amount of Warrant Stock purchasable pursuant to the cashless exercise procedure
set forth in Section 2(b).

     The undersigned acknowledges that it has reviewed the representations and warranties of the
Registered Holder set forth in the Warrant and by its signature below hereby makes such
representations and warranties to the Company and the Warrant Agent. Defined terms contained in
such representations and warranties shall have the meanings assigned to them in the Warrant,
provided that the term “Securities” shall refer to the Warrant Stock.

ACKNOWLEDGED AND AGREED TO BY

THE REGISTERED HOLDER:

	 	 	 	 	 
	 	 	 
	(Registered Holder)	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(Signature)
	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	   	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Fax:
	 	 	 	 
	 

	 	 

	 	 

 

 

EXHIBIT B

ASSIGNMENT FORM

     FOR VALUE RECEIVED,                                          hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant with respect to the
number of shares of capital stock covered thereby set forth below, unto:

	 	 	 	 	 
	Name of Assignee
	 	Address/Facsimile Number
	 	No. of Shares

ACKNOWLEDGED AND AGREED TO BY

THE REGISTERED HOLDER:

	 	 	 	 	 
	 	 	 
	(Registered Holder)	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(Signature)
	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 
	 
	 	 	 	 
	 

Fax:

	 	 
	 

	 	 

	 	 

 

 

Exhibit B

Form of Public Warrant — $3.00 Exercise Price

 

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR POST-EFFECTIVE
AMENDMENT THERETO FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY AND THE WARRANT AGENT
THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

			
	 	 	 
	Warrant No.      
	 	Date of Issuance: January ___, 2009
	 	 	 
	 
	 	Number of Shares:                     
	 
	 	(subject to adjustment)

VIRNETX HOLDING CORPORATION

COMMON
STOCK PURCHASE WARRANT
($3.00 EXERCISE PRICE)

     VirnetX Holding Corporation, a Delaware corporation (the “Company”), for value
received, hereby certifies that                                         , or its registered assigns (the
“Registered Holder”), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time after the date hereof and on or before July ___, 2010 (the “Expiration
Date”) ___ shares of the Company’s Common Stock (the “Common Stock”) at a per share
purchase price equal to three dollars ($3.00) (the “Purchase Price”), as adjusted from time
to time pursuant to the provisions of this Warrant. The shares purchasable upon exercise of this
Warrant, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the “Warrant Stock”.

     This Warrant is issued pursuant to, and is subject to the terms and conditions of:

     1. Number of Shares. Subject to the terms and conditions hereinafter set forth, the
Registered Holder is entitled, upon surrender of this Warrant, to purchase from the Company the
number of shares (subject to adjustment as provided herein) of Warrant Stock first set forth above.

     2. Exercise.

          (a) Manner of Exercise. This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as
Exhibit A duly executed by such Registered Holder or by such Registered Holder’s duly
authorized attorney, at the principal office of Corporate Stock Transfer, Inc. (the “Warrant
Agent”), or at such other office or agency as the Warrant Agent may designate, accompanied by
payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise. The Purchase Price may be paid by cash, check or wire transfer, or
under the circumstances described in Section 2(b), pursuant to the cashless exercise provisions of
Section 2(b).

 

 

          (b) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
an effective registration statement covering the Warrant Stock that is the subject of the Exercise
Notice is not available for the resale of such Warrant Stock (the “Unavailable Warrant
Shares”), the Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the Warrant Agent upon
such exercise in payment of the Purchase Price, elect instead to receive upon such exercise the
“Net Number” of shares of Common Stock determined according to the following formula (a
“Cashless Exercise”):

Net Number = (A x B) - (A x C)

     B

               For purposes of the foregoing formula:

          A= the total number of shares with respect to which this Warrant is then being exercised.

          B= the closing sale price of the shares of Common Stock on the date immediately preceding the
date of the Exercise Notice.

          C= the Purchase Price then in effect for the applicable Warrant Stock at the time of such
exercise.

          (c) Effective Time of Exercise. Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which this Warrant shall
have been surrendered to the Warrant Agent as provided in Section 2(a). At such time, the person
or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such
exercise as provided in Section 2(d) shall be deemed to have become the holder or holders of record
of the Warrant Stock represented by such certificates.

          (d) Notification to Company. The Warrant Agent shall notify the Company immediately
upon receipt by the Warrant Agent of payment of the applicable Purchase Price from the Registered
Holder pursuant to Section 2(a). The Warrant Agent shall transfer each payment made by the
Registered Holder hereof pursuant to Section 2(a) to the Company in immediately available funds no
later than 5:00 p.m. (New York City time) on the date of exercise of the Warrant (and, pending such
transfer, shall hold each such payment for the benefit of the Registered Holder hereof in a
segregated trust account).

          (e) Delivery to Holder. As soon as practicable after the exercise of this Warrant in
whole or in part, and in any event within twenty (20) days
thereafter, the Warrant Agent, at the Company’s
expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such
Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may
direct:

               (i) a certificate or certificates, or book-entry position, for the number of shares of Warrant
Stock to which such Registered Holder shall be entitled, and

               (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof)
of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of
Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Sections 2(a) or 2(b), as applicable.

-2-

 

          (f) The Company’s obligations to issue and cause the Warrant Agent to deliver Warrant Stock in
accordance with the terms hereof are absolute and unconditional upon satisfaction by the Registered
Holder of the conditions to exercise this Warrant set forth in
Sections 2(a) or 2(b), as applicable, irrespective of any
action or inaction by the Registered Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation, or termination, or any breach or
alleged breach by the Registered Holder or any other person of any obligation to the Company (other
than the Registered Holder’s obligations with respect to the exercise hereof in accordance with
Sections 2(a) or 2(b), as applicable,), or any violation or alleged violation of law by the Registered Holder or any other
person, and irrespective of any other circumstance which might otherwise limit such obligations of
the Company or the Warrant Agent to the Registered Holder in connection with the issuance of
Warrant Stock. Nothing herein shall limit a Registered Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Warrant Agent’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant
to the terms hereof.

     3. Company Call. If, prior to the exercise or earlier expiration of this Warrant
pursuant to the terms hereof, the average closing stock price of the Common Stock on the
American Stock Exchange, or any successor national securities exchange thereto, equals or exceeds
two (2) times the Purchase Price on any five
(5) consecutive trading days, the Company shall
be entitled, at the its option, to direct the Warrant Agent to issue a notice (a “Call Notice”) to the Registered
Holder of this Warrant to the effect that the Company is exercising its rights pursuant to this
Section 3. Upon receipt of a Call Notice (which receipt will be deemed to occur on the one (1)
business day following the dispatch of such Call Notice by the Warrant Agent by a nationally
recognized overnight courier), the Registered Holder shall have until 5.00 p.m., Denver, Colorado
time, on the 10th business day following receipt of the Call Notice to exercise the Warrant, for
that number of shares of Warrant Stock covered by the Call Notice, in accordance with Section 2
hereof. Upon the expiration of such 10 business day period, if not sooner exercised, this Warrant will
terminate with respect to the number of shares specified in the Call Notice and the Registered
Holder’s rights and the Company’s obligations hereunder with respect to the number of shares
specified in the Call Notice will cease without payment of consideration. Notwithstanding the
foregoing provisions of this Section 3, the Company may not issue a Call Notice unless and until a
registration statement is effective, or no longer required, with respect to the resale of the
Warrant Stock.

     4. Adjustments.

          (a) Stock Splits and Dividends. If outstanding shares of the Company’s Common Stock
shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in
respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at
the record date of such dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in
effect immediately prior to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the
Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.

          (b) Reclassification, Etc. In case there occurs any reclassification or change of the
outstanding securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the time receivable upon the exercise of this
Warrant) or any similar

-3-

 

corporate reorganization on or after the date hereof, then and in each such case the
Registered Holder, upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or
other securities and property receivable upon the exercise hereof prior to such consummation, the
stock or other securities or property to which such Holder would have been entitled upon such
consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to
further adjustment pursuant to the provisions of this Section 4.

          (c) Adjustment Certificate. When any adjustment is required to be made in the Warrant
Stock or the Purchase Price pursuant to this Section 4, the Company shall promptly mail to the
Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such
adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or
other securities or property into which this Warrant shall be exercisable after such adjustment.

          (d) Reorganizations, Mergers and Consolidations. If at any time or from time to time
after the date hereof there is a reorganization of the Company (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for elsewhere in this
Section 4) or a merger or consolidation of the Company with or into another corporation, then, as a
part of such reorganization, merger or consolidation, provision shall be made so that the
Registered Holder of this Warrant thereafter shall be entitled to receive, upon exercise of this
Warrant, the number of shares of stock or other securities or property of the Company, or of such
successor corporation resulting from such reorganization, merger or consolidation, to which a
holder of Common Stock would have been entitled on such reorganization, merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the provisions of this
Section 4 with respect to the rights of the Registered Holder of this Warrant after the
reorganization, merger or consolidation to the end that the provisions of this Section 4 (including
adjustment of the Purchase Price then in effect and number of shares issuable upon exercise of this
Warrant, as applicable) shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable. This Section 4(d) shall similarly apply to successive
reorganizations, mergers and consolidations. Notwithstanding the foregoing, if any such
reorganization, merger or consolidation constitutes or results in (a) a “going private” transaction
as defined in Rule 13e-3 under the Exchange Act, (b) an acquisition of the Company primarily for
cash, or (c) an acquisition, merger or sale with or into a Person not traded on an Eligible Market
(as defined below), then the Company (or any such successor or surviving entity) shall require that
the Registered Holder waive the above requirements of this Section 4(d) in exchange for a payment
of cash on the closing date of such reorganization, merger or consolidation, equal to the Black
Scholes Value of the remaining unexercised portion of this Warrant on the closing date of such
reorganization, merger or consolidation, provided that the per share consideration to be received
by the holders of shares of Common Stock upon the consummation of such reorganization, merger or
consolidation is less than the Exercise Price. Concurrently with such payment, this Warrant shall
be cancelled. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day
immediately following the public announcement of the applicable reorganization, merger or
consolidation and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the remaining term of this Warrant as of such date and (ii) an expected
volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg. “Eligible
Market” means the American Stock Exchange, The New York Stock Exchange, Inc., The Nasdaq Capital
Market, The NASDAQ Global Market or The NASDAQ Global Select Market.

          (e) Pro Rata Rights Upon Distributions of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its assets) to holders
of shares of Common Stock (which dividend or other distribution has not already been given to the
Registered Holders of the Warrants), including, without limitation, any distribution of cash,
equity or debt securities or rights or warrants to subscribe for or purchase any equity or debt
security, or other property or assets at

-4-

 

any time after the issuance of this Warrant and prior to the Expiration Date, then, in each
such case (in each case, “Distributed Property”), the Registered Holder shall be entitled
upon exercise of this Warrant for the purchase of any or all of the Warrant Stock, to receive the
amount of Distributed Property which would have been payable to the Registered Holder had such
Registered Holder been the holder of such Warrant Stock on the record date for the determination of
shareholders entitled to such Distributed Property. The Company will at all times set aside and
keep available for distribution to such holder upon exercise of this Warrant a portion of the
Distributed Property to satisfy the distribution to which such Registered Holder is entitled
pursuant to the preceding sentence.

