Document:

Exhibit 10.16

    
      
        

      

    

    Exhibit
      10.16

    

    

    

    

    THERMO
      LIFE ENERGY CORP.

    

    2005
      FLEXIBLE STOCK PLAN

    

    

    
    

    

    
      
        
          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    

    THERMO
      LIFE ENERGY CORP.

    2005
      FLEXIBLE STOCK PLAN

    TABLE
      OF
      CONTENTS

     

     

    

      
        	 	 	 	
                Page

              
	
              	
              	
              	
              
	 	 	 	 
	
              	
              	
              	
              
	
                1.
                  NAME AND PURPOSE

              
	
              
	 	
                1.1.
                  Name.

              	
                1

              
	
              	
              	
              
	 	
                1.2.
                  Purpose.

              	
                1

              
	
              	
              	
              
	 	 	 	 
	
              	
              	
              	
              
	
                2.
                  DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION

              	 
	
              	
              
	 	
                2.1.
                  General Definitions.

              	 
	
              	
              	
              
	 	 	
                2.1.1.
                  Affiliate.

              	
                1

              
	
              	
              	
              	
              
	 	 	
                2.1.2.
                  Agreement.

              	
                1

              
	
              	
              	
              	
              
	 	 	
                2.1.3.
                  Benefit.

              	
                1

              
	
              	
              	
              	
              
	 	 	
                2.1.4.
                  Board.

              	
                1

              
	
              	
              	
              	
              
	 	 	
                2.1.5.
                  Cash Award.

              	
                1

              
	
              	
              	
              	
              
	 	 	
                2.1.6.
                  Change of Control.

              	
                1

              
	
              	
              	
              	
              
	 	 	
                2.1.7.
                  Code.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.8.
                  Company.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.9.
                  Committee.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.10.
                  Common Stock.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.11.
                  Director.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.12.
                  Effective Date.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.13.
                  Employee.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.14.
                  Employer.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.15.
                  Exchange Act.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.16.
                  Fair Market Value.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.17.
                  Fiscal Year.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.18.
                  ISO.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.19.
                  NQSO.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.20.
                  Option.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.21.
                  Other Stock Based Award.

              	
                2

              
	
              	
              	
              	
              
	 	 	
                2.1.22.
                  Parent.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.23.
                  Participant.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.24.
                  Performance Based Compensation.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.25.
                  Performance Share.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.26.
                  Plan.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.27.
                  Reload Option.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.28.
                  Restricted Stock.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.29.
                  Rule 16b-3.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.30.
                  SEC.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.31.
                  Share.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.32.
                  SAR.

              	
                3

              
	
              	
              	
              	
              
	 	 	
                2.1.33.
                  Subsidiary.

              	
                3

              
	
              	
              	
              	
              
	 	
                2.2.
                  Other Definitions.

              	
                3

              
	
              	
              	
              
	 	
                2.3.
                  Conflicts.

              	
                3

              
	
              	
              	
              
	 	 	 	 
	
              	
              	
              	
              
	
                3.
                  COMMON STOCK

              	 
	
              	
              
	 	
                3.1.
                  Number of Shares.

              	
                4

              
	
              	
              	
              
	 	
                3.2.
                  Reusage.

              	
                4

              
	
              	
              	
              
	 	
                3.3.
                  Adjustments.

              	
                4

              
	
              	
              	
              

      

      
      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    

      
        	
                4.
                  ELIGIBILITY

              	 
	
              	
              
	 	
                4.1.
                  Determined By Committee.

              	
                4

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                5.
                  ADMINISTRATION

              	 
	
              	
              
	 	
                5.1.
                  Committee.

              	
                4

              
	
              	
              	
              
	 	
                5.2.
                  Authority.

              	
                4

              
	
              	
              	
              
	 	
                5.3.
                  Delegation.

              	
                5

              
	
              	
              	
              
	 	
                5.4.
                  Determination.

              	
                5

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                6.
                  AMENDMENT

              	 
	
              	
              
	 	
                6.1.
                  Power of Board.

              	
                5

              
	
              	
              	
              
	 	
                6.2.
                  Limitation.

              	
                5

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                7.
                  TERM AND TERMINATION

              	 
	
              	
              
	 	
                7.1.
                  Term.

              	
                5

              
	
              	
              	
              
	 	
                7.2.
                  Termination.

              	
                5

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                8.
                  MODIFICATION OR TERMINATION OF BENEFITS

              	 
	
              	
              
	 	
                8.1.
                  General.

              	
                5

              
	
              	
              	
              
	 	
                8.2.
                  Committee’s Right.

              	
                5

              
	
              	
              	
              
	 	
                8.3.
                  Compliance with Applicable Laws.

              	
                6

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                9.
                  CHANGE OF CONTROL

              	 
	
              	
              
	 	
                9.1.
                  Vesting and Payment.

              	
                6

              
	
              	
              	
              
	 	
                9.2.
                  Other Action.

              	
                6

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                10.
                  AGREEMENTS AND CERTAIN BENEFITS

              	 
	
              	
              
	 	
                10.1.
                  Grant Evidenced by Agreement.

              	
                6

              
	
              	
              	
              
	 	
                10.2.
                  Provisions of Agreement.

              	
                6

              
	
              	
              	
              
	 	
                10.3.
                  Transferability.

              	
                6

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                11.
                  REPLACEMENT AND TANDEM AWARDS

              	 
	
              	
              
	 	
                11.1.
                  Replacement.

              	
                6

              
	
              	
              	
              
	 	
                11.2.
                  Tandem Awards.

              	
                7

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                12.
                  PAYMENT, DIVIDENDS AND WITHHOLDING

              	 
	
              	
              
	 	
                12.1.
                  Payment.

              	
                7

              
	
              	
              	
              
	 	
                12.2.
                  Dividend Equivalents.

              	
                7

              
	
              	
              	
              
	 	
                12.3.
                  Withholding.

              	
                7

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                13.
                  OPTIONS

              	 
	
              	
              
	 	
                13.1.
                  Types of Options.

              	
                7

              
	
              	
              	
              
	 	
                13.2.
                  Grant of ISOs and Option Price.

              	
                7

              
	
              	
              	
              

      

      
      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
    

    

      
        	 	
