Document:

EXHIBIT 10.1
                                                                    ------------

                          SECURITIES PURCHASE AGREEMENT
                          -----------------------------

            AGREEMENT, dated as of December 21, 2004, by and between Network-1
Security Solutions, Inc., a Delaware corporation with principal offices at 445
Park Avenue, Suite 1028, New York, New York 10022 (the "Company"), and the
Investors signatory hereto (collectively, the "Investors").

            WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to each of the Investors and
each Investor severally and not jointly desires to purchase (i) up to an
aggregate of 3,000,000 shares of common stock, par value $.01 per share (the
"Common Stock") at a purchase price of $1.00 per share (equal to the average
closing price of the common stock as reported on the OTC Bulletin Board for the
5 trading days prior to 2 trading days before the date hereof, but in no event
less than $.90 per share or greater than $1.00 per share) (the "Purchase
Price"), and (ii) warrants to purchase up to an aggregate of 2,250,000 shares of
common stock (the "Warrants"), consisting of warrants to purchase 1,500,000
shares of common stock at an exercise price of $1.25 per share and warrants to
purchase 750,000 shares of common stock at an exercise price of $1.75 per share,
on the terms and subject to the conditions set forth herein. The shares of
common stock issuable upon exercise of the Warrants (as defined below) are
collectively referred to herein as the "Warrant Shares."

            NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

                                    ARTICLE I

                      Issuance of Common Stock and Warrants
                      -------------------------------------

            Section 1.1 Agreement to Purchase and Sell. At the closing provided
for in Section 1.2(a), the Company will issue and sell to each Investor and,
subject to the terms and conditions of this Agreement, each Investor will
purchase from the Company, severally and not jointly, (i) the Common Stock, and
(ii) the Warrants in the form of EXHIBIT A attached hereto, in the amounts
opposite such Investor's name and in consideration for payment by each Investor
to the Company of the Purchase Price as indicated on Schedule 1.1 hereto. The
Investors will be afforded registration rights with respect to the Common Stock
and the Warrant Shares in accordance with the Registration Rights Agreement in
the form attached hereto as EXHIBIT B.

            Section 1.2 The Closing. (a) The closing of the issuance of the
Common Stock and Warrants (the "Closing") shall take place at the offices of
Olshan Grundman Frome Rosenzweig & Wolosky LLP, Park Avenue Tower, 65 East 55th
Street, New York, New York 10022, on the date that this Agreement is executed by
the parties hereto (the time and date of the Closing being herein referred to as
the "Closing Date"). On the Closing Date the Company will instruct its transfer
agent to deliver to each of the Investors the certificates for the Common Stock
and the Company will deliver the Warrants to be purchased hereunder in
accordance with Schedule 1.1 hereto and the other
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terms hereof against delivery by each such Investor of a check payable to the
order of the Company (or wire transfer) in the full amount of the Purchase Price
payable by such Investor.

            (b) Subject to the terms and provisions of this Agreement, if any of
the securities offered hereby are not sold at the Closing, the Company may at
any time within sixty (60) days following the Closing, sell the remaining
securities at the same purchase price as the securities purchased and sold at
the Closing (the "Subsequent Closings"). Any such Subsequent Closing shall be
upon the same terms and conditions as those in the Closing, and such additional
investors shall become parties to this Agreement and the Registration Rights
Agreement. Any such additional investors shall be deemed to be an "Investor" for
all purposes under this Agreement.

                                   ARTICLE II

           Representations, Warranties, and Agreements of the Company
           ----------------------------------------------------------

            Except for the exceptions set forth on the Disclosure Schedule
attached hereto as Schedule 1.2 and furnished to Investors, the Company
represents and warrants to, and agrees with, the Investors as follows:

            Section 2.1 Corporate Organization and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and is qualified to transact business
and is in good standing as a foreign corporation in every jurisdiction in which
its ownership, leasing, licensing or use of property or assets or the conduct of
its business makes such qualification necessary, except in such jurisdictions
where the failure to be so qualified or in good standing would not have a
material adverse effect on the business, results of operations, financial
condition or prospects of the Company. The Company has no subsidiaries except
for Network-1 Acquisition Corp. (which does not conduct any business or own any
material assets) and has no investment, whether by way of ownership of stock or
other securities or by loan, advance or otherwise, in any corporation,
partnership, firm, association or other business entity. The Company has all
required power and authority to own its property and to carry on its business as
now conducted and proposed to be conducted.

            Section 2.2 Validity of Transaction. The Company has all requisite
power and authority to execute, deliver and perform this Agreement, the
Registration Rights Agreement and the Warrants, and to issue the Common Stock
and Warrants to the Investors. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Warrants and to authorize the issuance and sale of the Common Stock and
Warrants, and upon exercise of the Warrants, to authorize the issuance of the
Warrant Shares to the Investors. The Common Stock and Warrants, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
and non-assessable and will be free and clear of all pledges, liens,
encumbrances and restrictions, other than under applicable federal and state
securities laws. This Agreement, the Registration Rights Agreement and the
Warrants have been duly authorized, executed and delivered by the Company, are
the legal, valid

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and binding obligations of the Company, and are enforceable as to the Company in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally or as rights to indemnification may be limited by applicable
securities laws. Except as to filings which may be required under applicable
state securities regulations, no consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
Federal, state, local or other governmental authority or of any court or other
tribunal is required by the Company in connection with the transactions
contemplated hereby. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement or understanding to which the Company is
a party, or by which any of its properties or assets is bound, is required for
the execution, delivery or performance by the Company of this Agreement, the
Registration Rights Agreement, the Warrants and the issuance of the Warrant
Shares. The execution, delivery, and performance of this Agreement, the
Registration Rights Agreement and the Warrants by the Company will not violate,
result in a breach of, conflict with or (with or without the giving of notice or
the passage of time or both) entitle any party to terminate or call a default
under any such contract, agreement, instrument, lease, license, arrangement or
understanding, or violate or result in a breach of any term of the Certificate
of Incorporation or By-laws of the Company, or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment or decree binding on
the Company or to which any of its operations, business, properties or assets is
subject. The registration rights granted to the Investors, in accordance with
the Registration Rights Agreement, do not violate any of the terms and
conditions of the registration rights previously granted by the Company to other
holders of the Company's securities or any other agreements to which the Company
is a party. The Warrant Shares issuable upon exercise of the Warrants are duly
authorized, have been reserved for issuance and upon exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid, and
nonassessable, will not have been issued in violation of any preemptive right of
stockholders or rights of first refusal and the Investors, upon exercise, will
have good title to the Warrant Shares, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders agreements and voting
trusts.

            Section 2.3 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, par value $.01 per share. Immediately prior to the Closing, the
Company shall have 15,012,572 shares of Common Stock outstanding and no
outstanding shares of preferred stock. All issued and outstanding shares of
Common Stock have been validly issued and are fully paid and nonassessable and
have not been issued in violation of any Federal or state securities laws.
Except for the obligation of the Company to issue (a) the Warrant Shares upon
exercise of the Warrants, (b) upon the exercise of the options and warrants that
are currently outstanding to purchase an aggregate of 3,710,005 shares of Common
Stock (excluding the options issued under the Company's Stock Option Plan as set
forth in the following clause (c)), (c) upon the exercise of options to purchase
3,742,370 shares of Common Stock issued under the Company's Stock Option Plan,
there are not, as of the date hereof, any outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or any other
agreements obligating the Company to issue (i) any additional shares of its
capital stock or (ii) any securities convertible into, or exercisable or
exchangeable for, or evidencing the right to subscribe

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for, any shares of its capital stock except (as set forth in the Disclosure
Schedule). Other than the Company's Stock Option Plan, the Company has not
adopted or authorized any plan for the benefit of its officers, employees, or
directors which requires or permits the issuance, sale, purchase, or grant of
any shares of the Company's capital stock, any securities convertible into, or
exercisable or exchangeable for, or evidencing the right to subscribe for any
shares of the Company's capital stock or any phantom shares or any stock
appreciation rights. The Company is under no obligation (contingent or
otherwise) to purchase or otherwise acquire or retire any shares of its capital
stock, except as may be provided with respect to options outstanding under the
Stock Option Plan.