     5. Transfers.

          (a) Registration Statement. Each holder of this Warrant acknowledges that this
Warrant and the Warrant Stock have been registered under the Securities Act of 1933, as amended
(the “Securities Act”), pursuant to a registration
statement on Form S-1 (File No. 333-153645) which must be
amended on a post-effective basis from time to time in order to maintain its accuracy and keep it
up-to-date, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an
effective registration statement under the Securities Act as to the sale of any such securities and
registration or qualification of such securities under any applicable U.S. federal or state
securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that
such registration and qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the
foregoing effect and as described in Section 15.

          (b) Transferability. Prior to the Expiration Date and subject to compliance with any
applicable securities laws and the conditions set forth in this Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Warrant Agent, together with a written assignment of this Warrant
substantially in the form attached hereto as Exhibit B duly executed by the Registered
Holder or its agent or attorney, and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. If a registration statement is not then
effective, the transferee shall also sign an investment letter in form and substance
reasonably satisfactory to the Warrant Agent and the Company. Upon such surrender and, if
required, such payment, the Warrant Agent shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of
this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Stock without having a new
Warrant issued.

     6. No Impairment. The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will
(subject to Section 13) at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.

     7. Notices of Certain Transactions. In case:

          (a) the Company shall take a record of the holders of its Common Stock (or other stock or
securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling
or enabling them to receive any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or

-5-

 

          (b) of any capital reorganization of the Company, any reclassification of the capital stock of
the Company, any consolidation or merger of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets of the Company, or

          (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder
of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption
or conversion is to take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least
ten (10) days prior to the record date or effective date for the event specified in such notice.

     8. Reservation of Stock. The Company will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant
Stock and other stock, securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.

     9. Fully Paid and Non-assessable. The Company covenants that all Warrant Stock shall,
upon issuance and the payment of the applicable Purchase Price in accordance with the terms hereof,
be duly and validly authorized, issued and fully paid and non-assessable.

     10. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant
or Warrants, properly endorsed, to the Warrant Agent at the principal
office of the Warrant Agent, the Warrant Agent will, subject to the provisions of Section 5, issue and deliver to or upon the order of such
Registered Holder, at the Company’s expense, a new Warrant or Warrants of like tenor, in the name
of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the Warrant or
Warrants so surrendered.

     11. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Warrant Agent of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required)
in an amount reasonably satisfactory to the Warrant Agent, or (in the case of mutilation) upon surrender
and cancellation of this Warrant, the Warrant Agent will issue, in lieu thereof, a new Warrant of like
tenor.

     12. Notices. Any notice required or permitted pursuant to this Warrant shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally or by overnight
courier or sent by email or fax (upon customary confirmation of receipt), or forty-eight (48) hours
after being deposited in the regular mail, as certified or registered mail (airmail if sent
internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address
of the Registered Holder most recently furnished in writing to the Warrant Agent and (b) if to the
Warrant Agent, to the address set forth below or subsequently modified by written notice to the
Registered Holder.

-6-

 

Corporate Stock Transfer, Inc.

3200 Cherry Creek South Drive

Suite 430

Denver, Colorado 80209

Attn: Carylyn Bell

Fax No.: (303) 282-5800

with a copy to:

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, California 94025

Attention: Lowell D. Ness, Esq.

Fax No.: (650) 474-0452

     13. No Rights as Stockholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of
the Company. Notwithstanding the foregoing, the Company shall provide the Registered Holder with
copies of the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

     14. No Fractional Shares. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable upon
exercise of this Warrant, the Company shall round up such fractional interest to the next whole
share.

     15. Warrant Legends. 

     (a) Each Warrant shall contain a legend in substantially the following form:

“THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR POST-EFFECTIVE AMENDMENT
THERETO FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”) OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY AND THE WARRANT AGENT THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.”

     (b) Each
certificate representing the Warrant Stock, unless a registration
statement is not then effective, shall contain a legend substantially in the following form:

-7-

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
TRANSFERRED WITHOUT AN EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR
POST-EFFECTIVE AMENDMENT THERETO FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, (THE “ACT”) OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.”

     16. [RESERVED]

     17. Headings. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this Warrant.

     18. Governing Law. This Warrant shall be governed, construed and interpreted in
accordance with the laws of the State of New York, without giving effect to principles of conflicts
of law.

     19. Survival of Representations. Unless otherwise set forth in this Warrant, the
representations, warranties and covenants contained in or made pursuant to this Warrant shall
survive the execution and delivery of this Warrant.

     20. Successors and Assigns. The terms and conditions of this Warrant shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties. Nothing
in this Warrant, express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Warrant, except as expressly provided in this Warrant.

     21. Counterparts. This Warrant may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one instrument.

     22. Attorney’s Fees. If any action at law or in equity (including arbitration) is
necessary to enforce or interpret the terms of any of this Warrant, the prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

-8-

 

     23. Severability. If one or more provisions of this Warrant are held to be
unenforceable under applicable law, the parties agree to renegotiate such provision in good faith.
In the event that the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (a) such provision shall be excluded from this Warrant, (b) the balance of
this Warrant shall be interpreted as if such provision were so excluded and (c) the balance of this
Warrant shall be enforceable in accordance with its terms.

     24. Delays or Omissions. No delay or omission to exercise any right, power or remedy
accruing to any party under this Warrant, upon any breach or default of any other party under this
Warrant, shall impair any such right, power or remedy of such non-breaching or non-defaulting party
nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein,
or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Warrant, or any waiver on the part of any party of any
provisions or conditions of this Warrant, must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this Warrant or by law
or otherwise afforded to any party, shall be cumulative and not alternative.

     25. Remedies, Other Obligations, Breaches and Injunctive Relief. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant, at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Registered Holder to pursue
actual damages for any failure by the Company to comply with the terms of this Warrant. The
Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Registered Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened breach, the Registered
Holder shall be entitled to seek, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and without any bond or
other security being required

     26. Warrant Agent.

     (a) Registration of Warrants. The Warrant Agent will keep a register in which the
Warrant Agent will provide for the registration of Warrants and the registration of transfers of
Warrants representing whole numbers of Warrants. The Company and the Warrant Agent may treat the
person in whose name any Warrants is registered on such register as the owner thereof for all
purposes. Any Registered Holder may change such Registered Holder’s address as shown on the
warrant register by written notice to the Warrant Agent in accordance with Section 12 requesting
such change.

     (b) Limitation on Liability. The Warrant Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in connection with its
administration of the Warrants in reliance upon any instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or
other paper or document in good faith believed by it to be genuine and to be signed, executed and,
where necessary, verified and acknowledged, by the proper person or persons.

     (c) Duties of Warrant Agent. The Warrant Agent shall undertake only the specific
duties and obligations imposed hereunder upon the following terms and conditions, by all of which
the Company and the Registered Holder shall be bound:

          (i) The Warrant Agent may consult with legal counsel (who may or may not be legal counsel for
the Company), and the opinion of such counsel shall be full and complete authorization and

-9-

 

protection to the Warrant Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion, provided the Warrant Agent shall have exercised reasonable care in
the selection by it of such counsel.

          (ii) Whenever in the performance of its duties hereunder the Warrant Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter may be deemed to be conclusively
proved and established by a certificate signed by an executive officer of the Company and delivered
to the Warrant Agent and such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it hereunder in reliance upon such certificate.

          (iii) The Warrant Agent shall be liable hereunder only for its own gross negligence, willful
misconduct or bad faith.

          (iv) The Warrant Agent shall not be liable for or by reason of any of the statements of fact
or recitals contained herein or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.

          (v) The Warrant Agent shall not have any responsibility in respect of and makes no
representation as to the validity of this Warrant or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent), nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Warrant, nor shall it by any act hereunder
be deemed to make any representation or warranty as to the Warrant Shares.

          (vi) The Warrant Agent is hereby authorized and directed to accept instructions with respect
to the performance of its duties hereunder from the Chief Executive Officer and the Chief Financial
Officer of the Company, and to apply to such officers for advice or instructions in connection with
its duties, and it shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer.

          (vii) The Warrant Agent and any stockholder, director, officer, or employee of the Warrant
Agent may buy, sell, or deal in any of the Warrants or other securities of the Company or otherwise
act as fully and freely as though it were not Warrant Agent hereunder, so long as such persons do
so in full compliance with all applicable laws. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.

          (viii) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in
it or perform any duty hereunder either by itself or by or through its attorneys or agents.

          (ix) The Warrant Agent shall act solely as the agent of the Company hereunder. The Warrant
Agent shall not be liable except for the failure to perform such duties as are specifically set
forth herein, and no implied covenants or obligations shall be read into this Warrant against the
Warrant Agent, whose duties shall be determined solely by the express provisions hereof. The
Warrant Agent shall not be deemed to be a fiduciary.

          (x) The Warrant Agent shall not have any duty to calculate or determine any adjustments with
respect either to the Purchase Price or to the kind and amount of property receivable by the
Registered Holder upon the exercise of this Warrant.

          (xi) The Warrant Agent shall not be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained herein.

-10-

 

          (xii) The Warrant Agent shall not be under any obligation or duty to institute, appear in, or
defend any action, suit, or legal proceeding in respect hereof, unless first indemnified to its
satisfaction, provided that this provision shall not affect the power of the Warrant Agent to take
such action as the Warrant Agent may consider proper, whether with or without such indemnity. The
Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or,
proceeding instituted against it arising out of or in connection with this Warrant.

          (xiii) The Company will perform, execute, acknowledge, and deliver or cause to be performed,
executed, acknowledged, and delivered all such further acts, instruments, and assurances as may be
required by the Warrant Agent in order to enable it to carry out or perform its duties hereunder.

     (d) Change of Warrant Agent. The Warrant Agent may resign and be discharged from its
duties hereunder upon thirty (30) days notice in writing sent to the Company by registered or
certified mail, and to the Registered Holders of the Warrants by first class registered or
certified mail, return receipt requested, at the expense of the Warrant Agent; provided, however,
that no such resignation or discharge shall become effective until a successor Warrant Agent shall
have been appointed hereunder. The Company may remove the Warrant Agent or any successor Warrant
Agent upon thirty (30) days, notice in writing, sent to the Warrant Agent or successor Warrant
Agent, as the case may be, and to the Registered Holders of the Warrants by first class registered
or certified mail, return receipt requested; provided, further, however, that no such removal shall
become effective until a successor Warrant Agent shall have been appointed hereunder. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company
shall promptly appoint a successor to the Warrant Agent, which may be designated as an interim
Warrant Agent. If an interim Warrant Agent is designated, the Company shall then appoint a
permanent successor to the Warrant Agent, which may be the interim Warrant Agent. If the Company
shall fail to make such appointment of a permanent successor within a period of thirty (30) days
after such removal or within sixty (60) days after notification in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the Registered Holder of a
Warrant, then the Warrant Agent or any Registered Holder of a Warrant may apply to any court of
competent jurisdiction for the appointment of such a successor. Any entity which may be merged or
consolidated with or which shall otherwise succeed to substantially all of the trust or agency
business of the Warrant Agent shall be deemed to be the successor Warrant Agent without any further
action.