                13.3.
                  Other Requirements for ISOs.

              	
                7

              
	
              	
              	
              
	 	
                13.4.
                  NQSOs.

              	
                7

              
	
              	
              	
              
	 	
                13.5.
                  Determination by Committee.

              	
                7

              
	
              	
              	
              
	
                14.
                  SARS

              	 
	
              	
              
	 	
                14.1.
                  Grant and Payment.

              	
                8

              
	
              	
              	
              
	 	
                14.2.
                  Grant of Tandem Award.

              	
                8

              
	
              	
              	
              
	 	
                14.3.
                  ISO Tandem Award.

              	
                8

              
	
              	
              	
              
	 	
                14.4.
                  Payment of Award.

              	
                8

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                15.
                  ANNUAL LIMITATIONS

              	 
	
              	
              
	 	
                15.1.
                  Limitation on Options and SARs.

              	
                8

              
	
              	
              	
              
	 	
                15.2.
                  Limitation on Performance Shares.

              	
                8

              
	
              	
              	
              
	 	
                15.3.
                  Computations.

              	
                8

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                16.
                  RESTRICTED STOCK AND PERFORMANCE SHARES

              	 
	
              	
              
	 	
                16.1.
                  Restricted Stock.

              	
                8

              
	
              	
              	
              
	 	
                16.2.
                  Cost of Restricted Stock.

              	
                8

              
	
              	
              	
              
	 	
                16.3.
                  Non-Transferability.

              	
                8

              
	
              	
              	
              
	 	
                16.4.
                  Performance Shares.

              	
                8

              
	
              	
              	
              
	 	
                16.5.
                  Grant.

              	
                9

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                17.
                  CASH AWARDS

              	 
	
              	
              
	 	
                17.1.
                  Grant.

              	
                9

              
	
              	
              	
              
	 	
                17.2.
                  Annual Limits.

              	
                9

              
	
              	
              	
              
	 	
                17.3.
                  Restrictions.

              	
                9

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                18.
                  OTHER STOCK BASED AWARDS AND OTHER BENEFITS

              	 
	
              	
              
	 	
                18.1.
                  Other Stock Based Awards.

              	
                9

              
	
              	
              	
              
	 	
                18.2.
                  Other Benefits.

              	
                9

              
	
              	
              	
              
	 	 	 
	
              	
              	
              
	
                19.
                  MISCELLANEOUS PROVISIONS

              	 
	
              	
              
	 	
                19.1.
                  Underscored References.

              	
                9

              
	
              	
              	
              
	 	
                19.2.
                  Number and Gender.

              	
                10

              
	
              	
              	
              
	 	
                19.3.
                  Unfunded Status of Plan.

              	
                10

              
	
              	
              	
              
	 	
                19.4.
                  Termination of Employment.

              	
                10

              
	
              	
              	
              
	 	
                19.5.
                  Designation of Beneficiary.

              	
                10

              
	
              	
              	
              
	 	
                19.6.
                  Governing Law.

              	
                10

              
	
              	
              	
              
	 	
                19.7.
                  Purchase for Investment.

              	
                10

              
	
              	
              	
              
	 	
                19.8.
                  No Employment Contract.

              	
                11

              
	
              	
              	
              
	 	
                19.9.
                  No Effect on Other Benefits.

              	
                11

              
	
              	
              	
              
	 	
                19.10.
                  Limitation on Exercise.

              	
                11

              
	
              	
              	
              

      

      
      

    
      
        
          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    

    THERMO
      LIFE ENERGY CORP.

    2005
      FLEXIBLE STOCK PLAN

     

    1.
      NAME AND PURPOSE

    1.1
      Name.

     

    The
      name
      of this Plan is the “Thermo Life Energy Corp. 2005 Flexible Stock
      Plan.”

     

    1.2
      Purpose.

     

    The
      Company has established this Plan to attract, retain, motivate and reward
      Employees and Directors and to encourage ownership of the Company’s Common Stock
      by them.
      The
      Company also intends in appropriate circumstances to grant awards of its common
      stock in lieu of cash compensation pursuant to the mutual agreement of the
      Participant and the Company. 

     

    2.
      DEFINITIONS
      OF TERMS AND RULES OF CONSTRUCTION

    2.1
      General Definitions.

     

    The
      following words and phrases, when used in the Plan, unless otherwise
      specifically defined or unless the context clearly otherwise requires, shall
      have the following respective meanings:

     

    2.1.1
      Affiliate.

     

    A
      Parent
      or Subsidiary of the Company.

     

    2.1.2
      Agreement.

     

    The
      document which evidences the grant of any Benefit under the Plan and which
      sets
      forth the Benefit and the terms, conditions and provisions of, and restrictions
      relating to, such Benefit.

     

    2.1.3
      Benefit.

     

    Any
      benefit granted to a Participant under the Plan.

     

    2.1.4
      Board.

     

    The
      Board
      of Directors of the Company.

     

    2.1.5
      Cash
      Award.

     

    A
      Benefit
      payable in the form of cash.

     

    2.1.6
      Change
      of Control.

     

    If
      any
“person” (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
      Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated
      under the Exchange Act), directly or indirectly, of securities of the Company
      representing 20% or more of the combined voting power of the Company’s then
      outstanding securities; upon the first purchase of the Common Stock pursuant
      to
      a tender or exchange offer (other than a tender or exchange offer made by the
      Company); upon the approval by the Company’s stockholders of a merger or
      consolidation, a sale or disposition of all or substantially all of the
      Company’s assets or a plan of liquidation or dissolution of the Company; or if
      during an period of two consecutive years, individuals who at the beginning
      of
      such period constitute the Board cease for any reason to constitute at least
      a
      majority thereof, unless the election or nomination for the election by the
      Company’s stockholders of each new director was approved by a vote of at least
      2/3 of the Board then still in office who were members of the Board at the
      beginning of the period. Notwithstanding the foregoing, a Change in Control
      shall not be deemed to occur if the Company either merges or consolidates with
      or into another company or sells or disposes of all or substantially all of
      its
      assets to another company, if such merger, consolidation, sale or disposition
      is
      in connection with a corporate restructuring wherein the stockholders of the
      Company immediately before such merger, consolidation, sale or disposition
      own,
      directly or indirectly, immediately following such merger, consolidation, sale
      or disposition of at least 80% of the combined voting power of all outstanding
      classes of securities of the company resulting from such merger or
      consolidation, or to which the Company sells or disposes of its assets, in
      substantially the same proportion as their ownership in the Company immediately
      before such merger, consolidation, sale or disposition.