            Section 2.4 Financial Statements. The financial statements of the
Company, including the notes thereto, as they appear in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2003 (the "10-KSB") and
the Company's Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 2004 (the "10-QSB"), respectively (the "Financials"), fairly
present, in all material respects, the financial position and results of
operations of the Company at the dates thereof and for the periods covered
thereby, subject, in the case of interim periods, to year-end adjustments and
normal recurring accruals and to the extent that such Financials may not include
footnotes. Such Financials have been prepared in conformity with generally
accepted accounting principles ("GAAP"), consistently applied throughout the
periods involved except as may otherwise be stated therein and except that the
notes in the interim financial statements may be abbreviated and do not contain
all of the information that is contained in the notes to the audited financial
statements. The Company has no material liabilities or obligations, contingent,
direct, indirect or otherwise except (i) as set forth in the latest balance
sheet included in the Financials or the footnotes thereto (the date of such
balance sheet being referred to as the "Balance Sheet Date"), and (ii) those
incurred in the ordinary course of business since the Balance Sheet Date.

            Section 2.5 No Undisclosed Liabilities. The Company does not have
any liabilities or obligations of any nature required to be set forth in the
Financials under GAAP, whether or not accrued, contingent or otherwise, and
there is no existing condition, situation or set of circumstances which may
result in such a liability or obligation, except (a) liabilities or obligations
of the Company reflected in its Securities and Exchange Commission (the "SEC")
filings and in the Financial Statements or (b) liabilities and obligations which
are not, individually or in the aggregate, reasonably expected to have a
material adverse effect on the Company.

            Section 2.6 Legal Proceedings. Except as set forth in the Disclosure
Schedule annexed hereto as Schedule 1.2, there are no actions, suits,
proceedings, claims or hearings of any kind or nature existing or pending or, to
the best knowledge of the Company, threatened and, to the best knowledge of the
Company, no investigations or inquiries, before or by any court, or other
governmental authority, tribunal or instrumentality (or, to the Company's best
knowledge, any state of facts that would give rise thereto), pending or
threatened against the Company, or involving the properties of the Company,
that, individually or in the aggregate as to any matter covered by this Section
2.6, are reasonably likely to result in any material adverse effect on the
Company or that might adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement.

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            Section 2.7 SEC Filings. The Company has filed all forms, reports,
statements and other documents required to be filed with (i) the SEC including,
without limitation, (A) all Annual Reports on Form 10-KSB, (B) all Quarterly
Reports on Form 10-QSB, (C) all Reports on Form 8-K, (D) all other reports or
registration statements and (E) all amendments and supplements to all such
reports and registration statements (collectively referred to as the "SEC
Reports") and (ii) any other applicable state securities authorities (all such
forms, reports, statements and other documents in (i) and (ii) of this Section
2.7 being referred to herein, collectively, as the "Reports"). The Reports (i)
were prepared in all material respects in accordance with the requirements of
applicable law (including, with respect to the SEC Reports, the Securities Act
of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SEC Reports) and (ii) did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. In addition, since the last quarterly
report of the Company on Form 10-QSB filed with the SEC, there have been no
material events that require disclosure under the Exchange Act.

            Section 2.8 Patents and Other Intellectual Property. The Company
owns all right, title and interest in all patents, trademarks or other
intellectual property necessary or material for use in connection with its
business as disclosed in the SEC Reports and which the failure to so have would
reasonably be expected to have a material adverse effect on the Company's
assets, business or financial condition.

            Section 2.9 Finder or Broker. Except as set forth in the Disclosure
Schedule, neither the Company nor anyone acting on behalf of the Company has
negotiated with any finder, broker or intermediary or similar person in
connection with the transactions contemplated herein.

            Section 2.10 Taxes. The Company has filed all federal tax returns
and all state and municipal and local tax returns (whether relating to income,
sales, franchise, withholding, real or personal property or other types of
taxes) required to be filed under the laws of the United States and applicable
states, and has paid in full all taxes which have become due pursuant to such
returns or claimed to be due by any taxing authority or otherwise due and owing;
provided, however, that the Company has not paid any tax, assessment, charge,
levy or license fee that it is contesting in good faith and by proper
proceedings and adequate reserves for the accrual of same are maintained if
required by GAAP. The Company believes that each of the tax returns heretofore
filed by the Company correctly and accurately reflects the amount of its tax
liability thereunder. The Company has withheld, collected and paid all levies,
assessments, license fees and taxes to the extent required.

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                                   ARTICLE III

          Representations, Warranties, and Agreements of the Investors
          ------------------------------------------------------------

            Each of the Investors, severally and not jointly, represents and
warrants to, and agrees with, the Company as follows:

            Section 3.1 Organization. Such Investor (if not an individual) is
duly organized under the laws of the state of its jurisdiction of organization
and has full power and authority to enter into this Agreement and to consummate
the transactions set forth herein. The address set forth on Schedule 1.1 hereof
is such Investor's true and correct business, residence or domicile address.

            Section 3.2 Accredited Investor, Experience, Access to Information,
etc.

            (a) Such Investor and, to the knowledge of such Investor, each
limited partner of such Investor in the case of an Investor which is a limited
partnership, and each partner of such Investor in the case of an Investor which
is a general partnership, is an "accredited investor," as that term is defined
in Rule 501 of Regulation D promulgated under the Securities Act;

            (b) Such Investor and, to the knowledge of such Investor, the
shareholders of the general partner of such Investor, if any, and each of the
limited partners of such Investor, if any, have had substantial experience in
investing in private transactions like this one, are capable of evaluating the
merits and risks of an investment in the Company and understand that an
investment in the Common Stock and Warrants is speculative and involves a high
degree of risk and should not be purchased by anyone who cannot afford the loss
of their entire investment. Such Investor has also carefully considered the Risk
Factors set forth in EXHIBIT C hereof; and

            (c) Such Investor acknowledges that it has had a full opportunity to
discuss the business, management and financial affairs of the Company with the
Company's management. Such Investor has reviewed the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended September 30, 2004 as well as
additional SEC Reports of the Company that it deemed appropriate, and any
additional requested documents from the Company and has had a full opportunity
to ask questions of, and receive answers from, the officers of the Company
concerning the terms and conditions of this Agreement, the purchase of the
Common Stock and Warrants, the business, operations, market potential,
capitalization, financial condition and prospects of the Company, and all other
matters deemed relevant by the Investor. Such Investor acknowledges that it has
had an opportunity to evaluate all information regarding the Company as it has
deemed necessary or desirable in connection with the transactions contemplated
by this Agreement, has independently evaluated the transactions contemplated by
this Agreement and has reached its own decision to enter into this Agreement.

            Section 3.3 Investment Intent. Such Investor is acquiring the Common
Stock and Warrants and the Warrant Shares for its own account for investment and
not with a view to, or for sale in connection with, any public distribution
thereof in violation of the Securities Act. Such

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Investor understands that none of the shares of Common Stock and Warrants or the
Warrant Shares have been registered for sale under the Securities Act or
qualified under applicable state securities laws and that the shares of Common
Stock, the Warrants and the Warrant Shares are being offered and sold to such
Investor pursuant to one or more exemptions. Such Investor understands that it
must bear the economic risk of its investment in the Company for an indefinite
period of time, as the Common Stock, the Warrants and the Warrant Shares cannot
be sold unless subsequently registered under the Securities Act and qualified
under state securities laws, unless an exemption from such registration and
qualification is available. Such Investor acknowledges that no public market for
the Warrants of the Company presently exists and none may develop in the future.