     27. Entire Agreement. This Warrant and the documents referred to herein constitute
the entire agreement between the parties hereto pertaining to the subject matter hereof, and any
and all other written or oral agreements relating to the subject matter hereof existing between the
parties hereto are expressly canceled.

[Signature Page Follows]

-11-

 

     IN
WITNESS WHEREOF, the Company and the Warrant Agent have caused this Warrant to be duly executed as of the day and
year first above written.

	 	 	 	 	 
	 	 	THE COMPANY:
	 
	 	 	 	 
	 	 	VIRNETX HOLDING CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Address:

5615 Scotts Valley Drive, Suite 110

Scotts Valley, California 95066

Fax: (831) 438-8700

	 	 	 	 	 
	 	 	THE WARRANT AGENT:
	 
	 	 	 	 
	 	 	CORPORATE STOCK TRANSFER, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Address:

3200 Cherry Creek South Drive, Suite 430

Denver, Colorado 80209

Fax: (303) 282-5800

VirnetX
Holding Corporation — $3.00 Common Stock Purchase Warrant

 

 

EXHIBIT A

PURCHASE/EXERCISE FORM

To:      Corporate Stock Transfer, Inc.                    Dated:

     The undersigned, pursuant to the provisions set forth in the attached Warrant No.      , hereby
irrevocably elects to purchase                                         shares of the Common Stock covered by such
Warrant and herewith makes payment of $                                        , representing the full Purchase Price
for such shares at the price per share provided for in such Warrant.

     Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o the cancellation of such amount of Warrant Stock as is necessary, in accordance
with the formula set forth in Section 2(b), to exercise this Warrant with respect to the
maximum amount of Warrant Stock purchasable pursuant to the cashless exercise procedure
set forth in Section 2(b).

     The undersigned acknowledges that it has reviewed the representations and warranties of the
Registered Holder set forth in the Warrant and by its signature below hereby makes such
representations and warranties to the Company and the Warrant Agent. Defined terms contained in
such representations and warranties shall have the meanings assigned to them in the Warrant,
provided that the term “Securities” shall refer to the Warrant Stock.

ACKNOWLEDGED AND AGREED TO BY

THE REGISTERED HOLDER:

	 	 	 	 	 
	 	 	 
	(Registered Holder)	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(Signature)
	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	   	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Fax:
	 	 	 	 
	 

	 	 

	 	 

 

 

EXHIBIT B

ASSIGNMENT FORM

     FOR VALUE RECEIVED,                                          hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant with respect to the
number of shares of capital stock covered thereby set forth below, unto:

	 	 	 	 	 
	Name of Assignee
	 	Address/Facsimile Number
	 	No. of Shares

ACKNOWLEDGED AND AGREED TO BY

THE REGISTERED HOLDER:

	 	 	 	 	 
	 	 	 
	(Registered Holder)	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(Signature)
	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 
	 
	 	 	 	 
	 

Fax:

	 	 
	 

	 	 

	 	 

 

 

Exhibit C

Form of Public Warrant — $4.00 Exercise Price

 

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR POST-EFFECTIVE
AMENDMENT THERETO FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY AND THE WARRANT AGENT
THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

			
	 	 	 
	Warrant No.      
	 	Date of Issuance: January ___, 2009
	 	 	 
	 
	 	Number of Shares:                     
	 
	 	(subject to adjustment)

VIRNETX HOLDING CORPORATION

COMMON
STOCK PURCHASE WARRANT
($4.00 EXERCISE PRICE)

     VirnetX Holding Corporation, a Delaware corporation (the “Company”), for value
received, hereby certifies that                                         , or its registered assigns (the
“Registered Holder”), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time after the date hereof and on or before July ___, 2010 (the “Expiration
Date”) ___ shares of the Company’s Common Stock (the “Common Stock”) at a per share
purchase price equal to four dollars ($4.00) (the “Purchase Price”), as adjusted from time
to time pursuant to the provisions of this Warrant. The shares purchasable upon exercise of this
Warrant, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the “Warrant Stock”.

     This Warrant is issued pursuant to, and is subject to the terms and conditions of:

     1. Number of Shares. Subject to the terms and conditions hereinafter set forth, the
Registered Holder is entitled, upon surrender of this Warrant, to purchase from the Company the
number of shares (subject to adjustment as provided herein) of Warrant Stock first set forth above.

     2. Exercise.

          (a) Manner of Exercise. This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as
Exhibit A duly executed by such Registered Holder or by such Registered Holder’s duly
authorized attorney, at the principal office of Corporate Stock Transfer, Inc. (the “Warrant
Agent”), or at such other office or agency as the Warrant Agent may designate, accompanied by
payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise. The Purchase Price may be paid by cash, check or wire transfer, or
under the circumstances described in Section 2(b), pursuant to the cashless exercise provisions of
Section 2(b).

 

 

          (b) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
an effective registration statement covering the Warrant Stock that is the subject of the Exercise
Notice is not available for the resale of such Warrant Stock (the “Unavailable Warrant
Shares”), the Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the Warrant Agent upon
such exercise in payment of the Purchase Price, elect instead to receive upon such exercise the
“Net Number” of shares of Common Stock determined according to the following formula (a
“Cashless Exercise”):

Net Number = (A x B) - (A x C)

     B

               For purposes of the foregoing formula:

          A= the total number of shares with respect to which this Warrant is then being exercised.

          B= the closing sale price of the shares of Common Stock on the date immediately preceding the
date of the Exercise Notice.

          C= the Purchase Price then in effect for the applicable Warrant Stock at the time of such
exercise.

          (c) Effective Time of Exercise. Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which this Warrant shall
have been surrendered to the Warrant Agent as provided in Section 2(a). At such time, the person
or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such
exercise as provided in Section 2(d) shall be deemed to have become the holder or holders of record
of the Warrant Stock represented by such certificates.

          (d) Notification to Company. The Warrant Agent shall notify the Company immediately
upon receipt by the Warrant Agent of payment of the applicable Purchase Price from the Registered
Holder pursuant to Section 2(a). The Warrant Agent shall transfer each payment made by the
Registered Holder hereof pursuant to Section 2(a) to the Company in immediately available funds no
later than 5:00 p.m. (New York City time) on the date of exercise of the Warrant (and, pending such
transfer, shall hold each such payment for the benefit of the Registered Holder hereof in a
segregated trust account).

          (e) Delivery to Holder. As soon as practicable after the exercise of this Warrant in
whole or in part, and in any event within twenty (20) days
thereafter, the Warrant Agent, at the Company’s
expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such
Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may
direct:

               (i) a certificate or certificates, or book-entry position, for the number of shares of Warrant
Stock to which such Registered Holder shall be entitled, and

               (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof)
of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of
Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Sections 2(a) or 2(b), as applicable.

-2-

 

          (f) The Company’s obligations to issue and cause the Warrant Agent to deliver Warrant Stock in
accordance with the terms hereof are absolute and unconditional upon satisfaction by the Registered
Holder of the conditions to exercise this Warrant set forth in
Sections 2(a) or 2(b), as applicable, irrespective of any
action or inaction by the Registered Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation, or termination, or any breach or
alleged breach by the Registered Holder or any other person of any obligation to the Company (other
than the Registered Holder’s obligations with respect to the exercise hereof in accordance with
Sections 2(a) or 2(b), as applicable,), or any violation or alleged violation of law by the Registered Holder or any other
person, and irrespective of any other circumstance which might otherwise limit such obligations of
the Company or the Warrant Agent to the Registered Holder in connection with the issuance of
Warrant Stock. Nothing herein shall limit a Registered Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Warrant Agent’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant
to the terms hereof.

     3. Company Call. If, prior to the exercise or earlier expiration of this Warrant
pursuant to the terms hereof, the average closing stock price of the Common Stock on the
American Stock Exchange, or any successor national securities exchange thereto, equals or exceeds
two (2) times the Purchase Price on any five
(5) consecutive trading days, the Company shall
be entitled, at the its option, to direct the Warrant Agent to issue a notice (a “Call Notice”) to the Registered
Holder of this Warrant to the effect that the Company is exercising its rights pursuant to this
Section 3. Upon receipt of a Call Notice (which receipt will be deemed to occur on the one (1)
business day following the dispatch of such Call Notice by the Warrant Agent by a nationally
recognized overnight courier), the Registered Holder shall have until 5.00 p.m., Denver, Colorado
time, on the 10th business day following receipt of the Call Notice to exercise the Warrant, for
that number of shares of Warrant Stock covered by the Call Notice, in accordance with Section 2
hereof. Upon the expiration of such 10 business day period, if not sooner exercised, this Warrant will
terminate with respect to the number of shares specified in the Call Notice and the Registered
Holder’s rights and the Company’s obligations hereunder with respect to the number of shares
specified in the Call Notice will cease without payment of consideration. Notwithstanding the
foregoing provisions of this Section 3, the Company may not issue a Call Notice unless and until a
registration statement is effective, or no longer required, with respect to the resale of the
Warrant Stock.

     4. Adjustments.

          (a) Stock Splits and Dividends. If outstanding shares of the Company’s Common Stock
shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in
respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at
the record date of such dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in
effect immediately prior to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the
Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.

          (b) Reclassification, Etc. In case there occurs any reclassification or change of the
outstanding securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the time receivable upon the exercise of this
Warrant) or any similar

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corporate reorganization on or after the date hereof, then and in each such case the
Registered Holder, upon the exercise hereof at any time after the consummation of such
reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or
other securities and property receivable upon the exercise hereof prior to such consummation, the
stock or other securities or property to which such Holder would have been entitled upon such
consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to
further adjustment pursuant to the provisions of this Section 4.

          (c) Adjustment Certificate. When any adjustment is required to be made in the Warrant
Stock or the Purchase Price pursuant to this Section 4, the Company shall promptly mail to the
Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such
adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or
other securities or property into which this Warrant shall be exercisable after such adjustment.