     

    

     

    

     

    

    
      
        
          1

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    2.1.7
      Code.

     

    The
      Internal Revenue Code of 1986, as amended. Any reference to the Code includes
      the regulations promulgated pursuant to the Code.

     

    2.1.8
      Company.

     

    Thermo
      Life Energy Corp.

     

    2.1.9
      Committee.

     

    The
      Committee described in Section 5.1.

     

    2.1.10
      Common
      Stock.

     

    The
      Company’s common stock which presently has a par value of $.001 per
      Share.

     

    2.1.11
      Director.

     

    A
      member
      of the Board or a member of the Board of Directors of an Affiliate.

     

    2.1.12
      Effective
      Date.

     

    The
      date
      that the Plan is approved by the shareholders of the Company (or the
      shareholders of the Company’s Parent, if none of the common shares of the
      Company are publicly traded),
      which
      must occur within one year before or after approval by the Board. Any grants
      of
      Benefits prior to such approval shall be void if such approval is not
      obtained.

     

    2.1.13
      Employee.

     

    Any
      person employed by the Employer.

     

    2.1.14
      Employer.

     

    The
      Company and all Affiliates.

     

    2.1.15
      Exchange
      Act.

     

    The
      Securities Exchange Act of 1934, as amended.

     

    2.1.16
      Fair
      Market Value.

     

    The
      last
      sale price, regular way, or, in case no such sale takes place on such date,
      the
      average of the closing bid and asked prices, regular way, of the Shares, in
      either case as reported in the principal consolidated transaction reporting
      system with respect to securities listed or admitted to trading on the New
      York
      Stock Exchange, Inc. (the “NYSE”) or, if the Shares are not listed or admitted
      to trading on the NYSE, as reported in the principal consolidated transaction
      reporting system with respect to securities listed on the principal national
      securities exchange on which the Shares are listed or admitted to trading or,
      if
      the Shares are not listed or admitted to trading on any national securities
      exchange, the last quoted sale price on such date or, if not so quoted, the
      average of the high bid and low asked prices in the over-the-counter market
      on
      such date, as reported by the National Association of Securities Dealers, Inc.
      Automated Quotations System or such other system then in use, or, if on any
      such
      date the Shares are not quoted by any such organization, the average of the
      closing bid and asked prices on such date as furnished by a professional market
      maker making a market in the Shares selected by the Committee. If the Shares
      are
      not publicly held or so listed or publicly traded, the determination of the
      Fair
      Market Value per Share shall be made in good faith by the
      Committee.

     

    2.1.17
      Fiscal
      Year.

     

    The
      taxable year of the Company which is the calendar year.

     

    2.1.18
      ISO.

     

    An
      Incentive Stock Option as defined in Section 422 of the Code.

     

    2.1.19
      NQSO.

     

    A
      non-qualified stock Option, which is an Option that does not qualify as an
      ISO.

     

    2.1.20
      Option.

     

    An
      option
      to purchase Shares granted under the Plan.

     

    2.1.21
      Other
      Stock Based Award.

     

    An
      award
      under Section 3.1 that is valued in whole or in part by reference to, or is
      otherwise based on, Common Stock.

     

    

    
      
        
          2

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    2.1.22
      Parent.

     

    Any
      corporation (other than the Company or a Subsidiary) in an unbroken chain of
      corporations ending with the Company, if, at the time of the grant of an Option
      or other Benefit, each of the corporations (other than the Company) owns stock
      possessing 50% or more of the total combined voting power of all classes of
      stock in one of the other corporations in such chain.

     

    2.1.23
      Participant.

     

    An
      individual who is granted a Benefit under the Plan.
      Benefits may be granted only to Employees, members of the Board, (including
      former Employees and former members of the Board if in connection with their
      separation from the Company), employees and owners of entities which are not
      Affiliates but which have a direct or indirect ownership interest in an Employer
      or in which an Employer has a direct or indirect ownership interest, individuals
      who, and employees and owners of entities which, are customers and suppliers
      of
      an Employer, individuals who, and employees and owners of entities which, render
      services to an Employer, and individuals who, and employees and owners of
      entities, which have ownership or business affiliations with any individual
      or
      entity previously described.

     

    2.1.24
      Performance
      Based Compensation.

     

    Compensation
      which meets the requirements of Section 162(m)(4)(C) of the Code.

     

    2.1.25
      Performance
      Share.

     

    A
      Share
      awarded to a Participant under Section 16.4 of the Plan.

     

    2.1.26
      Plan.

     

    The
      Thermo Life Energy Corp. 2005 Flexible Stock Plan and all amendments and
      supplements to it.

     

    2.1.27
      Reload
      Option.

     

    An
      Option
      to purchase the number of Shares used by a Participant to exercise an Option
      and
      to satisfy any withholding requirement incident to the exercise of such
      Option.

     

    2.1.28
      Restricted
      Stock.

     

    Shares
      issued under Section 16.1 of the Plan.

     

    2.1.29
      Rule
      16b-3.

     

    Rule
      16b-3 promulgated by the SEC, as amended, or any successor rule in effect from
      time to time.

     

    2.1.30
      SEC.

     

    The
      Securities and Exchange Commission.

     

    2.1.31
      Share.

     

    A
      share
      of Common Stock.

     

    2.1.32
      SAR.

     

    A
      stock
      appreciation right, which is the right to receive an amount equal to the
      appreciation, if any, in the Fair Market Value of a Share from the date of
      the
      grant of the right to the date of its payment.

     

    2.1.33
      Subsidiary.

     

    Any
      corporation, other than the Company, in an unbroken chain of corporations
      beginning with the Company if, at the time of grant of an Option or other
      Benefit, each of the corporations, other than the last corporation in the
      unbroken chain, owns stock possessing 50% or more of the total combined voting
      power of all classes of stock in one of the other corporations in such chain.
      

     

     

    2.2
      Other Definitions.

     

    In
      addition to the above definitions, certain words and phrases used in the Plan
      and any Agreement may be defined in other portions of the Plan or in such
      Agreement.