            Section 3.4 Transfer of Securities. Such Investor will not sell or
otherwise dispose of any shares of Common Stock, Warrants or Warrant Shares
unless (a) a registration statement with respect thereto has become effective
under the Securities Act and such Warrants and Warrant Shares have been
qualified under applicable state securities laws or (b) there is presented to
the Company notice of the proposed transfer and, if it so requests, a legal
opinion reasonably satisfactory to the Company that such registration and
qualification is not required; provided, however, that no such registration or
qualification or opinion of counsel shall be necessary for a transfer by such
Investor (i) to any entity controlled by, or under common control with, such
Investor, (ii) to a shareholder, partner or officer of such Investor, (iii) to a
shareholder, partner or officer of the general partner of such Investor, (iv) to
the spouse, lineal descendants, estate or a trust or for the benefit of any of
the foregoing or (v) by operation of law, provided the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he were such
Investor. Such Investor consents that any transfer agent of the Company may be
instructed not to transfer any Common Stock, Warrants or Warrant Shares unless
it receives satisfactory evidence of compliance with the foregoing provisions,
and that there may be endorsed upon any certificate (or other instrument)
representing such securities (and any certificates issued in substitution
therefor) the following legend calling attention to the foregoing restrictions
on transferability of such shares, stating in substance:

            "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
            LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED IN
            THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
            THEREFROM UNDER SUCH ACT AND LAWS, IF APPLICABLE. THE
            COMPANY, PRIOR TO PERMITTING A TRANSFER OF THESE
            SECURITIES, MAY REQUIRE AN OPINION OF COUNSEL OR OTHER
            ASSURANCES SATISFACTORY TO IT AS TO COMPLIANCE WITH OR
            EXEMPTION FROM SUCH ACT AND LAWS"

The Company shall, upon the request of any holder of Common Stock, Warrants or
Warrant Shares and the surrender of such securities, issue a new stock
certificate and Warrants without such legend if (A) the Warrants or stock
evidenced by such certificate has been effectively registered under the

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Securities Act and qualified under any applicable state securities law and sold
by the holder thereof in accordance with such registration and qualification, or
(B) such holder shall have delivered to the Company a legal opinion reasonably
satisfactory to the Company to the effect that the restrictions set forth herein
are no longer required or necessary under the Securities Act or any applicable
state law.

            Section 3.5 Authorization. All actions on the part of such Investor
necessary for the authorization, execution, delivery and performance by such
Investor of this Agreement have been taken. This Agreement has been duly
authorized, executed and delivered by such Investor, is the legal, valid and
binding obligations of such Investor, and are enforceable as to such Investor in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally or as rights to indemnification may be limited by applicable
securities laws.

            Section 3.6 Finder or Broker. Neither such Investor nor any person
acting on behalf of such Investor has negotiated with any finder, broker,
intermediary or similar person in connection with the transactions contemplated
herein.

                                   ARTICLE IV

                                 Indemnification
                                 ---------------

            Section 4.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Investors, their officers and directors,
employees, agents, representatives and affiliates and each other person, if any,
who controls any thereof, against any loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any untruth, inaccuracy, or breach of any of the representations,
warranties, covenants or agreements of the Company contained in this Agreement
or in any other document furnished by the Company to any of the foregoing in
connection with this transaction.

            Section 4.2 Indemnification by Investors. (a) Each Investor,
severally and not jointly, agrees to indemnify and hold harmless the Company,
its officers and directors, employees, agents and representatives and affiliates
and each other person, if any, who controls any thereof, against any loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any untruth, inaccuracy, or breach of
any of the representations, warranties, covenants or agreements of such Investor
contained in this Agreement or in any other document furnished by such Investor
to any of the foregoing in connection with this transaction.

            Section 4.3 Notices of Claims. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 4.1 and 4.2,

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such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action; PROVIDED, HOWEVER, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under Article IV hereof, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; PROVIDED, HOWEVER, that if the indemnified party reasonably
believes it is advisable for it to be represented by separate counsel because
there exists a conflict of interest between its interests and those of the
indemnifying party with respect to such claim, or there exist defenses available
to such indemnified party which may not be available to the indemnifying party,
or if the indemnifying party shall fail to assume responsibility for such
defense, the indemnified party may retain counsel satisfactory to it and the
indemnifying party shall pay all fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation or which requires action
other than the payment of money by the indemnifying party. Each indemnified
party shall furnish such information regarding itself or the claim in question
as an indemnifying party may reasonably request in writing and as shall be
reasonably requested in connection with the defense of such claim and litigation
resulting therefrom.

            Section 4.4 Contribution. If the indemnification provided for in
Section 4.1 and 4.2 shall for any reason be held by a court of competent
jurisdiction to be unavailable to an indemnified party in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 4.1 or 4.2 hereof, the indemnified
party and the indemnifying party shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating the same), (a) in such proportion as
is appropriate to reflect the relative fault of the Company and the Investors in
connection with the statement or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable consideration (the relative fault of the Company and such Investors to
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Investors
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission) or (b) if the
allocation provided by clause (a) above is not permitted by applicable law, in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Investors from the offering of the securities.
No person guilty of fraudulent misrepresentation (within the meaning of

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Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. In addition, no
person shall be obligated to contribute hereunder any amounts in payment of any
settlement of any action or claim effected without such person's consent, which
consent shall not be unreasonably withheld or delayed.

                                    ARTICLE V

                              Additional Provisions
                              ---------------------

            Section 5.1 Legal Opinion. Olshan Grundman Frome Rosenzweig &
Wolosky LLP, counsel to the Company, will deliver at the Closing a legal opinion
covering the matters set forth in Exhibit D.

            Section 5.2 Communications. All notices or other communications
hereunder shall be in writing and shall be given by registered or certified mail
(postage prepaid and return receipt requested), by an overnight courier service
which obtains a receipt to evidence delivery or by telex or facsimile
transmission (provided that written confirmation of receipt is provided),
addressed as set forth below:

            If to the Company:

            Network-1 Security Solutions, Inc.
            445 Park Avenue, Suite 1028
            New York, New York 10022
            Attention: Corey M. Horowitz, Chairman and Chief Executive Officer

            With a copy to:

            Olshan Grundman Frome Rosenzweig & Wolosky LLP
            Park Avenue Tower
            65 East 55th Street
            New York, New York 10022
            Attention:  Sam Schwartz, Esq.

            If to the Investors, at their respective addresses as set forth on
Schedule 1.1 hereto, or such other address as any party may designate to the
other in accordance with the aforesaid procedure. All notices and other
communications sent by overnight courier service shall be deemed to have been
given as of the next business day after delivery thereof to such courier
service, those given by telex or facsimile transmission shall be deemed given
when sent, and all notices and other communications sent by mail shall be deemed
given as of the third business day after the date of deposit in the United
States mail.

            Section 5.3 Successors and Assigns. The Company may not sell,
assign, transfer or otherwise convey any of its rights or delegate any of its
duties under this Agreement, except to a

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corporation which has succeeded to substantially all of the business and assets
of the Company and has assumed in writing its obligations under this Agreement,
and this Agreement shall be binding on the Company and such successor. This
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the Investors and their successors and assigns.

            Section 5.4 Amendments and Waivers. Neither this Agreement nor any
term hereof may be changed or waived (either generally or in a particular
instance and either retroactively or prospectively) absent the written consent
of the Investors owning a majority of the Common Stock then outstanding.

            Section 5.5 Survival of Representations, etc. The representations,
warranties, covenants and agreements made herein or in any certificate or
document executed in connection herewith shall survive the Closing and any
Subsequent Closings for a period of 12 months and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.

            Section 5.6 Delays or Omissions; Waiver. No delay or omission to
exercise any right, power or remedy accruing to either the Company or the
Investors upon any breach or default by the other under this Agreement shall
impair any such right, power or remedy nor shall it be construed to be a waiver
of any such breach or default, or any acquiescence therein 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.

            Section 5.7 Entire Agreement. This Agreement (together with the
exhibits and schedules attached hereto) contains the entire understanding of the
parties with respect to their respective subject matter and all prior
negotiations, discussions, commitments and understandings heretofore had between
them with respect thereto are merged herein and therein.

            Section 5.8 Expenses. Each party hereto shall pay its own expenses
(including legal fees) in connection with this Agreement and the transactions
contemplated hereby.

            Section 5.9 Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York, without giving effect to conflict of laws.

            Section 5.10 Further Actions. At any time and from time to time,
each party agrees, without further consideration, to take such actions and to
execute and deliver such documents as may be reasonably necessary to effectuate
the purposes of this Agreement.

            Section 5.11 Gender. As the context so requires, terms herein in the
masculine form shall be construed to include the feminine form as well as
neuter.

                                       11
<PAGE>
                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

            IN WITNESS WHEREOF, this Agreement has been duly executed on the
date herein above set forth.

                                        NETWORK-1 SECURITY SOLUTIONS, INC.