          (d) Reorganizations, Mergers and Consolidations. If at any time or from time to time
after the date hereof there is a reorganization of the Company (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for elsewhere in this
Section 4) or a merger or consolidation of the Company with or into another corporation, then, as a
part of such reorganization, merger or consolidation, provision shall be made so that the
Registered Holder of this Warrant thereafter shall be entitled to receive, upon exercise of this
Warrant, the number of shares of stock or other securities or property of the Company, or of such
successor corporation resulting from such reorganization, merger or consolidation, to which a
holder of Common Stock would have been entitled on such reorganization, merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the provisions of this
Section 4 with respect to the rights of the Registered Holder of this Warrant after the
reorganization, merger or consolidation to the end that the provisions of this Section 4 (including
adjustment of the Purchase Price then in effect and number of shares issuable upon exercise of this
Warrant, as applicable) shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable. This Section 4(d) shall similarly apply to successive
reorganizations, mergers and consolidations. Notwithstanding the foregoing, if any such
reorganization, merger or consolidation constitutes or results in (a) a “going private” transaction
as defined in Rule 13e-3 under the Exchange Act, (b) an acquisition of the Company primarily for
cash, or (c) an acquisition, merger or sale with or into a Person not traded on an Eligible Market
(as defined below), then the Company (or any such successor or surviving entity) shall require that
the Registered Holder waive the above requirements of this Section 4(d) in exchange for a payment
of cash on the closing date of such reorganization, merger or consolidation, equal to the Black
Scholes Value of the remaining unexercised portion of this Warrant on the closing date of such
reorganization, merger or consolidation, provided that the per share consideration to be received
by the holders of shares of Common Stock upon the consummation of such reorganization, merger or
consolidation is less than the Exercise Price. Concurrently with such payment, this Warrant shall
be cancelled. “Black Scholes Value” means the value of this Warrant based on the Black and Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day
immediately following the public announcement of the applicable reorganization, merger or
consolidation and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the remaining term of this Warrant as of such date and (ii) an expected
volatility equal to the 100 day volatility obtained from the HVT function on Bloomberg. “Eligible
Market” means the American Stock Exchange, The New York Stock Exchange, Inc., The Nasdaq Capital
Market, The NASDAQ Global Market or The NASDAQ Global Select Market.

          (e) Pro Rata Rights Upon Distributions of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its assets) to holders
of shares of Common Stock (which dividend or other distribution has not already been given to the
Registered Holders of the Warrants), including, without limitation, any distribution of cash,
equity or debt securities or rights or warrants to subscribe for or purchase any equity or debt
security, or other property or assets at

-4-

 

any time after the issuance of this Warrant and prior to the Expiration Date, then, in each
such case (in each case, “Distributed Property”), the Registered Holder shall be entitled
upon exercise of this Warrant for the purchase of any or all of the Warrant Stock, to receive the
amount of Distributed Property which would have been payable to the Registered Holder had such
Registered Holder been the holder of such Warrant Stock on the record date for the determination of
shareholders entitled to such Distributed Property. The Company will at all times set aside and
keep available for distribution to such holder upon exercise of this Warrant a portion of the
Distributed Property to satisfy the distribution to which such Registered Holder is entitled
pursuant to the preceding sentence.

     5. Transfers.

          (a) Registration Statement. Each holder of this Warrant acknowledges that this
Warrant and the Warrant Stock have been registered under the Securities Act of 1933, as amended
(the “Securities Act”), pursuant to a registration
statement on Form S-1 (File No. 333-153645) which must be
amended on a post-effective basis from time to time in order to maintain its accuracy and keep it
up-to-date, and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Warrant Stock issued upon its exercise in the absence of (i) an
effective registration statement under the Securities Act as to the sale of any such securities and
registration or qualification of such securities under any applicable U.S. federal or state
securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that
such registration and qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the
foregoing effect and as described in Section 15.

          (b) Transferability. Prior to the Expiration Date and subject to compliance with any
applicable securities laws and the conditions set forth in this Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Warrant Agent, together with a written assignment of this Warrant
substantially in the form attached hereto as Exhibit B duly executed by the Registered
Holder or its agent or attorney, and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. If a registration statement is not then
effective, the transferee shall also sign an investment letter in form and substance
reasonably satisfactory to the Warrant Agent and the Company. Upon such surrender and, if
required, such payment, the Warrant Agent shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of
this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Stock without having a new
Warrant issued.

     6. No Impairment. The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will
(subject to Section 13) at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.

     7. Notices of Certain Transactions. In case:

          (a) the Company shall take a record of the holders of its Common Stock (or other stock or
securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling
or enabling them to receive any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any other securities, or to receive
any other right, to subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or

-5-

 

          (b) of any capital reorganization of the Company, any reclassification of the capital stock of
the Company, any consolidation or merger of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets of the Company, or

          (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder
of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption
or conversion is to take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion) are to be determined. Such notice shall be mailed at least
ten (10) days prior to the record date or effective date for the event specified in such notice.

     8. Reservation of Stock. The Company will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant
Stock and other stock, securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.

     9. Fully Paid and Non-assessable. The Company covenants that all Warrant Stock shall,
upon issuance and the payment of the applicable Purchase Price in accordance with the terms hereof,
be duly and validly authorized, issued and fully paid and non-assessable.

     10. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant
or Warrants, properly endorsed, to the Warrant Agent at the principal
office of the Warrant Agent, the Warrant Agent will, subject to the provisions of Section 5, issue and deliver to or upon the order of such
Registered Holder, at the Company’s expense, a new Warrant or Warrants of like tenor, in the name
of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the Warrant or
Warrants so surrendered.

     11. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Warrant Agent of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required)
in an amount reasonably satisfactory to the Warrant Agent, or (in the case of mutilation) upon surrender
and cancellation of this Warrant, the Warrant Agent will issue, in lieu thereof, a new Warrant of like
tenor.

     12. Notices. Any notice required or permitted pursuant to this Warrant shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally or by overnight
courier or sent by email or fax (upon customary confirmation of receipt), or forty-eight (48) hours
after being deposited in the regular mail, as certified or registered mail (airmail if sent
internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address
of the Registered Holder most recently furnished in writing to the Warrant Agent and (b) if to the
Warrant Agent, to the address set forth below or subsequently modified by written notice to the
Registered Holder.

-6-

 

Corporate Stock Transfer, Inc.

3200 Cherry Creek South Drive

Suite 430

Denver, Colorado 80209

Attn: Carylyn Bell

Fax No.: (303) 282-5800

with a copy to:

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, California 94025

Attention: Lowell D. Ness, Esq.

Fax No.: (650) 474-0452

     13. No Rights as Stockholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of
the Company. Notwithstanding the foregoing, the Company shall provide the Registered Holder with
copies of the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

     14. No Fractional Shares. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. In lieu of any fractional shares which would otherwise be issuable upon
exercise of this Warrant, the Company shall round up such fractional interest to the next whole
share.

     15. Warrant Legends. 

     (a) Each Warrant shall contain a legend in substantially the following form:

“THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR POST-EFFECTIVE AMENDMENT
THERETO FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”) OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY AND THE WARRANT AGENT THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT. THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.”

     (b) Each
certificate representing the Warrant Stock, unless a registration
statement is not then effective, shall contain a legend substantially in the following form:

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“THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
TRANSFERRED WITHOUT AN EFFECTIVE AND CURRENT REGISTRATION STATEMENT OR
POST-EFFECTIVE AMENDMENT THERETO FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, (THE “ACT”) OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.”

     16. [RESERVED]

     17. Headings. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this Warrant.

     18. Governing Law. This Warrant shall be governed, construed and interpreted in
accordance with the laws of the State of New York, without giving effect to principles of conflicts
of law.

     19. Survival of Representations. Unless otherwise set forth in this Warrant, the
representations, warranties and covenants contained in or made pursuant to this Warrant shall
survive the execution and delivery of this Warrant.

     20. Successors and Assigns. The terms and conditions of this Warrant shall inure to
the benefit of and be binding upon the respective successors and assigns of the parties. Nothing
in this Warrant, express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Warrant, except as expressly provided in this Warrant.

     21. Counterparts. This Warrant may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one instrument.

     22. Attorney’s Fees. If any action at law or in equity (including arbitration) is
necessary to enforce or interpret the terms of any of this Warrant, the prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

-8-

 

     23. Severability. If one or more provisions of this Warrant are held to be
unenforceable under applicable law, the parties agree to renegotiate such provision in good faith.
In the event that the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (a) such provision shall be excluded from this Warrant, (b) the balance of
this Warrant shall be interpreted as if such provision were so excluded and (c) the balance of this
Warrant shall be enforceable in accordance with its terms.

     24. Delays or Omissions. No delay or omission to exercise any right, power or remedy
accruing to any party under this Warrant, upon any breach or default of any other party under this
Warrant, shall impair any such right, power or remedy of such non-breaching or non-defaulting party
nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein,
or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Warrant, or any waiver on the part of any party of any
provisions or conditions of this Warrant, must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this Warrant or by law
or otherwise afforded to any party, shall be cumulative and not alternative.

     25. Remedies, Other Obligations, Breaches and Injunctive Relief. The remedies
provided in this Warrant shall be cumulative and in addition to all other remedies available under
this Warrant, at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Registered Holder to pursue
actual damages for any failure by the Company to comply with the terms of this Warrant. The
Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm
to the Registered Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened breach, the Registered
Holder shall be entitled to seek, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and without any bond or
other security being required

     26. Warrant Agent.

     (a) Registration of Warrants. The Warrant Agent will keep a register in which the
Warrant Agent will provide for the registration of Warrants and the registration of transfers of
Warrants representing whole numbers of Warrants. The Company and the Warrant Agent may treat the
person in whose name any Warrants is registered on such register as the owner thereof for all
purposes. Any Registered Holder may change such Registered Holder’s address as shown on the
warrant register by written notice to the Warrant Agent in accordance with Section 12 requesting
such change.

     (b) Limitation on Liability. The Warrant Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in connection with its
administration of the Warrants in reliance upon any instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or
other paper or document in good faith believed by it to be genuine and to be signed, executed and,
where necessary, verified and acknowledged, by the proper person or persons.

     (c) Duties of Warrant Agent. The Warrant Agent shall undertake only the specific
duties and obligations imposed hereunder upon the following terms and conditions, by all of which
the Company and the Registered Holder shall be bound:

          (i) The Warrant Agent may consult with legal counsel (who may or may not be legal counsel for
the Company), and the opinion of such counsel shall be full and complete authorization and

-9-

 

protection to the Warrant Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion, provided the Warrant Agent shall have exercised reasonable care in
the selection by it of such counsel.

          (ii) Whenever in the performance of its duties hereunder the Warrant Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter may be deemed to be conclusively
proved and established by a certificate signed by an executive officer of the Company and delivered
to the Warrant Agent and such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it hereunder in reliance upon such certificate.

          (iii) The Warrant Agent shall be liable hereunder only for its own gross negligence, willful
misconduct or bad faith.

          (iv) The Warrant Agent shall not be liable for or by reason of any of the statements of fact
or recitals contained herein or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.

          (v) The Warrant Agent shall not have any responsibility in respect of and makes no
representation as to the validity of this Warrant or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent), nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Warrant, nor shall it by any act hereunder
be deemed to make any representation or warranty as to the Warrant Shares.

          (vi) The Warrant Agent is hereby authorized and directed to accept instructions with respect
to the performance of its duties hereunder from the Chief Executive Officer and the Chief Financial
Officer of the Company, and to apply to such officers for advice or instructions in connection with
its duties, and it shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer.