     

     

    2.3
      Conflicts.

     

    In
      the
      case of any conflict in the terms of the Plan relating to a Benefit, the
      provisions in the section of the Plan which specifically grants such Benefit
      shall control those in a different section. In the case of any conflict between
      the terms of the Plan relating to a Benefit and the terms of an Agreement
      relating to a Benefit, the terms of the Plan shall control.

     

    

    
      
        
          3

        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    3.
      COMMON STOCK

    3.1
      Number of Shares.

     

    The
      number of Shares which may be issued or sold or for which Options, SARs or
      Performance Shares may be granted under the Plan shall be 900,000. Such Shares
      may be authorized but unissued Shares, Shares held in the treasury, or both.
      The
      full number of Shares available may be used for any type of Option or other
      Benefit.

     

    3.2
      Reusage.

     

    If
      an
      Option or SAR expires or is terminated, surrendered, or canceled without having
      been fully exercised, if Restricted Shares or Performance Shares are forfeited,
      or if any other grant results in any Shares not being issued, the Shares covered
      by such Option or SAR, grant of Restricted Shares, Performance Shares or other
      grant, as the case may be, shall again be available for use under the Plan.
      Any
      Shares which are used as full or partial payment to the Company upon exercise
      of
      an Option or for any other Benefit that requires a payment to the Company shall
      be available for purposes of the Plan.

     

    3.3
      Adjustments.

     

    If
      there
      is any change in the Common Stock of the Company by reason of any stock
      dividend, spin-off, split-up, spin-out, recapitalization, merger, consolidation,
      reorganization, combination or exchange of shares, or otherwise, the number
      of
      SARs and number and class of shares available for Options and grants of
      Restricted Stock, Performance Shares and Other Stock Based Awards and the number
      of Shares subject to outstanding Options, SARs, grants of Restricted Stock
      which
      are not vested, grants of Performance Shares which are not vested, and Other
      Stock Based Awards, and the price thereof, as applicable, may be appropriately
      adjusted by the Committee.

     

    4.
      ELIGIBILITY

    4.1
      Determined
      By Committee.

     

    The
      Participants and the Benefits they receive under the Plan shall be determined
      solely by the Committee. In making its determinations, the Committee shall
      consider past, present and expected future contributions of Participants and
      potential Participants to the Employer, including, without limitation, the
      performance of, or the refraining from the performance of, services. Unless
      specifically provided otherwise herein, all determinations of the Committee
      in
      connection with the Plan or an Agreement shall be made in its sole
      discretion.

     

    5.
      ADMINISTRATION

    5.1
      Committee.

     

    The
      Plan
      shall be administered by the Committee. The Committee shall consist of the
      “outside directors” of the Board, unless the Board appoints a Committee of two
      or more but less than all of the Board, all
      of
      whom are “outside directors” as defined in Section 162(m) of the Code.
The
      Committee shall use its best efforts to grant Options, SARs, Restricted Stock,
      Performance Shares, Cash Awards and Other Stock Based Awards under this Plan
      to
      an Employee which will qualify as “performance-based compensation” for purposes
      of Section 162(m) of the Code, except where the Committee deems that the
      Company’s interests when viewed broadly will be better served by a grant which
      is free of the conditions required to so qualify any such grant for purposes
      of
      Section 162(m) of the Code. 

     

    If
      the
      Committee does not include the entire Board, it shall serve at the pleasure
      of
      the Board, which may from time to time appoint members in substitution for
      members previously appointed and fill vacancies, however caused, in the
      Committee. The Committee may select one of its members as its Chairman and
      shall
      hold its meetings at such times and places as it may determine. A majority
      of
      its members shall constitute a quorum. All determinations of the Committee
      made
      at a meeting at which a quorum is present shall be made by a majority of its
      members present at the meeting. Any decision or determination reduced to writing
      and signed by a majority of the members shall be fully as effective as if it
      had
      been made by a majority vote at a meeting duly called and held.

     

    5.2
      Authority.

     

    Subject
      to the terms of the Plan, the Committee shall have discretionary authority
      to:

     

    (a) determine
      the individuals to whom Benefits are granted, the type and amounts of Benefits
      to be granted and the date of issuance and duration of all such
      grants;

     

    (b) determine
      the terms, conditions and provisions of, and restrictions relating to, each
      Benefit granted;

     

    (c) interpret
      and construe the Plan and all Agreements;

     

    (d) prescribe,
      amend and rescind rules and regulations relating to the Plan;

     

    (e) determine
      the content and form of all Agreements;

     

    

    
      
        
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    (f) determine
      all questions relating to Benefits under the Plan;

     

    (g) maintain
      accounts, records and ledgers relating to Benefits;

     

    (h) maintain
      records concerning its decisions and proceedings;

     

    (i) employ
      agents, attorneys, accountants or other persons for such purposes as the
      Committee considers necessary or desirable;

     

    (j) take,
      at
      any time, any action required or permitted by Section 9.1 or 9.2(a),
      respectively, irrespective of whether any Change of Control has occurred or
      is
      imminent;

     

    (k) determine,
      except to the extent otherwise provided in the Plan, whether and the extent
      to
      which Benefits under the Plan will be structured to conform to the requirements
      applicable to Performance-Based Compensation, and to take such action, establish
      such procedures, and impose such restrictions at the time such Benefits are
      granted as the Committee determines to be necessary or appropriate to conform
      to
      such requirements; and

     

    (l) do
      and
      perform all acts which it may deem necessary or appropriate for the
      administration of the Plan and carry out the purposes of the Plan.

     

    5.3
      Delegation.

     

    Except
      as
      required by Rule 16b-3 with respect to grants of Options, Stock Appreciation
      Awards, Performance Shares, Other Stock Based Awards, or other Benefits to
      individuals who are subject to Section 16b-3 of the Exchange Act or as otherwise
      required for compliance with Rule 16b-3 or other applicable law, the Committee
      may delegate all or any part of its authority under the Plan to any Employee,
      Employees or committee.

     

    5.4
      Determination.

     

    All
      determinations of the Committee shall be final.

     

    6.
      AMENDMENT

    6.1
      Power
      of Board.

     

    Except
      as
      hereinafter provided, the Board shall have the sole right and power to amend
      the
      Plan at any time and from time to time.