                                        By: /s/ Corey M. Horowitz
                                            ------------------------------------
                                            Corey M. Horowitz
                                            Chairman and Chief Executive Officer

                                        INVESTORS:

                                        EMIGRANT CAPITAL CORPORATION

                                        By: /s/ John R. Hunt
                                            ------------------------------------
                                            John R. Hunt

                                        /s/ David M. Seldin
                                        ----------------------------------------
                                        David M. Seldin

                                        /s/ Gilbert S. Stein
                                        ----------------------------------------
                                        Gilbert S. Stein

                                        /s/ John R. Hart
                                        ----------------------------------------
                                        John R. Hart

                                        /s/ Barry S. Friedberg
                                        ----------------------------------------
                                        Barry S. Friedberg

                                        /s/ Francis May
                                        ----------------------------------------
                                        Francis May

                                        /s/ Kenneth L. Walters, Jr.
                                        ----------------------------------------
                                        Kenneth L. Walters, Jr.

                                        /s/ Robert Graifman
                                        ----------------------------------------
                                        Robert Graifman

                                       12
<PAGE>

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

                                        Singer Opportunity Fund LLC

                                        By: /s/ Eric Singer
                                            ------------------------------------
                                            Eric Singer

                                        The Singer Fund LLC

                                        By: /s/ Eric Singer
                                            ------------------------------------
                                            Eric Singer

                                        CGA Resources, LLC

                                        By: /s/ Cass Gunther Adelman
                                            ------------------------------------
                                            Cass Gunther Adelman, Sole Member

                                        The Granite Bridge Fund, L.P.

                                        By: /s/ Clarke Adams
                                            ------------------------------------
                                            Clarke Adams

                                            /s/ Matthew Balk
                                            ------------------------------------
                                            Matthew Balk

                                       13
<PAGE>

                [SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

                                        Dasa Sada, LLC

                                        By: /s/ Alyssa Ackerman
                                            ------------------------------------
                                            Alyssa Ackerman

                                            /s/ Steven Ackerman
                                            ------------------------------------
                                            Steven Ackerman

                                       14
<PAGE>

                             SCHEDULES AND EXHIBITS
                             ----------------------

Schedule 1.1       Investors, Number of Common Stock, Number of Warrants and
                   Purchase Price

Schedule 1.2       Disclosure Schedule

Exhibit A:         Form of Warrant

Exhibit B:         Risk Factors

Exhibit C:         Registration Rights Agreement

                                       15
<PAGE>

                                                                    SCHEDULE 1.1
                                                                    ------------

<TABLE><CAPTION>
      NAME AND ADDRESS                      NUMBER OF SHARES          NUMBER OF           PURCHASE
        OF INVESTOR                         OF COMMON STOCK           WARRANTS              PRICE
        -----------                         ---------------           --------              -----
<S>                                         <C>                       <C>                 <C>
Emigrant Capital Corporation                     750,000               562,500             $750,000
6 East 43rd Street, 8th Floor
New York, New York 10017

Singer Opportunity Funds, LLC                    250,000               187,500             $250,000
650 Fifth Avenue
Suite 600
New York, New York 10019

Singer Fund, LLC                                 250,000               187,500             $250,000
650 Fifth Avenue
Suite 600
New York, New York 10019

David M. Seldin                                  215,000               161,250             $215,000
1571 Oceanview Drive
Tiessa Verde, Florida 33715

Robert Graifman                                  100,000                75,000             $100,000
31 Grosvenor Road
Short Hills, NJ 07078

Gilbert S. Stein                                 100,000                75,000             $100,000
8 High Meadow Court
Old Brookville, New York 11045

John R. Hart                                     100,000                75,000             $100,000
731 Hillside Road
Fairfield, CT 06824

Granite Bridge Fund, L.P.                         75,000                56,250              $75,000
9820 E. Thompson Parkway
Scottsdale, Arizona  85255

CGA Resources, LLC                                50,000                37,500              $50,000
72 Hicks Street
Brooklyn, New York  11201

Barry S. Friedberg                                50,000                37,500              $50,000
134 E. 71st Street
New York, New York
</TABLE>

                                       16
<PAGE>

<TABLE><CAPTION>
      NAME AND ADDRESS                      NUMBER OF SHARES          NUMBER OF           PURCHASE
        OF INVESTOR                         OF COMMON STOCK           WARRANTS              PRICE
        -----------                         ---------------           --------              -----
<S>                                         <C>                       <C>                 <C>
Dasa Sada, LLC                                    50,000                37,500              $50,000
1515 Old Cedar Swamp Road
Upper Brookville, New York  11545

Steven Ackerman                                   50,000                37,500              $50,000
1515 Old Cedar Swamp Road
Upper Brookville, New York 11545

Francis May                                       25,000                18,750              $25,000
613 Nod Hill Road
Wilton, Connecticut 06897

Matthew Balk                                      10,000                 7,500              $10,000
135 West 70th Street
New York, New York

Kenneth L. Walters, Jr.                           10,000                 7,500              $10,000
25 Muncy Drive
West Long Beach 07764

                 Total                         2,085,000             1,563,750           $2,085,000
</TABLE>

                                       17
<PAGE>
                                  SCHEDULE 1.2

                               DISCLOSURE SCHEDULE

This Disclosure Schedule (this "Schedule") is attached to and forms a part of
the Securities Purchase Agreement, dated as of December 21, 2004 (the
"Securities Purchase Agreement"), by and among Network-1 Security Solutions,
Inc., a Delaware corporation (the "Company"), and the investors named on
Schedule 1.1 thereto. Section references contained in this Schedule are for
reference purposes only and correspond to the same numbered sections of the
Securities Purchase Agreement, and the disclosure of any matter in any such
section of this Schedule is deemed to be disclosed in response to or in
connection with the other provisions of the Securities Purchase Agreement to the
extent that such disclosure relates or is responsive to such other provisions of
the Securities Purchase Agreement. Capitalized terms used and not defined in
this Schedule have the meanings ascribed to them in the Securities Purchase
Agreement.

2.3         Capitalization.
            --------------

            o    On December 16, 2004, the Board of Directors (the "Board") of
the Company approved a one year extension of the term of five (5) year warrants
to purchase 1,275,469 shares of Common Stock, at an exercise price of $1.114 per
share, which were to expire on December 22, 2004 (the "Warrants"). The one year
extension of the Warrants is subject to the holders of the Warrants irrevocably
waiving anti-dilution price protection with respect to the offering of
securities in accordance with the Securities Purchase Agreement and any
subsequent offerings. The Board also authorized the filing of a registration
statement within the next 60 days registering for resale the 1,352,048 shares of
Common Stock underlying the Warrants. In addition, such Registration Statement
will also register for resale at least 6,500,000 shares of common stock
(including shares underlying options and warrants) owned by principal
stockholders of the Company including Barry Rubenstein, Wheatley Partners II,
L.P. and related parties as well as certain other additional holders.

            o    In accordance with Section 6(b) of the Employment Agreement,
dated November 26, 2004, between the Company and Corey M. Horowitz, Chairman and
Chief Executive Officer, Mr. Horowitz has certain anti-dilution rights which
provide that if at anytime during the period ended December 31, 2005, in the
event that the Company completes a financing (either a single transaction or
series of transactions) consisting of the issuance of common stock or any other
securities convertible or exercisable into common stock, Mr. Horowitz shall
receive (at the closing of such financing) from the Company, at the same price
as the securities issued in the financing, such number of additional options to
purchase Common Stock so that he maintains the same derivative ownership
percentage (20.27%) of the Company (based upon options and warrants owned by Mr.
Horowitz and exclusive of his ownership of shares of Common Stock) as he owned
at the time of execution of his employment agreement. Accordingly, in connection
with the Closing pursuant to the Securities Purchase Agreement and assuming the
proceeds of $2.0 - $3.0 million, Mr. Horowitz will be issued a 8.5 year option
to purchase between 885,799 ($2.0 million proceeds) and 1,088,499 ($3.0 million
proceeds) shares of Common Stock at an exercise price of $1.18 per share.

                                       18
<PAGE>

2.6         Legal Proceedings.
            -----------------

            On March 31, 2004, PowerDsine Inc. ("PowerDsine") commenced an
action against the Company in the United District Court, Southern District of
New York (Civil Action No. 04 CV 2502) seeking a declaratory judgment that the
Company's Remote Power Patent (U.S. Patent No. 6,218,930) is not infringed by
PowerDsine and/or its customers. PowerDsine further seeks an order permanently
enjoining the Company (i) from making any claims to any person or entity that
PowerDsine's products infringe the Remote Power Patent or contributes to
infringement of the patent, (ii) from interfering with or threatening to
interfere with the importation, sale, license or use of PowerDsine's PoE
components or products, and (iii) from instituting or prosecuting any lawsuit or
proceeding placing at issue the right of PowerDsine, its customers, licensees,
successors, or assigns to import, use or sell PowerDsine's PoE components or
products. The Company believes its Remote Power Patent is valid and has
meritorious defenses to the action.