          (vii) The Warrant Agent and any stockholder, director, officer, or employee of the Warrant
Agent may buy, sell, or deal in any of the Warrants or other securities of the Company or otherwise
act as fully and freely as though it were not Warrant Agent hereunder, so long as such persons do
so in full compliance with all applicable laws. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.

          (viii) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in
it or perform any duty hereunder either by itself or by or through its attorneys or agents.

          (ix) The Warrant Agent shall act solely as the agent of the Company hereunder. The Warrant
Agent shall not be liable except for the failure to perform such duties as are specifically set
forth herein, and no implied covenants or obligations shall be read into this Warrant against the
Warrant Agent, whose duties shall be determined solely by the express provisions hereof. The
Warrant Agent shall not be deemed to be a fiduciary.

          (x) The Warrant Agent shall not have any duty to calculate or determine any adjustments with
respect either to the Purchase Price or to the kind and amount of property receivable by the
Registered Holder upon the exercise of this Warrant.

          (xi) The Warrant Agent shall not be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained herein.

-10-

 

          (xii) The Warrant Agent shall not be under any obligation or duty to institute, appear in, or
defend any action, suit, or legal proceeding in respect hereof, unless first indemnified to its
satisfaction, provided that this provision shall not affect the power of the Warrant Agent to take
such action as the Warrant Agent may consider proper, whether with or without such indemnity. The
Warrant Agent shall promptly notify the Company in writing of any claim made or action, suit or,
proceeding instituted against it arising out of or in connection with this Warrant.

          (xiii) The Company will perform, execute, acknowledge, and deliver or cause to be performed,
executed, acknowledged, and delivered all such further acts, instruments, and assurances as may be
required by the Warrant Agent in order to enable it to carry out or perform its duties hereunder.

     (d) Change of Warrant Agent. The Warrant Agent may resign and be discharged from its
duties hereunder upon thirty (30) days notice in writing sent to the Company by registered or
certified mail, and to the Registered Holders of the Warrants by first class registered or
certified mail, return receipt requested, at the expense of the Warrant Agent; provided, however,
that no such resignation or discharge shall become effective until a successor Warrant Agent shall
have been appointed hereunder. The Company may remove the Warrant Agent or any successor Warrant
Agent upon thirty (30) days, notice in writing, sent to the Warrant Agent or successor Warrant
Agent, as the case may be, and to the Registered Holders of the Warrants by first class registered
or certified mail, return receipt requested; provided, further, however, that no such removal shall
become effective until a successor Warrant Agent shall have been appointed hereunder. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company
shall promptly appoint a successor to the Warrant Agent, which may be designated as an interim
Warrant Agent. If an interim Warrant Agent is designated, the Company shall then appoint a
permanent successor to the Warrant Agent, which may be the interim Warrant Agent. If the Company
shall fail to make such appointment of a permanent successor within a period of thirty (30) days
after such removal or within sixty (60) days after notification in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the Registered Holder of a
Warrant, then the Warrant Agent or any Registered Holder of a Warrant may apply to any court of
competent jurisdiction for the appointment of such a successor. Any entity which may be merged or
consolidated with or which shall otherwise succeed to substantially all of the trust or agency
business of the Warrant Agent shall be deemed to be the successor Warrant Agent without any further
action.

     27. Entire Agreement. This Warrant and the documents referred to herein constitute
the entire agreement between the parties hereto pertaining to the subject matter hereof, and any
and all other written or oral agreements relating to the subject matter hereof existing between the
parties hereto are expressly canceled.

[Signature Page Follows]

-11-

 

     IN
WITNESS WHEREOF, the Company and the Warrant Agent have caused this Warrant to be duly executed as of the day and
year first above written.

	 	 	 	 	 
	 	 	THE COMPANY:
	 
	 	 	 	 
	 	 	VIRNETX HOLDING CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Address:

5615 Scotts Valley Drive, Suite 110

Scotts Valley, California 95066

Fax: (831) 438-8700

	 	 	 	 	 
	 	 	THE WARRANT AGENT:
	 
	 	 	 	 
	 	 	CORPORATE STOCK TRANSFER, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Address:

3200 Cherry Creek South Drive, Suite 430

Denver, Colorado 80209

Fax: (303) 282-5800

VirnetX
Holding Corporation — $4.00 Common Stock Purchase Warrant

 

 

EXHIBIT A

PURCHASE/EXERCISE FORM

To:      Corporate Stock Transfer, Inc.                    Dated:

     The undersigned, pursuant to the provisions set forth in the attached Warrant No.      , hereby
irrevocably elects to purchase                                         shares of the Common Stock covered by such
Warrant and herewith makes payment of $                                        , representing the full Purchase Price
for such shares at the price per share provided for in such Warrant.

     Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o the cancellation of such amount of Warrant Stock as is necessary, in accordance
with the formula set forth in Section 2(b), to exercise this Warrant with respect to the
maximum amount of Warrant Stock purchasable pursuant to the cashless exercise procedure
set forth in Section 2(b).

     The undersigned acknowledges that it has reviewed the representations and warranties of the
Registered Holder set forth in the Warrant and by its signature below hereby makes such
representations and warranties to the Company and the Warrant Agent. Defined terms contained in
such representations and warranties shall have the meanings assigned to them in the Warrant,
provided that the term “Securities” shall refer to the Warrant Stock.

ACKNOWLEDGED AND AGREED TO BY

THE REGISTERED HOLDER:

	 	 	 	 	 
	 	 	 
	(Registered Holder)	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(Signature)
	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	   	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Fax:
	 	 	 	 
	 

	 	 

	 	 

 

 

EXHIBIT B

ASSIGNMENT FORM

     FOR VALUE RECEIVED,                                          hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant with respect to the
number of shares of capital stock covered thereby set forth below, unto:

	 	 	 	 	 
	Name of Assignee
	 	Address/Facsimile Number
	 	No. of Shares

ACKNOWLEDGED AND AGREED TO BY

THE REGISTERED HOLDER:

	 	 	 	 	 
	 	 	 
	(Registered Holder)	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

(Signature)
	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Address:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 
	 
	 	 	 	 
	 

Fax:

	 	 
	 

	 	 

	 	 

 

 

Annex A

Form
of Underwriter’s Warrant Certificate

 

 

VIRNETX HOLDING CORPORATION

WARRANT CERTIFICATE

     THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

     THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN
ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

EXERCISABLE ON OR BEFORE

5:30 P.M. EASTERN TIME ON JANUARY ___, 2014

NO. W-__________ __________ Warrants

     This Warrant Certificate (“Warrant Certificate”) certifies that Gilford Securities
Incorporated, or its assigns, is the registered holder (“Holder”) of Warrants (as defined
in the Underwriter’s Warrant Agreement between the Company and Holder dated as of January ___, 2009 (the
“Warrant Agreement”)) of VirnetX Holding Corporation (the “Company”). Each Warrant
permits Holder to purchase, at any time from January ___, 2009 (“Purchase Date”) until 5:30
p.m. Eastern Time on January ___, 2014 (the “Expiration Time”), one share of the Company’s
Common Stock (the “Shares”) at the initial exercise price, subject to adjustment in certain
events, of $      per share (120% of the public offering price) (the “Exercise Price”).

     No Warrant may be exercised after the Expiration Time, at which time all Warrants evidenced
hereby, unless exercised prior thereto, shall thereafter be void.

     The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of
Warrants issued pursuant to the Warrant Agreement. Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to such terms in the Warrant Agreement.

     The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price
and the type or number of the Company’s securities issuable thereupon may be adjusted.

     Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company
shall forthwith issue to Holder a new Warrant Certificate representing such number of unexercised
Warrants.

     The Company may deem and treat Holder as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by anyone)

 

 

for the purpose of any exercise hereof, and of any distribution to Holder, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.

[Remainder of This Page Intentionally Left Blank; Signature Page to Follow]

2

 

     IN WITNESS WHEREOF, the Company and the Warrant Agent have caused this Warrant Certificate to be duly executed.

     Dated as of January ___, 2009

	 	 	 	 	 
	 	VIRNETX HOLDING CORPORATION

 	 
	 	By:  	
 	 
	 	 	Kendall Larsen 	 
	 	 	Chief Executive Officer 	 
	 
	 	CORPORATE STOCK TRANSFER, INC., as
 Warrant Agent

 	 
	 	By:  	
 	 
	 	Name: 	 	 
	 	Title:	 	 

 

 

EXHIBIT A

FORM OF SUBSCRIPTION (CASH EXERCISE)

(To be signed only upon exercise of Warrant)

	 	 	 
	TO:

	 	Corporate Stock Transfer, Inc.
	 

	 	3200 Cherry Creek South Drive
	 

	 	Suite 430
	 

	 	Denver, Colorado 80209

     The undersigned holder of Warrant Certificate number                      (the “Warrant
Certificate”), representing                      Warrants (as defined in the Warrant Certificate) of
VirnetX Holding Corporation (the “Company”), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to purchase                      Shares (as defined in the Warrant
Certificate), and herewith makes payment of $                     therefore, all in accordance with the
Warrant Certificate and the Warrant Agreement referred to in the Warrant Certificate. Certificates
for the Shares shall be issued in the name of                      and delivered to the following
address:

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

By:                                                             

Name:                                                             

Social Security Number or Tax Identification Number:                                                             

Date:                                                             

     (Signature must conform in all respects to name of Holder as specified on the face of the
Warrant Certificate)

Address

Social Security Number or

Tax Identification Number

 

 

EXHIBIT B

FORM OF SUBSCRIPTION (CASHLESS EXERCISE)

	 	 	 
	TO:

	 	Corporate Stock Transfer, Inc.
	 

	 	3200 Cherry Creek South Drive
	 

	 	Suite 430
	 

	 	Denver, Colorado 80209

     The undersigned holder of Warrant Certificate number                      (the “Warrant
Certificate”), representing                      Warrants (as defined in the Warrant Certificate) of
VirnetX Holding Corporation (the “Company”), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to purchase (on a cashless exercise basis in accordance with
the formula set forth in Section 3.1(b) of the Warrant Agreement referred to in the Warrant
Certificate (the “Warrant Agreement”))                      Shares (as defined in the Warrant
Certificate), all in accordance with the Warrant Certificate and the Warrant Agreement.
Certificates for the Shares shall be issued in the name of                      and delivered to the
following address:

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

By:                                                             

Name:                                                             

Social Security Number or Tax Identification Number:                                                             

Date:                                                             

     (Signature must conform in all respects to name of Holder as specified on the face of the
Warrant Certificate)

Address

Social Security Number or

Tax Identification Number

 

 

FORM OF ASSIGNMENT

     (To be exercised by the registered holder if such Holder desires to transfer the Warrant
Certificate)

     FOR VALUE RECEIVED                                                              
                                                                                hereby sells, assigns and
transfers unto:

Print Name of Transferee

Address

City State Zip Code
 

this Warrant Certificate, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint
_________ Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full power of substitution.