     

    6.2
      Limitation.

     

    The
      Board
      may not amend the Plan, without approval of the shareholders of the
      Company:

     

    (a) in
      a
      manner which would cause Options which are intended to qualify as ISOs to fail
      to qualify;

     

    (b) in
      a
      manner which would cause the Plan to fail to meet the requirements of Rule
      16b-3; or

     

    (c) in
      a
      manner which would violate applicable law.

     

    7.
      TERM AND TERMINATION

    7.1
      Term.

     

    The
      Plan
      shall commence as of the Effective Date and, subject to the terms of the Plan,
      including those requiring approval by the shareholders of the Company and those
      limiting the period over which ISOs or any other Benefits may be granted, shall
      continue in full force and effect until terminated.

     

    7.2
      Termination.

     

    The
      Plan
      may be terminated at any time by the Board.

     

    8.
      MODIFICATION OR TERMINATION OF BENEFITS

    8.1
      General.

     

    Subject
      to the provisions of Section 8.2, the amendment or termination of the Plan
      shall
      not adversely affect a Participant’s right to any Benefit granted prior to such
      amendment or termination.

     

    8.2
      Committee’s
      Right.

     

    Any
      Benefit granted may be converted, modified, forfeited or canceled, in whole
      or
      in part, by the Committee if and to the extent permitted in the Plan or
      applicable Agreement or with the consent of the Participant to whom such Benefit
      was granted. Except as may be provided in an Agreement, the Committee may,
      in
      its sole discretion, in whole or in part, waive any restrictions or conditions
      applicable to, or accelerate the vesting of, any Benefit.

     

    

    
      
        
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    8.3
      Compliance with Applicable Laws.

     

    The
      Plan
      shall be administered and interpreted in accordance with applicable federal
      tax
      laws, including Section 409A of the Code, and the regulations promulgated
      thereunder. 

     

    9.
      CHANGE OF CONTROL

    9.1
      Vesting and Payment.

     

    In
      the
      event of a Change of Control:

     

    (a) all
      outstanding Options shall become fully exercisable, except to the extent that
      the right to exercise the Option is subject to restrictions established in
      connection with an SAR that is issued in tandem with the Option;

     

    (b) all
      outstanding SARs shall become immediately payable, except to the extent that
      the
      right to exercise the SAR is subject to restrictions established in connection
      with an Option that is issued in tandem with the SAR;

     

    (c) all
      Shares of Restricted Stock shall become fully vested;

     

    (d) all
      Performance Shares shall be deemed to be fully earned and shall be paid out
      in
      such manner as determined by the Committee; and

     

    (e) all
      Cash
      Awards, Other Stock Based Awards and other Benefits shall become fully vested
      and/or earned and paid out in such manner as determined by the
      Committee.

     

    9.2
      Other Action.

     

    In
      the
      event of a Change of Control, the Committee, in its sole discretion, may, in
      addition to the provisions of Section 9.1 above and to the extent not
      inconsistent therewith:

     

    (a) provide
      for the purchase of any Benefit for an amount of cash equal to the amount which
      could have been attained upon the exercise or realization of such Benefit had
      such Benefit been currently exercisable or payable;

     

    (b) make
      such
      adjustment to the Benefits then outstanding as the Committee deems appropriate
      to reflect such transaction or change; and/or

     

    (c) cause
      the
      Benefits then outstanding to be assumed, or new Benefits substituted therefor,
      by the surviving corporation in such change.

     

    10.
      AGREEMENTS AND CERTAIN BENEFITS

    10.1
      Grant Evidenced by Agreement.

     

    The
      grant
      of any Benefit under the Plan may be evidenced by an Agreement which shall
      describe the specific Benefit granted and the terms and conditions of the
      Benefit. The granting of any Benefit shall be subject to, and conditioned upon,
      the recipient’s execution of any Agreement required by the Committee. Except as
      otherwise provided in an Agreement, all capitalized terms used in the Agreement
      shall have the same meaning as in the Plan, and the Agreement shall be subject
      to all of the terms of the Plan.

     

    10.2
      Provisions
      of Agreement.

     

    Each
      Agreement shall contain such provisions that the Committee shall determine
      to be
      necessary, desirable and appropriate for the Benefit granted which may include,
      but not necessarily be limited to, the following with respect to any Benefit:
      description of the type of Benefit; the Benefit’s duration; its transferability;
      if an Option, the exercise price, the exercise period and the person or persons
      who may exercise the Option; the effect upon such Benefit of the Participant’s
      death, disability, changes of duties or termination of employment; the Benefit’s
      conditions; when, if, and how any Benefit may be forfeited, converted into
      another Benefit, modified, exchanged for another Benefit, or replaced; and
      the
      restrictions on any Shares purchased or granted under the Plan.

     

    10.3
      Transferability.

     

    Unless
      otherwise specified in an Agreement or permitted by the Committee, each Benefit
      granted shall be not transferable other than by will or the laws of descent
      and
      distribution and shall be exercisable during a Participant’s lifetime only by
      him.

     

    11.
      REPLACEMENT AND TANDEM AWARDS

    11.1
      Replacement.

     

    The
      Committee may permit a Participant to elect to surrender a Benefit in exchange
      for a new Benefit.

     

    

    
      
        
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    11.2
      Tandem Awards.

     

    Awards
      may be granted by the Committee in tandem. However, no Benefit may be granted
      in
      tandem with an ISO except SARs.

     

    12.
      PAYMENT, DIVIDENDS AND WITHHOLDING

    12.1
      Payment.

     

    Upon
      the
      exercise of an Option or in the case of any other Benefit that requires a
      payment by a Participant to the Company, the amount due the Company is to be
      paid:

     

    (a) in
      cash,
      including by means of a so-called “cashless exercise” of an Option;

     

    (b) by
      the
      surrender of all or part of a Benefit (including the Benefit being
      exercised);

     

    (c) by
      the
      tender to the Company of Shares owned by the optionee and registered in his
      name
      having a Fair Market Value equal to the amount due to the Company;

     

    (d) in
      other
      property, rights and credits deemed acceptable by the Committee, including
      the
      Participant’s promissory note; or

     

    (e) by
      any
      combination of the payment methods specified in (a), (b), (c) and (d)
      above.