            On December 1, 2004, the Company moved to dismiss the declaratory
judgment action asserting among, other things, that there is no actual case or
controversy because PowerDsine did not have reasonable apprehension of suit at
the time the case was filed, not does it today and therefore the court lacks
jurisdiction over the matter. The Company and PowerDsine have been engaged in
settlement discussions in an effort to resolve the litigation. In the event that
the settlement discussions are not successful, the Company intends to vigorously
defend the lawsuit and take whatever actions are necessary to protect it's
intellectual property. In the event, however, that the Court granted the
declaratory judgment and the patent was determined to be invalid, such a
determination would have a material adverse effect on the Company.

2.8         Patents and Other Intellectual Property.
            ---------------------------------------

            In connection with the Company's acquisition of its six patents (the
"Patent Portfolio") from Merlot Communications, Inc. ("Merlot") in November
2003, the Company agreed to pay Merlot contingent future payments equal to 20%
of the net income (as defined in the acquisition agreement) of the Company from
the sale or licensing of the Patent Portfolio after the Company achieves $4.0
million of net income for each patent comprising the Patent Portfolio ("Net
Profit Payments"). The Company has an option to terminate the Net Profit
Payments, at any time between January 1, 2007 through March 31, 2007, and from
January 1 through March 31 of each year thereafter, by making payments to Merlot
in an amount equal to the greater of (i) two times the payment due for the
twelve month period following the notice of termination or (ii) $3.0 million
plus 10% for each additional year starting January 1, 2008.

2.9         Finder or Broker.
            ----------------

            In connection with the Closing, Laurent Ohana will be paid a
finder's fee by the Company in the amount of $50,000 and three (3) year warrants
to purchase 50,000 shares of Common Stock at an exercise price of $1.00 per
share.

                                       19
<PAGE>

                                    EXHIBIT A
                                 FORM OF WARRANT

NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT OR LAWS, THE RULES AND REGULATIONS THEREUNDER OR THE
PROVISIONS OF THIS WARRANT CERTIFICATE

                                                               December __, 2004

               WARRANTS TO PURCHASE AN AGGREGATE OF ______ SHARES
                               OF COMMON STOCK OF
                       NETWORK-1 SECURITY SOLUTIONS, INC.
             (INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)

                                    ISSUED TO

                            _________________________

                            DATED: December __, 2004

     THIS IS TO CERTIFY that, for value received, _________________ or its or
his registered assigns (herein collectively referred to as the "Warrantholder"),
is entitled to the number of Warrants (together with any subsequent Warrants
issued pursuant to the terms hereof, the "Warrants") set forth above, each of
which represents the right, upon the due exercise hereof, at any time commencing
on the date hereof (the "Commencement Date") and ending on the third anniversary
of the Commencement Date (the "Expiration Date"), to purchase from Network-1
Security Solutions, Inc., a Delaware corporation (the "Company"), one fully paid
and nonassessable share, free from tax liens and charges, of common stock, par
value $.01 per share (the "Common Stock"), of the Company upon surrender hereof,
with the form of election to purchase included herein (the "Election to
Purchase") completed and duly executed, at the office of the Company, and upon
simultaneous payment therefor of an exercise price per share equal to the
Purchase Price (as defined in Section 1 below) in cash and/or check payable to
the order of the Company. The number of shares of Common Stock issuable upon
exercise of the Warrants (individually, a "Share" and collectively, the
"Shares") and the Purchase Price therefor are subject to adjustment as provided
herein.

<PAGE>

     1. Purchase Price

     The purchase price for each of the Shares purchasable hereunder (the
"Purchase Price") shall be equal to $[____] per Share, subject to adjustment as
hereinafter described.

     2. Definition of Market Price

     Unless otherwise provided herein, for purposes of any computations made
hereunder, "Market Price" per share of Common Stock on any date shall be: (i) if
the Common Stock is listed or admitted for trading on any national securities
exchange, the last reported sales price as reported on such national securities
exchange; (ii) if the Common Stock is not listed or admitted for trading on any
national securities exchange, the average of the last reported closing bid and
asked quotation for the Common Stock as reported on the Nasdaq Stock Market's
National Market ("NNM") or Nasdaq Stock Market's Small Cap Market ("NSM") or a
similar service if NNM or NSM are not reporting such information; (iii) if the
Common Stock is not listed or admitted for trading on any national securities
exchange, NNM or NSM or a similar service, the average of the last reported bid
and asked quotation for the Common Stock as quoted by a market maker in the
Common Stock (or if there is more than one market maker, the bid and asked
quotation shall be obtained from two market makers and the average of the lowest
bid and highest asked quotation shall be the "Market Price"); or (iv) if the
Common Stock is not listed or admitted for trading on any national securities
exchange or NNM or quoted by NSM and there is no market maker in the Common
Stock, the fair market value of such shares as determined in good faith by the
Board of Directors of the Company.

     3. Transfer

     The Warrants may be transferred, sold or assigned in whole or in part,
subject to the provisions of the Securities Act of 1933, as amended. Concurrent
with any transfer of the Warrants, the Warrantholder shall notify the Company of
such transfer, indicating the circumstances of the transfer and, upon request,
furnish the Company with an opinion of its counsel, in form and substance
reasonably satisfactory to counsel for the Company, to the effect that the
proposed transfer may be made without registration under the Securities Act or
qualification under any applicable state securities laws; provided, however, no
legal opinion shall be required if the transferee is an affiliate, stockholder
or limited partner of the Warrantholder.Transfer of the Warrants shall be made
by delivery of the warrant certificate accompanied by a duly executed notice of
assignment, in the form annexed hereto. In the event of the transfer of less
than all of the Warrants, a new warrant certificate shall be issued to the
Warrantholder for the remaining number of Warrants not transferred.

                                        2
<PAGE>

     4. Issuance of Shares

     Subject to the restrictions set forth in Section 5 below, upon surrender of
the Warrants and payment of the Purchase Price as aforesaid, the Company shall
issue and deliver with all reasonable dispatch the certificate(s) for the Shares
to or upon the written order of the Warrantholder and in such name or names as
the Warrantholder may designate. Such certificate(s) shall represent the number
of Shares issuable upon the exercise of the Warrants so surrendered, together
with a cash amount in respect of any fraction of a Share otherwise issuable upon
such exercise.

     Certificates representing the Shares shall be deemed to have been issued
and the person so designated to be named therein shall be deemed to have become
a holder of record of such Shares as of the date of the surrender of the
Warrants and payment of the Purchase Price as aforesaid, notwithstanding that
the transfer books for the Shares or other classes of stock purchasable upon the
exercise of the Warrants shall then be closed or the certificate(s) for the
Shares in respect of which the Warrants is then exercised shall not then have
been actually delivered to the Warrantholder. As soon as practicable after each
such exercise of the Warrants, the Company shall issue and deliver the
certificate(s) for the Shares issuable upon such exercise, registered as
requested. The Warrants shall be exercisable, at the election of the registered
holder hereof, either as an entirety or from time to time for part of the number
of Shares specified herein, but in no event shall fractional Shares be issued
with regard to the exercise of the Warrants. In the event that only a portion of
the Warrants are exercised at any time prior to the close of business on the
Expiration Date, a new warrant certificate shall be issued to the Warrantholder
for the remaining number of Shares purchasable pursuant hereto.

     Prior to due presentment for registration of transfer of the Warrants, the
Company shall deem and treat the Warrantholder as the absolute owner of the
Warrants (notwithstanding any notation of ownership or other writing on this
warrant certificate made by anyone other than the Company) for the purpose of
any exercise hereof or any distribution to the Warrantholder and for all other
purposes, and the Company shall not be affected by any notice to the contrary.

     5. Payment of Expenses, Taxes, etc. upon Exercise

     The Company shall pay all documentary stamp taxes, if any, attributable to
the initial issuance of the Shares issuable upon the exercise of the Warrants;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue or
delivery of any certificates for Shares in a name other than that of the
Warrantholder upon the exercise of the Warrants, and in such case the Company
shall not be required to issue or deliver any certificates for Shares until or
unless the person or persons requesting the issuance have paid to the Company
the amount of such tax or have established to the Company's satisfaction that
such tax has been paid or is not required to be paid.