	 	 	 
	     Dated:                                                             

	 	Signature:
	 
	 	 
	 

	 	 
	 

	 	(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant
Certificate)

Social Security Number or Other Identifying Number of Assigneeexv4w2

Exhibit 4.2

UNDERWRITER’S WARRANT AGREEMENT

     Underwriter’s Warrant Agreement (the “Agreement”), dated as of January ___, 2009,
between VirnetX Holding Corporation (the “Company”) and Gilford Securities Incorporated
(the “Underwriter”).

WITNESSETH:

     WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement dated as of
January ___, 2009 between the Company and the Underwriter (the “Underwriting Agreement”),
to act as the underwriter in connection with the Company’s proposed public offering of up to
3,000,000 shares of the Company’s common stock, $0.0001 par value per share (the “Common
Stock”), and warrants to purchase (i) an aggregate of 1,500,000 shares of Common Stock at an
exercise price of $2.00 per share, (ii) an aggregate of 1,500,000 shares of Common Stock at an
exercise price of $3.00 per share and (iii) an aggregate of 1,500,000 shares of Common Stock at an
exercise price of $4.00 per share, at the public offering price of $      per share of Common Stock
and associated warrants (the “Public Offering”); and

     WHEREAS, the Company proposes to issue to the Underwriter and/or member firms of the Financial
Industry Regulatory Authority (“FINRA”) participating in the Public Offering and the bona
fide officers and partners thereof as permitted by Rule 2710(c)(7)(A) and (B) (the “Rule”)
of the NASD Conduct Rules (each, a “Holder,” and collectively, the “Holders”),
warrants (“Warrants”) to purchase up to 300,000 shares of Common Stock (the
“Shares”); and

     WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the First
Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Holders
in consideration for, and as part of the compensation in connection with, the Underwriter acting as
underwriter pursuant to the Underwriting Agreement.

     NOW, THEREFORE, in consideration of the premises, the payment to the Company of $.0001 per
Warrant, the agreements set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

	1.	 	Grant and Period.

     (a) The above recitals are true and correct. The Public Offering has been registered under a
Registration Statement on Form S-1 (File No. 333-153645) and declared effective by the Securities
and Exchange Commission (the “Commission”) on January ___, 2009 (the “Effective
Date”). This Agreement, relating to the purchase of the Warrants, is entered into pursuant to
the Underwriting Agreement between the Company and the Underwriter in connection with the Public
Offering.

     (b) Pursuant to the Warrants, the Holders are hereby granted the right to purchase from the
Company, at any time during the period commencing on the first anniversary of the First Closing
Date and expiring upon the fifth anniversary of the First Closing Date (the “Expiration
Time”), up to 300,000 shares of Common Stock of the Company at an initial exercise price
(subject to adjustment as provided in Section 7 hereof) of $      per share

 

 

(representing 120% of the public offering price per share of the Common Stock and associated
warrants in the Public Offering) (the “Exercise Price” or “Purchase Price”),
subject to the terms and conditions of this Agreement.

     (c) Except as specifically otherwise provided herein, the Shares shall bear the same terms and
conditions as such securities described under the caption “Description of Securities” in
the Registration Statement, and as designated in the Company’s Amended and Restated Certificate of
Incorporation and any amendments thereto, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the “Act”), for the Shares, as more fully described in
Section 6 of this Agreement.

2.      Warrant Certificates. The warrant certificates (“Warrant Certificates”)
delivered and to be delivered pursuant to this Agreement shall be in the form set forth in the form
of Warrant Certificate, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this Agreement.

	3.	 	Exercise of Warrant.

	 	3.1	 	Full Exercise.

          (a) The Holder may effect a cash exercise of the Warrants by surrendering to the Company the
Warrant Certificate, together with a Subscription in the form of Exhibit A attached
thereto, duly executed by such Holder, at any time during the period commencing on the first
anniversary of the First Closing Date and expiring upon the fifth anniversary of the First Closing
Date, at the Company’s principal office, accompanied by payment in cash or by certified or official
bank check payable to the order of the Company in the amount of the aggregate purchase price (the
“Aggregate Price”), subject to any adjustments provided for in this Agreement. The
aggregate price hereunder for each Holder shall be equal to the Exercise Price multiplied by the
number of Shares that are the subject of each Holder’s Warrant (as adjusted as hereinafter
provided).

          (b) The Holder may effect a cashless exercise of the Warrants by delivering the Warrant
Certificate to the Company together with a Subscription in the form of Exhibit B attached
thereto, duly executed by such Holder, in which case no payment of cash will be required. Upon
such cashless exercise, the number of Shares to be purchased by each Holder shall be determined by
dividing: (i) the number obtained by multiplying the number of Shares that are the subject of each
Holder’s Warrant Certificate by the amount, if any, by which the then Market Value (as hereinafter
defined) exceeds the Purchase Price; by (ii) the then per share Market Value. In no event shall
the Company be obligated to issue any fractional securities and, at the time it causes a
certificate or certificates to be issued, it shall pay the Holder in lieu of any fractional
securities or shares to which such Holder would otherwise be entitled, by Company check, in an
amount equal to such fraction multiplied by the Market Value. The “Market Value” shall be
determined on a per Share basis as of the close of the business day preceding the date of exercise,
which determination shall be made as follows: (a) if the Common Stock is listed for trading on a
national or regional stock exchange or is included on an inter-dealer quotation system, the average
closing sale price quoted on such exchange or inter-dealer quotation system which is published in
The Wall Street Journal for the 10 trading days immediately preceding the

2

 

date of exercise, or if no trade of the Common Stock shall have been reported during such
period, the last sale price so quoted for the next day prior thereto on which a trade in the Common
Stock was so reported; or (b) if the Common Stock is not so listed, admitted to trading or
included, the average of the closing highest reported bid and lowest reported ask price as quoted
on the OTC Bulletin Board or in the “Pink Sheets” published by the National Daily Quotation Bureau
for the first day immediately preceding the date of exercise on which the Common Stock is traded.

     3.2      Partial Exercise. The Warrants may also be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 hereof, except that
with respect to a cash exercise, the Purchase Price payable shall be equal to the number of Shares
being purchased hereunder multiplied by the per Share Purchase Price, subject to any adjustments
provided for in this Agreement. Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the Holder a new Warrant Certificate or Warrants of like tenor calling in the
aggregate for the number of securities (as constituted as of the date hereof) for which the Warrant
Certificate shall not have been exercised, issued in the name of the Holder or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct.

	4.	 	Issuance of Certificates.

     (a) Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock
shall be made forthwith (and, in any event within three business days thereafter) without charge to
the Holder thereof including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of Section 5 and Section 6
hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such certificates in a name
other than that of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

     (b) The Warrant Certificates and the certificates representing the shares of Common Stock
shall be executed on behalf of the Company by manual or facsimile signature of the then present
Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company.
Warrant Certificates shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.

5.      Restriction on Transfer of Warrants. The Holder of a Warrant Certificate, by acceptance
thereof, covenants and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one year from the
effectiveness of the Offering, except (a) to a FINRA member firm that participated in the Public
Offering and the bona fide officers or partners thereof, (b) by operation of law, or (c) by reason
of reorganization of the Company.

3

 

	6.	 	Registration Rights.

     6.1      Registration Under the Securities Act of 1933. The Warrants and the Shares
(collectively the “Registrable Securities”) have not been registered under the Securities
Act of 1933, as amended (the “Act”). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear the following legend in the event there is no
current registration statement effective with the Commission at such time as to such securities:

The securities represented by this certificate may not be offered or sold except pursuant to (i) an
effective registration statement under the Securities Act of 1933, as amended, (ii) to the extent
applicable, Rule 144 under the Securities Act (or any similar rule under the Securities Act
relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall
be reasonably satisfactory to counsel to the issuer, that an exemption from registration under the
Securities Act and applicable state securities laws is available.

	 	6.2	 	Piggyback Registration.

     (a) If, at any time commencing on the first anniversary of the Effective Date and expiring
seven years after the Effective Date, the Company prepares and files a post-effective amendment
to the Registration Statement, or a new Registration Statement under the Act, or files a
Notification on Form 1-A or otherwise registers securities under the Act, or files a similar
disclosure document with the Commission (each such filing, a “Registration Document”) as to
any of its securities under the Act (other than under a Registration Statement pursuant to Form S-8
or Form S-4), it will give written notice by registered mail, at least 20 days prior to the filing
of such Registration Document to the Underwriter and to all other Holders of the Registrable
Securities of its intention to do so. The Company shall include all Registrable Securities in such
Registration Documents with respect to which the Company has received written requests for
inclusion therein within 15 days of actual receipt of the Company’s notice.

     (b) No Holder of Registrable Securities may participate in any registration hereunder which is
underwritten unless such holder completes and executes all documents as are reasonable and
customary in such offerings.

     (c) The Company shall have the right at any time after it shall have given written notice
pursuant to this Section 6.2 (irrespective of whether a written request for inclusion of any
Registration Securities shall have been made) to elect not to file any such Registration Document,
or to withdraw the same after the filing but prior to the effective date thereof.

	 	6.3	 	Demand Registration.

          (a) Expenses to be Paid by the Company. At any time commencing
on the first anniversary of the Effective Date until the fifth anniversary of the Effective Date, Holders of Registrable Securities representing more
than 50% of such securities at that time outstanding (a “Majority of Holders”) shall have
the right (which right is in addition to the registration rights under Section 6.2 and Section
6.3(b) hereof), exercisable by written notice to the Company, to have the Company prepare and file
with the Commission, on one occasion, a registration statement and/or such other documents,
including a prospectus, and/or any other appropriate disclosure document as may be reasonably
necessary in the opinion of both counsel for the Company and counsel for the

4

 

Majority of Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Registrable Securities for 12 consecutive months (or
such longer period of time as permitted by the Act) by such Majority of Holders and any other
Holders of any of the Registrable Securities who notify the Company within 20 days after receipt of
notice by registered or certified mail from the Company of such request (“Demand
Registration”). A Demand Registration shall not be counted as a Demand Registration hereunder
until such Demand Registration has been declared effective by the Commission and maintained
continuously effective for a period of at least 12 months or such shorter period when all
Registrable Securities included therein have been sold in accordance with such Demand Registration.
The Company shall pay all costs (excluding transfer taxes, if any, and the Holders’ pro-rata
portions of the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Section 6.2 and this Section 6.3(a) including, without
limitation, the Company’s legal and accounting fees, printing expenses, blue sky fees and expenses
and the fees and expenses of one legal counsel to the Holders, so chosen by the Holders.

          (b) Expenses to be Paid by the Holder(s). At any time commencing one year after the
First Closing Date until the Expiration Time, a Majority of Holders shall have the right (which
right is in addition to the registration rights under Sections 6.2 and Section 6.3(a) hereof),
exercisable by written notice to the Company, to one Demand Registration. A Demand Registration
shall not be counted as a Demand Registration hereunder until such Demand Registration has been
declared effective by the Commission and maintained continuously effective for a period of at least
nine months or such shorter period when all Registrable Securities included therein have been sold
in accordance with such Demand Registration. The Holder(s) will pay all costs, fees and expenses
in connection with any registration statement filed pursuant to Section this 6.3(b).