     

    

    Notwithstanding,
      the foregoing, any method of payment other than (a) may be used only with the
      consent of the Committee or if and to the extent so provided in an Agreement.
      The proceeds of the sale of Shares purchased pursuant to an Option and any
      payment to the Company for other Benefits shall be added to the general funds
      of
      the Company or to the Shares held in treasury, as the case may be, and used
      for
      the corporate purposes of the Company as the Board shall determine.

     

    12.2
      Dividend
      Equivalents.

     

    Grants
      of
      Benefits in Shares or Share equivalents may include dividend equivalent payments
      or dividend credit rights.

     

    12.3
      Withholding.

     

    The
      Company may, at the time any distribution is made under the Plan, whether in
      cash or in Shares, or at the time any Option is exercised, withhold from such
      distribution or Shares issuable upon the exercise of an Option, any amount
      necessary to satisfy federal, state and local income and/or other tax
      withholding requirements with respect to such distribution or exercise of such
      Options. The Committee or the Company may require a participant to tender to
      the
      Company cash and/or Shares in the amount necessary to comply with any such
      withholding requirements.

     

    13.
      OPTIONS

    13.1
      Types
      of Options.

     

    It
      is
      intended that both ISOs and NQSOs, which may be Reload Options, may be granted
      by the Committee under the Plan.

     

    13.2
      Grant
      of ISOs and Option Price.

     

    Each
      ISO
      must be granted to an Employee and granted within ten years from the earlier
      of
      the date of adoption by the Board or the Effective Date. The purchase price
      for
      Shares under any ISO shall be no less than the Fair Market Value of the Shares
      at the time the Option is granted.

     

    13.3
      Other
      Requirements for ISOs.

     

    The
      terms
      of each Option which is intended to qualify as an ISO shall meet all
      requirements of Section 422 of the Code.

     

    13.4
      NQSOs.

     

    The
      terms
      of each NQSO shall provide that such Option will not be treated as an ISO.
      The
      purchase price for Shares under any NQSO shall be no less than 100% of the
      Fair
      Market Value of the Shares at the time the Option is granted.

     

    13.5
      Determination by Committee.

     

    Except
      as
      otherwise provided in Section 13.1 through Section13.4, the terms of all Options
      shall be determined by the Committee.

     

    

    
      
        
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    14.
      SARS

    14.1
      Grant
      and Payment.

     

    The
      Committee may grant SARs. Upon electing to receive payment of a SAR, a
      Participant shall receive payment in Shares.

     

    14.1
      Grant of Tandem Award.

     

    The
      Committee may grant SARs in tandem with an Option, in which case: the exercise
      of the Option shall cause a correlative reduction in SARs standing to a
      Participant’s credit which were granted in tandem with the Option; and the
      payment of SARs shall cause a correlative reduction of the Shares under such
      Option.

     

    14.2
      ISO Tandem Award.

     

    When
      SARs
      are granted in tandem with an ISO, the SARs shall have such terms and conditions
      as shall be required for the ISO to qualify as an ISO.

     

    14.3
      Payment of Award.

     

    SARs
      shall be paid by the Company to a Participant, to the extent payment is elected
      by the Participant (and is otherwise due and payable), as soon as practicable
      after the date on which such election is made.

     

    15.
      ANNUAL LIMITATIONS

    15.1
      Limitation on Options and SARs.

     

    The
      number of (a) Shares covered by Options where the purchase price is no less
      than
      the Fair Market Value of the Shares on the date of grant plus (b) SARs which
      may
      be granted to any Participant in any Fiscal Year shall not exceed
      900,000.

     

    15.2
      Limitation on Performance Shares 

     

    The
      number of Shares covered by Performance Shares in any Fiscal Year shall not
      exceed 500,000.

     

    15.3
      Computations.

     

    For
      purposes of Section 15.1, Shares covered by an Option that is canceled shall
      count against the maximum, and, if the exercise price under an Option is
      reduced, the transaction shall be treated as a cancellation of the Option and
      a
      grant of a new Option; and SARs covered by a grant of SARs that is canceled
      shall count against the maximum; and, if the Fair Market Value of a Share on
      which the appreciation under a grant of SARs will be calculated is reduced,
      the
      transaction will be treated as a cancellation of the SARs and the grant of
      a new
      grant of SARs.

     

    16.
      RESTRICTED STOCK AND PERFORMANCE SHARES

    16.1
      Restricted Stock.

     

    The
      Committee may grant Benefits in Shares available under Section 3.1 of the Plan
      as Restricted Stock. Shares of Restricted Stock shall be issued and delivered
      at
      the time of the grant or as otherwise determined by the Committee, but shall
      be
      subject to forfeiture until provided otherwise in the applicable Agreement
      or
      the Plan. Each certificate representing Shares of Restricted Stock shall bear
      a
      legend referring to the Plan and the risk of forfeiture of the Shares and
      stating that such Shares are nontransferable until all restrictions have been
      satisfied and the legend has been removed. At the discretion of the Committee,
      the grantee may or may not be entitled to full voting and dividend rights with
      respect to all shares of Restricted Stock from the date of grant.

     

    16.2
      Cost of Restricted Stock.

     

    Unless
      otherwise determined by the Committee, grants of Shares of Restricted Stock
      shall be made at a per Share cost to the Participant equal to par
      value.

     

    16.3
      Non-Transferability.

     

    Shares
      of
      Restricted Stock shall not be transferable until after the removal of the legend
      with respect to such Shares.

     

    16.4
      Performance Shares.

     

    Performance
      Shares are the right of an individual to whom a grant of such Shares is made
      to
      receive Shares or cash equal to the Fair Market Value of such Shares at a future
      date in accordance with the terms and conditions of such grant. The terms and
      conditions shall be determined by the Committee, in its sole discretion, but
      generally are expected to be based substantially upon the attainment of targeted
      profit and/or performance objectives. The Committee shall determine the
      performance targets which will be applied with respect to each grant of
      Performance Shares at the time of grant, but in no event later than 90 days
      after the beginning of the period of service to which

     

    

    
      
        
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    the
      performance targets relate. The performance criteria applicable to Performance
      Shares will be one or more of the following: (1) stock price; (2) average annual
      growth in earnings per share; (3) increase in shareholder value; (4) earnings
      per share; (5) net income; (6) return on assets; (7) return on shareholders’
      equity; (8) increase in cash flow; (9) operating profit or operating margins;
      (10) revenue growth of the Company; and (11) operating expenses. Each
      performance target applicable to a Performance Share award and the deadline
      for
      satisfying each such target shall be stated in the Agreement between the Company
      and the Employee. The Committee must certify in writing that each such target
      has been satisfied before the Performance Shares award becomes effective.