                                        3
<PAGE>

     6. Lost, Stolen or Mutilated Warrant Certificate

     In case this warrant certificate shall be mutilated, lost, stolen or
destroyed, the Company shall issue and deliver, in exchange and substitution for
and upon cancellation of the mutilated warrant certificate, or in lieu of and
substitution for the warrant certificate lost, stolen or destroyed, a new
warrant certificate of like tenor and representing an equivalent number of
Shares purchasable upon exercise, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such warrant
certificate and reasonable indemnity, if requested, also reasonably satisfactory
to the Company. Upon providing an appropriate indemnification, no bond or other
security shall be required from the original Warrantholder in connection with
the replacement by the Company of a lost, stolen or mutilated warrant
certificate.

     7. Covenants of Company

     (a) The Company shall at all times through the Expiration Date reserve and
keep available, out of its aggregate authorized but unissued shares of Common
Stock, the number of Shares deliverable upon the exercise of the Warrants.

     (b) Before taking any action which would cause an adjustment pursuant to
the terms set forth herein reducing the portion of the Purchase Price
attributable to the Shares below the then par value (if any) of such Shares, the
Company shall take any corporate action which may, in the opinion of its counsel
(which may be counsel regularly engaged by the Company), be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Shares at the Purchase Price as so adjusted.

     (c) The Company covenants that all Shares issued upon exercise of the
Warrants shall, upon issuance in accordance with the terms hereof, be fully paid
and nonassessable and free from all pre-emptive rights and taxes, liens,
encumbrances, charges and security interests created by the Company with respect
to the issuance and holding thereof.

     8. Rights Upon Expiration

     Unless the Warrants are surrendered and payment made for the Shares as
herein provided before the close of business on the Expiration Date, this
warrant certificate will become wholly void and all rights evidenced hereby will
terminate after such time.

     9. Exchange of Warrant Certificate

     Subject to the provisions of Section 3 above, this warrant certificate may
be exchanged for a number of warrant certificates of the same tenor as this
warrant certificate for the purchase in the aggregate of the same number of
Shares of the Company as are purchasable upon the exercise of this warrant
certificate, upon surrender hereof at the office of the Company with written
instructions as to the denominations of the warrant certificates to be issued in
exchange.

                                        4
<PAGE>

     10. Adjustment for Certain Events

     (a) In case the Company shall at any time after the date the Warrants are
first issued (i) declare a dividend on the Common Stock payable in shares of the
Company's capital stock (whether in shares of Common Stock or of capital stock
of any other class), (ii) subdivide the outstanding Common Stock, (iii) reverse
split the outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of the Company's capital stock in a reclassification of the
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision, reverse split or
reclassification, and/or the number and kind of shares of capital stock issuable
upon exercise of the Warrants on such date, shall be proportionately adjusted so
that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of securities which, if such Warrant had
been exercised immediately prior to such date, such holder would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, reverse split or reclassification. Any such adjustment shall become
effective immediately after the record date of such dividend or the effective
date of such subdivision, reverse split or reclassification made successively
whenever any event listed above shall occur.

     (b) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of earnings, consolidated earnings,
if the Company shall have one or more subsidiaries, or earned surplus, or
dividends payable in Common Stock for which adjustment is made under Section
10(a) above) or rights, options or warrants to subscribe for or purchase Common
Stock, then, in each case, the Purchase Price per Share to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, of which the numerator
shall be the current Market Price for a share of Common Stock on such record
date less the fair market value of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights, options or
warrants applicable to one share of Common Stock, and of which the denominator
shall be the current Market Price for a share of Common Stock. In the event that
the Company and the Warrantholder cannot agree as to such fair market value,
such determination of fair market value shall be made by an appraiser who shall
be mutually selected by the Company and the Warrantholder, and the reasonable
costs of such appraiser shall be borne by the Company. Any such adjustment shall
become effective immediately after the record date for such distribution and
shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not

                                        5
<PAGE>

so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

     (c) No adjustment in the Purchase Price shall be required unless such
adjustment would require a decrease of at least one cent ($0.01) in such price;
provided, however, that any adjustment which by reason of this Section 10(c) is
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 10 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be,
but in no event shall the Company be obligated to issue fractional shares of
Common Stock or fractional portions of any securities upon the exercise of the
Warrants.

     (d) In the event that at any time, as a result of an adjustment made
pursuant to Section 10 hereof, the holder of any Warrant thereafter exercised
shall become entitled to receive any shares of capital stock or warrants or
other securities of the Company other than the Shares, thereafter the number of
such other shares of capital stock or warrants or other securities so receivable
upon exercise of this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Shares contained in this Section 10, and the provisions of
this warrant certificate with respect to the Shares shall apply, to the extent
applicable, on like terms to any such other shares of capital stock or warrants
or other securities.

     (e) Upon each adjustment of the Purchase Price as a result of calculations
made in this Section 10, each Warrant outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase, at
the adjusted Purchase Price, that number of Shares (calculated to the nearest
hundredth), obtained by (i) multiplying the number of Shares purchasable upon
exercise of a Warrant immediately prior to such adjustment of the Purchase Price
by the Purchase Price in effect immediately prior to such adjustment and (ii)
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.

     (f) In case of any capital reorganization of the Company or of any
reclassification of the Common Stock (other than a change in par value or from a
specified par value to no par value or from no par value to a specified par
value or as a result of subdivision or combination) or in case of the
consolidation of the Company with, or the merger of the Company into, any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation) or of the sale of the properties and assets of the
Company as, or substantially as, an entirety, each Warrant shall, after such
reorganization, reclassification, consolidation, merger or sale, be exercisable,
upon the terms and conditions specified herein, for the number of shares of
Common Stock or other capital stock or warrants or other securities or property
to which a holder of the number of shares of Common Stock purchasable (at the
time of such reorganization, reclassification, consolidation, merger or sale)
upon exercise of such Warrant would have been entitled upon such reorganization,
reclassification, consolidation, merger or sale; and in any such case, if
necessary, the provisions set

                                        6
<PAGE>

forth in this Section 10(f) with respect to the rights and interests thereafter
of the registered holders of all Warrants shall be appropriately adjusted so as
to be applicable, as nearly as may reasonably be, to any shares of Common Stock
or other capital stock or warrants or other securities or property thereafter
deliverable on the exercise of the Warrants. The subdivision, reverse split or
combination of shares of Common Stock at any time outstanding into a greater or
lesser number of shares shall not be deemed to be a reclassification of the
Common Stock for the purposes of this Section 10(f).

     (g) In any case in which this Section 10 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event issuing
to the Warrantholder, if such Warrantholder exercised any Warrant after such
record date, shares of capital stock or warrant or other securities of the
Company, if any, issuable upon such exercise over and above the Shares issuable,
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the holder a due bill or other
appropriate instrument evidencing such holder's right to receive such shares of
capital stock or warrants or other securities upon the occurrence of the event
requiring such adjustment.

     (h) The Shares and any other shares of capital stock or warrants or other
securities now or hereafter receivable upon exercise of this Warrant shall be
entitled to registration under the Securities Act of 1933 pursuant to the terms
of the Registration Rights Agreement attached to the Purchase Agreement as
Exhibit C thereto.

     11. Fractional Shares

     Upon exercise of the Warrants the Company shall not be required to issue
fractional shares of Common Stock or other capital stock. In lieu of such
fractional shares, the Warrantholder shall receive an amount in cash equal to
the same fraction of the (i) current Market Price of one whole Share if clause
(i), (ii) or (iii) in the definition of Market Price in Section 2 above is
applicable or (ii) book value of one whole Share as reported in the Company's
most recent audited financial statements if clause (iv) in the definition of
Market Price in Section 2 above is applicable. All calculations under this
Section 11 shall be made to the nearest cent.

     12. Securities Act Legend

     The Warrantholder shall not be entitled to any rights of a stockholder of
the Company with respect to any Shares purchasable upon the exercise hereof,
including voting, dividend or dissolution rights, until such Shares have been
paid for in full. As soon as practicable after such exercise, the Company shall
deliver a certificate or certificates for the securities issuable upon such
exercise, all of which shall be fully paid and nonassessable, to the person or
persons entitled to receive the same; provided, however, that, if applicable,
such certificate or certificates delivered to the holder of the surrendered
Warrant shall bear a legend reading substantially as follows:

                                        7
<PAGE>

     "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
     OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
     THEREFROM UNDER SUCH ACT AND LAWS, IF APPLICABLE. THE COMPANY, PRIOR TO
     PERMITTING A TRANSFER OF THESE SECURITIES, MAY REQUIRE AN OPINION OF
     COUNSEL OR OTHER ASSURANCES SATISFACTORY TO IT AS TO COMPLIANCE WITH OR
     EXEMPTION FROM SUCH ACT AND LAWS."