          (c) The Company covenants and agrees to give written notice by registered or certified mail of
any registration request under this Section 6.3 by the Majority of Holders to all other registered
Holders of any of the Registrable Securities within 10 days from the date of the receipt of any
such registration request.

          (d) Any written request by the Holders made pursuant to this Section 6.3 shall:

               (i) specify the number of Registrable Securities which the Holders intend to offer and sell
and the minimum price at which the Holders intend to offer and sell such securities;

               (ii) state the intention of the Holders to offer such securities for sale;

               (iii) describe the intended method of distribution of such securities; and

               (iv) contain an undertaking on the part of the Holders to provide all such information and
materials concerning the Holders and take all such action as may be reasonably required to permit
the Company to comply with all applicable requirements of the Commission and to obtain acceleration
of the effective date of the registration statement.

5

 

     6.4      Covenants of the Company with Respect to Registration. In connection with the
filing of any Registration Document by the Company, the Company covenants and agrees as follows:

          (a) The Company shall use its best efforts to file a registration statement within 45 days of
receipt of any Demand Registration pursuant to Section 6.3, and shall use its best efforts to have
any such registration statement declared effective at the earliest practicable time. The Company
will promptly notify each Holder of such Registrable Securities and confirm such advice in writing,
(i) when such registration statement becomes effective, (ii) when any post-effective amendment to
such registration statement becomes effective and (iii) of any request by the Commission for any
amendment or supplement to such registration statement or any prospectus relating thereto or for
additional information.

          (b) The Company shall furnish to each Holder of such Registrable Securities such number of
copies of such registration statement and of each such amendment and supplement thereto (in each
case including each preliminary prospectus and summary prospectus) in conformity with the
requirements of the Act, and such other documents as the Holders may reasonably request in order to
facilitate the disposition of the Registrable Securities by such Holders.

          (c) If the Company shall fail to comply with the provisions of Section 6.3(a), the Company
shall, in addition to any other equitable or other relief available to the Holder(s), be liable for
any or all special and consequential damages sustained by the Holder(s) requesting registration of
their Registrable Securities.

          (d) The Company shall prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as may be reasonably
necessary to keep such registration statement effective for at least 12 months (or such longer
period as permitted by the Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holder or Holders of Registrable
Securities set forth in such registration statement. If at any time the Commission should
institute or threaten to institute any proceedings for the purpose of issuing a stop order
suspending the effectiveness of any such registration statement, the Company will promptly notify
each Holder of Registrable Securities and will use all reasonable efforts to prevent the issuance
of any such stop order or to obtain the withdrawal thereof as soon as possible. The Company will
use its good faith reasonable efforts and take all reasonably necessary action which may be
required in qualifying or registering the Registrable Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such states as reasonably
are required by the Holder(s), provided that the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction. The Company shall use its good faith reasonable efforts
to cause such Registrable Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities of the United States or any State
thereof as may be reasonably necessary to enable the Holder(s) thereof to consummate the
disposition of such Registrable Securities.

6

 

          (e) The Company shall indemnify the Holder(s) of the Registrable Securities to be sold
pursuant to any registration statement and each person, if any, who controls such Holders within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter as
contained in the Underwriting Agreement.

          (f) If requested by the Company prior to the filing of any registration statement covering the
Registrable Securities, each of the Holder(s) of the Registrable Securities to be sold pursuant to
a registration statement, and their successors and assigns, shall severally, and not jointly,
indemnify the Company, its officers and directors and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become subject under the
Act, the Exchange Act or otherwise, arising from written information furnished by such Holder, or
their successors or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in the Underwriting Agreement pursuant
to which the Underwriters have agreed to indemnify the Company, except that the maximum amount
which may be recovered from each Holder pursuant to this paragraph or otherwise shall be limited to
the amount of net proceeds received by the Holder from the sale of the Registrable Securities.

          (g) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to
exercise their Warrants prior to the filing of any registration statement or the effectiveness
thereof.

          (h) The Company shall not permit the inclusion of any securities other than the Registrable
Securities to be included in any registration statement filed pursuant to Section 6.3 hereof
without the prior written consent of the Majority of Holders which consent will not be unreasonably
withheld or delayed.

          (i) The Company shall furnish to each Holder participating in an offering and to the managing
underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion of counsel to the Company, dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a “Cold Comfort” letter dated the effective
date of such registration statement (and, if such registration includes an underwritten public
offering, a letter dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company’s financial statements
included in such registration statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein) and, in the case of
such accountants’ letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of

7

 

issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public
offerings of securities.

          (j) The Company shall deliver promptly to each Holder participating in an offering and to the
managing underwriter, if any, copies of all correspondence between the Commission and the Company,
its counsel or auditors and all non-privileged memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably necessary to comply
with applicable securities laws or rules of the FINRA. Such investigation shall include access to
books, records and properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such reasonable times and
as often as any such Holder shall reasonably request.

          (k) With respect to a registration statement filed pursuant to Section 6.3, the Company, if
requested, shall enter into an underwriting agreement with the managing underwriter, reasonably
satisfactory to the Company, selected for such underwriting by a Majority of Holders requested to
be included in such underwriting. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter. The Holders, if required by the
underwriter to be parties to any underwriting agreement relating to an underwritten sale of their
Registrable Securities, may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such underwriters shall also be
made to and for the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders and their intended methods of distribution.

          (l) Notwithstanding the provisions of Section 6.2 or Section 6.3 of this Agreement, the
Company shall not be required to effect or cause the registration of Registrable Securities
pursuant to Section 6.2 or Section 6.3 hereof if, within 30 days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an opinion to the Holders
and to the Company’s transfer agent requesting registration of such Registrable Securities, in form
and substance satisfactory to counsel to such Holder(s), to the effect that the entire number of
Registrable Securities proposed to be sold by such Holder(s) may otherwise be sold, in the manner
proposed by such Holder(s), without registration under the Securities Act, or (ii) the Commission
shall have issued a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect that the entire
number of Registrable Securities proposed to be sold by such Holder(s) may be sold by it, in the
manner proposed by such Holder(s), without registration under the Securities Act; provided,
however, if the Company’s transfer agent does not permit the sale of the Registrable Securities
upon request or for any other reason such sale is delayed, the Company shall thereafter immediately
notify such Holders that it will register the Registrable Securities for sale under the Act and
cause such Registrable Securities to be so registered.

8

 

          (m) After completion of the Public Offering, the Company shall not, directly or indirectly,
enter into any merger, business combination or consolidation in which (i) the Company shall not be
the surviving corporation and (ii) the shareholders of the Company are to receive, in whole or in
part, capital stock or other securities of the surviving corporation, unless the surviving
corporation shall, prior to such merger, business combination or consolidation, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose references
hereunder to “Registrable Securities” shall be deemed to include the securities which the
Holders would be entitled to receive in exchange for Registrable Securities under any such merger,
business combination or consolidation, provided that to the extent such securities to be received
are convertible into shares of Common Stock of the issuer thereof, then any such shares of Common
Stock as are issued or issuable upon conversion of said convertible securities shall also be
included within the definition of “Registrable Securities.”

	7.	 	Adjustments to Exercise Price and Number of Securities.

	 	7.1	 	Adjustment for Dividends, Subdivisions, Combinations or Reclassifications.

          (a) In case the Company shall (i) pay a dividend or make a distribution in shares of its
capital stock (whether shares of Common Stock or of capital stock of any other class), (ii)
subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of capital stock of the Company; then,
and in each such case, the per Share Exercise Price and the number of Shares in effect immediately
prior to such action shall be adjusted so that the Holder of this Warrant thereafter upon the
exercise hereof shall be entitled to receive the number and kind of shares of the Company which
such Holder would have owned immediately following such action had this Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this Section 7.1 shall become effective
immediately after the record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this section, the Holder of
this Warrant shall become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be conclusive) shall
determine the allocation of the adjusted Exercise Price between or among shares of such class of
capital stock.

          (b) Immediately upon any adjustment of the Exercise Price pursuant to this section, the
Company shall send written notice thereof to the Holder of Warrant Certificates (by first class
mail, postage prepaid), which notice shall state the Exercise Price resulting from such adjustment,
and any increase or decrease in the number of Shares to be acquired upon exercise of the Warrants,
setting forth in reasonable detail the method of calculation and the facts upon which such
calculation is based.

     7.2      Adjustment for Reorganization, Merger or Consolidation. In case of any
reorganization of the Company or consolidation of the Company with, or merger of the Company with,
or merger of the Company into, another corporation (other than a consolidation or merger which does
not result in any reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the

9

 

Holder a supplemental Warrant Agreement providing that the Holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such warrant, the kind and amount of shares of stock and
other securities and property receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might have been exercised
immediately prior to such reorganization, consolidation, merger, conveyance, sale or transfer.
Such supplemental Warrant Agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 7 and such registration rights and other rights as provided in
this Agreement. The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously with the
consummation thereof, the successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing, receiving, or leasing such assets or other
appropriate corporation or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock, securities, or assets as,
in accordance with the foregoing provisions, such holders may be entitled to purchase, and to
perform the other obligations of the Company under this Agreement. The above provision of this
Section 7.2 shall similarly apply to successive consolidations or successively whenever any event
listed above shall occur.

     7.3      Dividends and Other Distributions. In the event that the Company shall at any
time prior to the exercise of all of the Warrants distribute to its shareholders any assets,
property, rights, evidences of indebtedness, securities (other than a distribution made as a cash
dividend payable out of earnings or out of any earned surplus legally available for dividends under
the laws of the jurisdictions of incorporation of the Company), whether issued by the Company or by
another, the Holders of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities and property receivable upon the exercise thereof, to
receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been entitled to receive
at the time of such distribution as if the Warrants had been exercised immediately prior to such
distribution. At the time of any such distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this subsection or an adjustment to the Exercise
Price, which shall be effective as of the day following the record date for such distribution.

     7.4      Adjustment in Number of Securities. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 7, the number of securities issuable upon the exercise
of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of securities issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.

     7.5      No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise
Price shall be made if the amount of said adjustment shall be less than $.01 per Share; provided,
however, that in such case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least $.01 per Share.

10

 

     7.6      Accountant’s Certificate of Adjustment. In each case of an adjustment or
readjustment of the Exercise Price or the number of any securities issuable upon exercise of the
Warrants, the Company, at its expense, shall cause independent certified public accountants of
recognized standing selected by the Company (who may be the independent certified public
accountants then auditing the books of the Company) to compute such adjustment or readjustment in
accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder of the Warrants at the
Holders’ address as shown on the Company’s books. The certificate shall set forth such adjustment
or readjustment, showing in detail the facts upon which such adjustment or readjustment is based
including, but not limited to, a statement of (i) the Exercise Price at the time in effect, and
(ii) the number of additional or fewer securities and the type and amount, if any, of other
property which at the time would be receivable upon exercise of the Warrants.