     

    16.5
      Grant.

     

    The
      Committee may grant an award of Performance Shares. The number of Performance
      Shares and the terms and conditions of the grant shall be set forth in the
      applicable Agreement.

     

    17.
      CASH AWARDS

    17.1
      Grant.

     

    The
      Committee may grant Cash Awards at such times and (subject to 17.2) in such
      amounts as it deems appropriate.

     

    17.2
      Annual Limits.

     

    The
      amount of any Cash Award in any Fiscal Year to any Participant shall not exceed
      the greater of $100,000 or 100% of his cash compensation (excluding any Cash
      Award under this Section 17.2) for such Fiscal Year.

     

    17.3
      Restrictions.

     

    Cash
      Awards may be subject or not subject to conditions (such as an investment
      requirement), restricted or nonrestricted, vested or subject to forfeiture
      and
      may be payable currently or in the future or both. The Committee may make grants
      of Cash Awards that are intended to be Performance Based Compensation and grants
      of Cash Awards that are not intended to be Performance Based Compensation.
      

     

    The
      Committee shall determine the performance targets which will be applied with
      respect to each grant of Cash Awards that are intended to be Performance Based
      Compensation at the time of grant, but in no event later than 90 days after
      the
      beginning of the period of service to which the performance targets relate.
      The
      performance criteria applicable to Performance Based Compensation awards will
      be
      one or more of the following: (1) stock price; (2) average annual growth in
      earnings per share; (3) increase in shareholder value; (4) earnings per share;
      (5) net income; (6) return on assets; (7) return on shareholders’ equity; (8)
      increase in cash flow; (9) operating profit or operating margins; (10) revenue
      growth of the Company; and (11) operating expenses. Each performance target
      applicable to a Cash Award intended to be Performance Based Compensation and
      the
      deadline for satisfying each such target shall be stated in the Agreement
      between the Company and the Employee. The Committee must certify in writing
      that
      each such target has been satisfied before the Performance Based Compensation
      award is paid. 

     

    18.
      OTHER STOCK BASED AWARDS AND OTHER BENEFITS

    18.1
      Other Stock Based Awards.

     

    The
      Committee shall have the right to grant Other Stock Based Awards which may
      include, without limitation, the grant of Shares based on certain conditions,
      the payment of cash based on the performance of the Common Stock, and the grant
      of securities convertible into Shares.

     

    18.2
      Other Benefits.

     

    The
      Committee shall have the right to provide types of Benefits under the Plan
      in
      addition to those specifically listed, if the Committee believes that such
      Benefits would further the purposes for which the Plan was
      established.

     

    19.
      MISCELLANEOUS PROVISIONS

    19.1
      Underscored References.

     

    The
      underscored references contained in the Plan are included only for convenience,
      and they shall not be construed as a part of the Plan or in any respect
      affecting or modifying its provisions.

     

    

    
      
        
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    19.2
      Number and Gender.

     

    The
      masculine and neuter, wherever used in the Plan, shall refer to either the
      masculine, neuter or feminine; and, unless the context otherwise requires,
      the
      singular shall include the plural and the plural the singular.

     

    19.3
      Unfunded Status of Plan.

     

    The
      Plan
      is intended to constitute an “unfunded” plan for incentive and deferred
      compensation. With respect to any payments or deliveries of Shares not yet
      made
      to a Participant by the Company, nothing contained herein shall give any rights
      that are greater than those of a general creditor of the Company. The Committee
      may authorize the creation of trusts or other arrangements to meet the
      obligations created under the Plan to deliver Shares or payments hereunder
      consistent with the foregoing.

     

    19.4
      Termination of Employment.

     

    If
      the
      employment of a Participant by the Company terminates for any reason, except
      as
      otherwise provided in an Agreement, all unexercised, deferred, and unpaid
      Benefits may be exercisable or paid only in accordance with rules established
      by
      the Committee, provided however if a Participant is an Employee and he or she
      is
“Terminated for Cause”, as defined herein below, or violates any of the terms of
      their employment after they have become vested in ant of their rights herein,
      the Participant’s full interest in such rights shall terminate on the date of
      such termination of employment and all rights thereunder shall cease. Whether
      a
      Participant’s employment is Terminated for Cause shall be determined by the
      Board. Cause shall include, but not be limited to gross negligence, willful
      misconduct, flagrant or repeated violations of the Employer’s policies, rules or
      ethics, a material breach by the Participant of any employment agreement between
      the Participant and the Employer, intoxication, substance abuse, sexual or
      other
      unlawful harassment, disclosure of confidential or proprietary information,
      engaging in a business competitive with the Employer, or dishonest, illegal
      or
      immoral conduct.

     

    19.5
      Designation of Beneficiary.

     

    A
      Participant may file with the Committee a written designation of a beneficiary
      or beneficiaries (subject to such limitations as to the classes and number
      of
      beneficiaries and contingent beneficiaries as the Committee may from time to
      time prescribe) to exercise, in the event of the death of the Participant,
      an
      Option, or to receive, in such event, any Benefits. The Committee reserves
      the
      right to review and approve beneficiary designations. A Participant may from
      time to time revoke or change any such designation of beneficiary and any
      designation of beneficiary under the Plan shall be controlling over any other
      disposition, testamentary or otherwise; provided, however, that if the Committee
      shall be in doubt as to the right of any such beneficiary to exercise any Option
      or to receive any Benefit, the Committee may determine to recognize only an
      exercise by the legal representative of the recipient, in which case the
      Company, the Committee and the members thereof shall not be under any further
      liability to anyone.