     13. Notice of Adjustment

     (a) Upon any adjustment of the Purchase Price, the number of Shares
issuable, or the securities or other property deliverable, upon exercise of this
Warrant, pursuant to Section 10 above, the Company, within 30 calendar days
thereafter, shall have on file for inspection by the Warrantholder a certificate
of the Board of Directors of the Company setting forth the Purchase Price after
such adjustment, the method of calculation thereof in reasonable detail, the
facts upon which such calculations were based and the number of Shares issuable,
or the securities or other property deliverable, upon exercise of the Warrants
after such adjustment in the Purchase Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and
(ii) send a copy of such certificate to the Warrantholder.

     (b) In case:

          (i) the Company shall authorize the issuance to any holders of Common
Stock of rights, options or warrants to subscribe for or purchase capital stock
of the Company or of any other subscription rights, options or warrants; or

          (ii) the Company shall authorize the payment of cash or stock
dividends to any holders of Common Stock, or other outstanding securities of the
Company, or the distribution to any holders of Common Stock, or other
outstanding securities of the Company, of evidences of its indebtedness or
assets; or

          (iii) of any consolidation or merger to which the Company is a party
or the conveyance or transfer of all or substantially all of the properties and
assets of the Company or any capital reorganization or any reclassification of
the Common Stock (other than a change in par value or from a specified par value
to no par value or from no par value to a specified par value or as a result of
a subdivision or combination); or

                                        8
<PAGE>

          (iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or

          (v) the Company proposes to take any other action, which would require
an adjustment of the Purchase Price pursuant to Section 10 above or require the
vote of any of the Company's stockholders;

then, in each such case, the Company shall give to the Warrantholder at its
address appearing below at least 20 calendar days prior to the applicable record
date hereinafter specified in (A), (B), or (C) below, by first class mail,
postage prepaid, a written notice stating (A) the date as of which the holders
of record of shares of Common Stock entitled to receive any such rights,
options, warrants or distribution are to be determined or (B) the date on which
any such consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such consolidation, merger,
conveyance, transfer, reorganization, reclassification, dissolution, liquidation
or winding up or (C) the date of such action which would require an adjustment
of the Purchase Price or the vote of the Company's stockholders. The failure to
give the notice required by this Section 13(b) or any defect therein shall not
affect the legality or validity of any such issuance, distribution,
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation, winding up or other action or the vote upon any such
action.

     Except as provided herein, nothing contained herein shall be construed as
conferring upon the Warrantholder the right to vote on any matter submitted to
the stockholders of the Company for their vote or to receive notice of meetings
of stockholders or the election of directors of the Company or any other
proceedings of the Company, or any rights whatsoever as a stockholder of the
Company.

     14. Notices

     Any notice, request, demand or other communication pursuant to the terms of
the Warrants shall be in writing and shall be sufficiently given or made when
delivered or mailed by first class or registered mail, postage-prepaid, to the
following addresses:

     If to the Company:

          Network-1 Security Solutions, Inc.
          445 Park Avenue, Suite 1028
          New York, NY  10022
          Attention:  Corey M. Horowitz, Chairman and Chief Executive Officer

                                        9
<PAGE>

     with a copy to:

          Olshan Grundman Frome Rosenzweig & Wolosky LLP
          505 Park Avenue
          New York, New York 10022-1170
          Attention:  Sam Schwartz, Esq.

     If to the Warrantholder, to the address of such Warrantholder provided to
the Company by such Warrantholder for the purpose of notices, or to such other
address or such other counsel as the Company or the Warrantholder may designate
by written notice to the other party.

     15. Amendment and Modification

     Unless otherwise provided herein, this warrant certificate may not be
amended, modified or supplemented in any respect unless by a written agreement
executed by the Company and a majority-in-interest of the Warrantholders issued
warrants pursuant to the Securities Purchase Agreement, dated December __, 2004
(based upon the aggregate number of Warrants held), provided that no such
amendment or modification shall unfairly discriminate against a particular
Warrantholder relative to other Warrantholders.

     16. Miscellaneous

     (a) All the covenants and provisions herein by or for the benefit of the
Company shall bind and inure to the benefit of its successors or assigns and all
of the covenants and provisions herein for the benefit of the Warrantholder
hereof shall inure to the benefit of its successors or assigns.

     (b) This warrant certificate shall be deemed to be a contract made under
the laws of the State of New York for all purposes and shall be construed in
accordance with the laws of such State.

     (c) Nothing in this warrant certificate shall be construed to give any
person or corporation other than the Company and the Warrantholder and its
permitted transferees any legal or equitable right, remedy or claim under this
warrant certificate; but this warrant certificate shall be for the sole and
exclusive benefit of the Company and the Warrantholder and its permitted
transferees.

                                       10
<PAGE>

     IN WITNESS WHEREOF, an authorized office of the Company has signed and
delivered to the Warrantholder this warrant certificate as of the date first
written above.

                                    NETWORK-1 SECURITY SOLUTIONS, INC.

                                    By: __________________________________
                                         Corey M. Horowitz, Chairman and
                                         Chief Executive Officer

                                       11
<PAGE>

                              ELECTION TO PURCHASE

(To be executed by the registered holder if such holder desires to exercise the
 within Warrants)

To:  NETWORK-1 SECURITY SOLUTIONS, INC.
     445 Park Avenue, Suite 1028,
     New York, New York  10022
     Attention:  Corey M. Horowitz, Chairman and Chief Executive Officer

The undersigned hereby (1) irrevocably elects to exercise his or its rights to
purchase _____ shares of Common Stock covered by the within Warrants, (2) makes
payment in full of he Purchase Price by enclosure of a certified check, (3)
requests that certificates for such shares be issued in the name of:

Please print name, address and Social Security or Tax Identification Number:

________________________________________________

________________________________________________

________________________________________________

and (4) if said number of shares shall not be all the shares evidenced by the
within Warrants, requests that a new warrant certificate for the balance of the
shares covered by the within Warrants be registered in the name of, and
delivered to:

Please print name and address:

________________________________________________

________________________________________________

________________________________________________

                  In lieu of receipt of a fractional share of Common Stock, the
undersigned will receive a check representing payment therefor.

Dated:  _____________________            _________________________________

                                         By: _____________________________

                                             _____________________________

                                       12
<PAGE>

                                   ASSIGNMENT

FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers unto
___________________________________________________________________________
[Please print or typewrite name, address and federal tax identification
___________________
 number of Assignee] the within Warrants representing the right to purchase
___________ shares of common stock of Network-1 Security Solutions, Inc. (the
"Company"), and does hereby irrevocably constitute and appoint its attorney to
transfer the within Warrants on the books of the within named Company with full
power of substitution in the premises. In the event that less than all of the
within Warrants are assigned hereby, the Company is directed to issue in the
name of the undersigned a certificate for the Warrants not so assigned.

Dated: _____________________

                                               _________________________________

In the Presence of: _______________________

                                       13
<PAGE>

                                    EXHIBIT B
                                  RISK FACTORS

     We operate in a highly competitive environment that involves a number of
risks, some of which are beyond our control. The following discussion highlights
the most material of the risks. Capitalized terms herein have the same meaning
as set forth in the Securities Purchase Agreement except as otherwise provided.

     WE HAVE A HISTORY OF LOSSES AND NO REVENUE FROM CURRENT OPERATIONS.

     We have incurred substantial operating losses since our inception, which
has resulted in an accumulated deficit of $(41,897,000) as of September 30,
2004. For the years ended December 31, 2003 and 2002, we incurred net losses of
$(614,000) and $(5,905,000), respectively. For the quarter ended September 30,
2004, we incurred a net loss of ($280,000). We have financed our operations
primarily from the balance of funds from sales of equity and convertible debt
securities as well as the sale of our CyberWall PLUS security software
technology in May 2003. Since December 2002, when we discontinued our offering
of security software products and following the commencement of our new
technology licensing business in November 2003, we have not had material revenue
from operations and for the quarter ended September 30, 2004 we had no revenue
from operations. Our ability to achieve revenue and profitable operations is
dependent upon consummating licensing agreements with respect to our patented
technology. We may not be successful in achieving licensing agreements with
third parties and our failure to do so would have a material adverse effect on
our business, financial condition and results of operations. We may not be able
to achieve revenue or profitable operations from our new licensing business.