	8.	 	Exchange and Replacement of Warrant Certificates.

     (a) Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by
the registered Holder at the principal executive office of the Company, for a new Warrant
Certificate of like tenor and date representing in the aggregate the right to purchase the same
number of securities in such denominations as shall be designated by the Holder thereof at the time
of such surrender.

     (b) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu
thereof.

9.      Elimination of Fractional Interest. The Company shall not be required to issue
certificates representing fractions of shares of Common Stock upon the exercise of the Warrants,
nor shall it be required to issue script or pay cash in lieu of fractional interests, it being the
intent of the parties that all fractional interests may be eliminated, at the Company’s option, by
rounding any fraction up to the nearest whole number of shares of Common Stock or other securities,
properties or rights, or in lieu thereof paying cash equal to such fractional interest multiplied
by the Market Value of a share of Common Stock.

10.     Reservation, Validity and Listing. The Company covenants and agrees that during the
exercise period, the Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as shall be issuable
upon the exercise under this Warrant Certificate. The Company covenants and agrees that, upon
exercise of the Warrants, and payment of the Exercise Price therefor, all shares of Common Stock
and other securities issuable upon such exercise shall be duly authorized, validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common
Stock issuable upon the exercise of the Warrants to be listed and quoted

11

 

(subject to official notice of issuance) on all securities exchanges and systems on which the
Common Stock are then listed and/or quoted, including Nasdaq and the American Stock Exchange.

11.     Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as
conferring upon the Holders of the Warrants the right to vote or to consent or to receive notice as
a shareholder in respect of any meetings of shareholders for the election of directors or any other
matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any
time prior to the expiration of the Warrants and their exercise, any of the following events shall
occur:

     (a) the Company shall take a record of the holders of its shares of Common Stock for the
purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or
a cash dividend or distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the books of the Company;
or

     (b) the Company shall offer to all the holders of its Common Stock any additional shares of
capital stock of the Company or securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe therefor; or

     (c) a dissolution, liquidation or winding up of the Company (other than in connection with a
consolidation or merger) or a sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;

then, in any one or more of said events, the Company shall give written notice of such event at
least 15 days prior to the date fixed as a record date of the date of closing the transfer books
for the determination of the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notices shall specify such record date or the date of
closing the transfer books, as the case may be.

12.     Notices. All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly given when sent by (i) facsimile; or (ii)
delivered personally or by overnight courier or mailed by registered or certified mail, return
receipt requested:

     (a) If to the registered Holder of any of the Registrable Securities, to the address of such
Holder as shown on the books of the Company.

With a copy to:

Christopher C. Paci, Esq.

DLA Piper LLP (US)

1251 Avenue of the Americas

New York, NY 10020

Fax: (212) 884-8470

12

 

     (b) If to the Company, to the address set forth below or to such other address as the Company
may designate by notice to the Holders.

Kendall Larsen

Chief Executive Officer

VirnetX Holding Corporation

5615 Scotts Valley Drive, Suite 110

Scotts Valley, CA 95066

Fax: (831) 438-3078

With a copy to:

Lowell D. Ness, Esq.

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, CA 94025

Fax: (650) 614-7401

13.     Entire Agreement: Modification. This Agreement (and the Underwriting Agreement to the
extent applicable) contains the entire understanding between the parties hereto with respect to the
subject matter hereof, and the terms and provisions of this Agreement may not be modified, waived
or amended except in a writing executed by the Company and a Majority of Holders. Notice of any
modification, waiver or amendment shall be promptly provided to any Holder not consenting to such
modification, waiver or amendment.

14.     Successors. All the covenants and provisions of this Agreement shall be binding upon
and inure to the benefit of the Company, the Holders and their respective successors and assigns
hereunder.

15.     Termination. This Agreement shall terminate at the earlier of (i) the public sale of
all of the Registrable Securities, or (ii) at the close of business on January ___, 2014.
Notwithstanding the foregoing, the indemnification provisions of Section 6 shall survive such
termination.

16.     Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without regard to the
conflicts of laws principles thereof. The parties hereto hereby irrevocably agree that any suit or
proceeding arising directly and/or indirectly pursuant to or under this Agreement, shall be brought
solely in a federal or state court located in the City, County and State of New York. By its
execution hereof, the parties hereby covenant and irrevocably submit to the in personam
jurisdiction of the federal and state courts located in the City, County and State of New York and
agree that any process in any such action may be served upon any of them personally, or by
certified mail or registered mail upon them or their agent, return receipt requested, with the same
full force and effect as if personally served upon them in New York City. The parties hereto waive
any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and
any defense or lack of in personam jurisdiction with respect thereto. In the event of any such
action or proceeding, the party prevailing therein shall be entitled to payment from

13

 

the other party hereto of its reasonable counsel fees and disbursements in an amount judicially
determined.

17.     Severability. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other provision of this
Agreement.

18.     Captions. The caption headings of the sections of this Agreement are for convenience
of reference only and are not intended, nor should they be construed as, a part of this Agreement
and shall be given no substantive effect.

19.     Benefits of This Agreement. Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company and the Underwriter and any other registered
Holder(s) of the Warrant Certificates or Registrable Securities any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriters and any other Holder(s) of the Warrant Certificates or
Registrable Securities.

20.     Counterparts. This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.

[Remainder of This Page Intentionally Left Blank; Signature Page to Follow]

14

 

     IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed, as of
the day and year first above written.

	 	 	 	 	 
	 	VIRNETX HOLDING CORPORATION

 	 
	 	By:  	
 	 
	 	 	Kendall Larsen 	 
	 	 	Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	GILFORD SECURITIES INCORPORATED

 	 
	 	By:  	
 	 
	 	 	Robert A. Maley 	 
	 	 	President 	 
	 

15

 

Exhibit A

VIRNETX HOLDING CORPORATION

WARRANT CERTIFICATE

     THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

     THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN
ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

EXERCISABLE ON OR BEFORE

5:30 P.M. EASTERN TIME ON JANUARY ___, 2014

NO. W-__________ __________ Warrants

     This Warrant Certificate (“Warrant Certificate”) certifies that Gilford Securities
Incorporated, or its assigns, is the registered holder (“Holder”) of Warrants (as defined
in the Underwriter’s Warrant Agreement between the Company and Holder dated as of January ___, 2009 (the
“Warrant Agreement”)) of VirnetX Holding Corporation (the “Company”). Each Warrant
permits Holder to purchase, at any time from January ___, 2009 (“Purchase Date”) until 5:30
p.m. Eastern Time on January ___, 2014 (the “Expiration Time”), one share of the Company’s
Common Stock (the “Shares”) at the initial exercise price, subject to adjustment in certain
events, of $      per share (120% of the public offering price) (the “Exercise Price”).

     No Warrant may be exercised after the Expiration Time, at which time all Warrants evidenced
hereby, unless exercised prior thereto, shall thereafter be void.

     The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of
Warrants issued pursuant to the Warrant Agreement. Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to such terms in the Warrant Agreement.

     The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price
and the type or number of the Company’s securities issuable thereupon may be adjusted.

     Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company
shall forthwith issue to Holder a new Warrant Certificate representing such number of unexercised
Warrants.

     The Company may deem and treat Holder as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by anyone)

 

 

for the purpose of any exercise hereof, and of any distribution to Holder, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.

[Remainder of This Page Intentionally Left Blank; Signature Page to Follow]

2

 

     IN WITNESS WHEREOF, the Company and the Warrant Agent have caused this Warrant Certificate to be duly executed.

     Dated as of January ___, 2009

	 	 	 	 	 
	 	VIRNETX HOLDING CORPORATION

 	 
	 	By:  	
 	 
	 	 	Kendall Larsen 	 
	 	 	Chief Executive Officer 	 
	 
	 
	                                                       
	 	CORPORATE STOCK TRANSFER, INC., as
Warrant Agent

 	 
	 	By:  	
 	 
	 	Name:  	
 	 
	 	Title:  	
 	 
	                                                        

 

 

EXHIBIT A

FORM OF SUBSCRIPTION (CASH EXERCISE)

(To be signed only upon exercise of Warrant)

	 	 	 
	TO:

	 	Corporate Stock Transfer, Inc.
	 

	 	3200 Cherry Creek South Drive
	 

	 	Suite 430
	 

	 	Denver, Colorado 80209

     The undersigned holder of Warrant Certificate number                      (the “Warrant
Certificate”), representing                      Warrants (as defined in the Warrant Certificate) of
VirnetX Holding Corporation (the “Company”), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to purchase                      Shares (as defined in the Warrant
Certificate), and herewith makes payment of $                     therefore, all in accordance with the
Warrant Certificate and the Warrant Agreement referred to in the Warrant Certificate. Certificates
for the Shares shall be issued in the name of                      and delivered to the following
address:

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

By:                                                             

Name:                                                             

Social Security Number or Tax Identification Number:                                                             

Date:                                                             

     (Signature must conform in all respects to name of Holder as specified on the face of the
Warrant Certificate)

Address

Social Security Number or

Tax Identification Number

 

 

EXHIBIT B

FORM OF SUBSCRIPTION (CASHLESS EXERCISE)

	 	 	 
	TO:

	 	Corporate Stock Transfer, Inc.
	 

	 	3200 Cherry Creek South Drive
	 

	 	Suite 430
	 

	 	Denver, Colorado 80209

     The undersigned holder of Warrant Certificate number                      (the “Warrant
Certificate”), representing                      Warrants (as defined in the Warrant Certificate) of
VirnetX Holding Corporation (the “Company”), which Warrant Certificate is being delivered
herewith, hereby irrevocably elects to purchase (on a cashless exercise basis in accordance with
the formula set forth in Section 3.1(b) of the Warrant Agreement referred to in the Warrant
Certificate (the “Warrant Agreement”))                      Shares (as defined in the Warrant
Certificate), all in accordance with the Warrant Certificate and the Warrant Agreement.
Certificates for the Shares shall be issued in the name of                      and delivered to the
following address:

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 

By:                                                             

Name:                                                             

Social Security Number or Tax Identification Number:                                                             

Date:                                                             

     (Signature must conform in all respects to name of Holder as specified on the face of the
Warrant Certificate)

Address

Social Security Number or

Tax Identification Number

 

 

FORM OF ASSIGNMENT

     (To be exercised by the registered holder if such Holder desires to transfer the Warrant
Certificate)

     FOR VALUE RECEIVED                                                              
                                                                                hereby sells, assigns and
transfers unto:

Print Name of Transferee

Address

City State Zip Code
 

this Warrant Certificate, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint
_________ Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full power of substitution.

	 	 	 
	     Dated:                                                             

	 	Signature:
	 
	 	 
	 

	 	 
	 

	 	(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant
Certificate)

Social Security Number or Other Identifying Number of Assignee

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