     

    19.6
      Governing Law.

     

    This
      Plan
      shall be construed and administered in accordance with the laws of the State
      of
      Delaware, without regard to any applicable conflicts of law. By accepting an
      Option, the Employee irrevocably and unconditionally consents to submit to
      the
      exclusive jurisdiction of the courts of the State of Florida or of the United
      States of America, in each case located in Palm Beach County, Florida, for
      any
      litigation arising out of or relating to this Plan (and agrees not to commence
      any litigation relating thereto except in such courts). The Employee also
      irrevocably and unconditionally waives any objection to the laying of venue
      of
      any litigation arising out of or related to the Option or this Plan in the
      courts of the State of Florida or of the United States of America, in each
      case
      located in Palm Beach County, Florida, and hereby further irrevocably and
      unconditionally waives and agrees not to plead or claim in any such court that
      any such litigation brought in any such court has been brought in an
      inconvenient forum.

     

    19.7
      Purchase for Investment.

     

    The
      Committee may require each person purchasing Shares pursuant to an Option or
      other award under the Plan to represent to and agree with the Company in writing
      that such person is acquiring the Shares for investment and without a view
      to
      distribution or resale. The certificates for such Shares may include any legend
      which the Committee deems appropriate to reflect any restrictions on transfer.
      All certificates for Shares delivered under the Plan shall be subject to such
      stock-transfer orders and other restrictions as the Committee may deem advisable
      under all applicable laws, rules and regulations, and the Committee may cause
      a
      legend or legends to be put on any such certificates to make appropriate
      references to such restrictions.

     

    

    
      
        
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    19.8
      No Employment Contract.

     

    Neither
      the adoption of the Plan nor any Benefit granted hereunder shall confer upon
      any
      Employee any right to continued employment nor shall the Plan or any Benefit
      interfere in any way with the right of the Employer to terminate the employment
      of any of its Employees at any time.

     

    19.9
      No Effect on Other Benefits.

     

    The
      receipt of Benefits under the Plan shall have no effect on any benefits to
      which
      a Participant may be entitled from the Employer, under another plan or
      otherwise, or preclude a Participant from receiving any such
      benefits.

     

    19.10
      Limitation on Exercise

     

    Notwithstanding
      anything herein or in the stock option award, no holder of an Option may
      exercise such Option if the Company’s common stock is not then traded publicly
      on the bulletin board or on a stock exchange or stock market, except: (i) in
      connection with a sale of all or part of the Company’s common stock, or (ii)
      within two months prior to the expiration of the Option as provided in the
      stock
      option award (or as may be extended by the Committee).

     

    

    

    

    
    

    

    
      
        
          11EXHIBIT 10.1
                                                                    ------------

                                 August 4, 2005

Mr. David Kahn
380 Hempstead Avenue, Suite 5
West Hempstead, New York  10017

Dear David:

             On behalf of Network-1 Security Solutions, Inc. (the "Company"),
this letter summarizes the terms upon which the Company will continue to retain
your services as Chief Financial Officer of the Company.

             The Company has agreed to use your services through the year ending
December 31, 2006. In consideration thereof, you shall receive the following
compensation (the "Compensation"):

             (i)  $6000 per month for the period from the date of this letter
through December 31, 2005; and

             (ii) $6300 per month from January 1, 2006 through December 31,
2006.

             Subject to the approval of the Company's Board of Directors, you
will also receive options (the "Option") to purchase 75,000 shraes of common
stock, under the Company's Stock Option Plan, at an exercise price equal to $.80
per share. The Option shall vest as follows: 30,000 shares underlying the Option
shall vest immediately and the balance shall vest on a quarterly basis in equal
amounts through December 31, 2006. Notwithstanding the foregoing, upoon a Change
in Control of the Company (as defined below) all of the unvested shares
underlying the Option shall become immediately exercisable and shall become
one-hundred percent (100%) vested.
<PAGE>
David Kahn
August 4, 2005
Page 2

             For purposes of this letter agreement, a "Change in Control" shall
mean, with respect to the Company, the occurrence of any of the following
events:

             (i) the shareholders of the Company approve a merger or
consolidation of the Company with any other entity, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent more than fifty
pecent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, (ii) the shareholders of the Company approve a plan of
complete liquidation of the Company, (iii) the Company consummates the sale or
disposition of all or substantially all of its assets (other than to a
subsidiary or subsidiaries) or (iv) any other event deemed to constitute a
"Change of Control" by the Board of Directors of the Company.

             As Chief Financial Officer of the Company you will be responsible,
among other things, for the maintenance of the books and records of the Company,
the preparation of tax returns and financial statements for the Board of
Directors of the Company and for required financial filings with the Securities
and Exchange Commission including certifications required to be signed by you as
Chief Financial Officer. You will also be required to sign the Company's
standard work for hire non-competition, nondisclosure, and confidentiality
agreement.

             You understand that your relationship with the Company will be as
an independent contractor and not as an employee. The Company may terminate this
letter agreement and your services at any time for any reason. However, in the
event your employment is terminated without "Good Cause" (as defined below), you
shall be entitled to receive the accelerated vesting of all remaining unvested
shares underlying the Option and the lesser of (i) six months month's
Compensation or (ii) the remaining balance of the Compensation payable to you
through December 31, 2006. A termination for "Good Cause" shall be defined as
follows: (i) commission of an act constituting a felony or involving fraud,
moral terpitude, theft or dishonesty which is not a felony and which materially
adversely affects the Company or could reasonably be expected to materially
adversely affect the Company, (ii) failure to perform your duties as Chief
Financial Officer which, if curable, shall not have been cured with 10 days
written notice from the Company, (iii) failure to follow the lawful directions
of the Board of Directors of the Company, which, if curable, shall not have been
cured within 10 days written notice from the Company, or (iv) your material
breach of the terms of this letter agreement.
<PAGE>
David Kahn
August 4, 2005
Page 3

             It is a great pleasure to have you continue to serve Network-1
Security Solutions, Inc. I fully expect that you will continue to make a major
contribution to the Company's success. Kindly execute below to confirm your
agreement to the terms set forth herein.

                                                         Sincerely,

                                                         /s/ Corey M. Horowitz
                                                         -----------------------
                                                         Corey M. Horowitz,
                                                         Chairman and CEO

Agreed and Accepted:

/s/ David C. Kahn
--------------------------
David C. Kahn, CPA

Dated:  August 4, 2005

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