     WE ARE DEPENDENT UPON THE PROCEEDS OF THIS OFFERING TO CONTINUE OUR
     OPERATIONS.

     We are dependent upon the proceeds of this offering to continue our
operations. We anticipate, based on our currently proposed plans and assumptions
relating to our operations (including the timetable of, costs and expenses
associated with our continued operations), that the proceeds of this offering
(assuming a minimum of $1.5 million of proceeds) will more likely than not be
sufficient to satisfy our operations and capital requirements for the next 12-18
months. There can be no assurance, however, that such funds will not be expended
prior thereto. In the event our plans change, or our assumptions change or prove
to be inaccurate (due to unanticipated expenses, difficulties, delays or
otherwise), we could have insufficient funds to support our operations prior to
12-18 months. Our inability to obtain additional financing when needed, absent
generating sufficient cash from licensing arrangements, would have a material
adverse effect on the Company, requiring us to curtail or possibly cease our
operations. In addition, any additional equity financing may involve substantial
dilution to the interests of our then existing stockholders.

     OUR NEW LICENSING BUSINESS MAY NOT BE SUCCESSFUL.

<PAGE>

     In November 2003, we entered the technology licensing business as a result
of our acquisition of six patents relating to various telecommunications and
data networking technologies including, among others, patents covering the
transmission of audio, video and data over computer and telephony networks and
the delivery of remote power over Ethernet. Accordingly, we have a very limited
history in the technology licensing business upon which an evaluation of our
prospects and future performance can be made. Our prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the
development, operation and expansion of a new business based on patented
technologies in a highly specialized and competitive market. We may not be able
to achieve revenue or profitable operations from our new licensing business.

     OUR FUTURE SOURCE OF LICENSING REVENUE IS UNCERTAIN.

     In February 2004, we initiated our first licensing efforts relating to the
technologies in our remote power patent (U.S. Patent No. 6,212,930) (the "Remote
Power Patent"). To date, we have not entered into any licensing agreements with
third parties with respect to our Remote Power Patent or our other patented
technologies. Our inability to consummate licensing agreements and achieve
revenue from our patented technologies would have a material adverse effect on
our operations and our ability to continue our business. In addition, in the
event we consummate license arrangements with third parties, such arrangements
are not likely to produce a stable or predictable stream of revenue in the
foreseeable future. Furthermore, the success of our licensing efforts depends
upon the strength of our intellectual property rights.

     WE ARE CURRENTLY RELYING UPON THE EFFORTS OF THINKFIRE SERVICES USA, LTD.
     TO CONSUMMATE LICENSING AGREEMENTS FOR OUR REMOTE POWER PATENT WITH CERTAIN
     SELECT POTENTIAL LICENSEES.

     On November 30, 2004, we entered into a Master Services Agreement (the
"Agreement") with ThinkFire Services USA, Ltd. ("ThinkFire") pursuant to which
ThinkFire has been granted the exclusive (except for us and related companies)
worldwide rights to negotiate license agreements for the Remote Power Patent
with respect to certain potential licenses agreed between the parties. Either we
or ThinkFire can terminate the Agreement upon 60 days notice for any reason or
upon 30 days notice in the event of a material breach. We have agreed to pay
ThinkFire a fee not to exceed 20% of the royalty payments received from license
agreements consummated by ThinkFire on our behalf. There is no assurance that
ThinkFire will be successful in consummating license agreements on our behalf or
that such agreements will result in significant royalty payments to us. Although
under the terms of the Agreement we have the right to seek potential licensees
for our Remote Power Patent on our own, we are currently relying upon the
efforts of ThinkFire to consummate license agreements for our Remote Power
Patent.

     OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR PROPRIETARY
     TECHNOLOGIES.

     Our success is substantially dependent upon our proprietary technologies
and our ability to protect our intellectual property rights. We currently hold 6
patents issued by the U.S. Patent Office that relate to various
telecommunications and data networking technologies and include among other
things, patents covering the transmission of audio, voice and data over computer

                                        2
<PAGE>

and telephony networks and the delivery of remote PoE networks. We rely upon our
patents and trade secret laws, non-disclosure agreements with our employees,
consultants and third parties to protect our intellectual property rights. The
complexity of patent and common law, combined with our limited resources, create
risk that our efforts to protect our proprietary technologies may not be
successful. We cannot assure you that our patents will be upheld or that third
parties will not invalidate our patent rights. In the event our intellectual
property rights are not upheld, such an event would have a material adverse
effect on our company. In addition, there is a risk that third parties may
independently develop substantially equivalent or superior technologies.

     ANY LITIGATION TO PROTECT OUR INTELLECTUAL PROPERTY OR ANY THIRD PARTY
     CLAIMS TO INVALIDATE OUR PATENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON
     OUR BUSINESS.

     Our success depends on our ability to protect our intellectual property
rights. Accordingly, we may be subject to third-party claims seeking to
invalidate our patents, as is the case with the action commenced by PowerDsine
relating to our Remote Power Patent as discussed below. These types of claims,
with or without merit, may subject us to costly litigation and diversion of
management's focus. In addition, based on our limited financial resources, we
may not be able to pursue litigation as aggressively as competitors with
substantially greater financial resources. Based on our limited financial
resources, it may be necessary to engage third party professionals on a
contingency basis pursuant to which such parties would be entitled to share in
the proceeds of any successful enforcement of our intellectual property rights.
If third parties making claims against us seeking to invalidate our patent are
successful, they may be able to obtain injunctive or other equitable relief,
which effectively could block our ability to license or otherwise capitalize on
our proprietary technologies. Successful litigation against us resulting in a
determination that our patents are invalid would have a material adverse effect
on our company.

     WE FACE UNCERTAINTY AS TO THE OUTCOME OF LITIGATION WITH POWERDSINE.

     On March 31, 2004, PowerDsine Inc. ("PowerDsine") commenced an action
against us in the United District Court, Southern District of New York (Civil
Action No. 04 CV 2502) seeking a declaratory judgment that our Remote Power
Patent is invalid and is not infringed by PowerDsine and/or its customers.
PowerDsine further seeks an order permanently enjoining us (i) from making any
claims to any person or entity that PowerDsine's products infringe the Remote
Power Patent or contributes to infringement of the patent, (ii) from interfering
with or threatening to interfere with the importation, sale, license or use of
PowerDsine's PoE components or products, and (iii) from instituting or
prosecuting any lawsuit or proceeding placing at issue the right of PowerDsine,
its customers, licensees, successors, or assigns to import, use or sell
PowerDsine's PoE components or products. We believe our Remote Power Patent is
valid and that we have meritorious defenses to the action. On December 1, 2004,
we moved to dismiss the declaratory judgment action asserting, among other
things, that there is no actual case or controversy because PowerDsine did not
have reasonable apprehension of suit at the time the case was filed, nor does it
today, and therefore, the court lacks jurisdiction over the matter. We have
engaged in settlement discussions with PowerDsine in an effort to resolve the
litigation. In the event that we are unable to settle the litigation, we intend
to vigorously defend the lawsuit and take whatever actions are necessary to
protect our intellectual property. In the event, however, that the Court granted
the declaratory judgment and our patent was determined

                                        3
<PAGE>

to be invalid, such a determination would have a material adverse effect on us.
Regardless of the outcome, this litigation may subject us to significant costs
and diversion of management time.

     MATERIAL LICENSING REVENUES FROM OUR REMOTE POWER PATENT MAY BE DEPENDENT
     UPON THE APPLICABILITY OF THE IEEE STANDARD.

     The Institute of Electrical and Electronic Engineers (IEEEE) is a
non-profit, technical professional association of more than 360,000 individual
members in approximately 175 countries. The Standards Association of the IEEE is
responsible for the creation of global industry standards for a broad range of
technology industries. In 1999, at the urging of several industry venders, the
IEEE formed a task force to facilitate the adoption of a standardized
methodology for the delivery of remote power over Ethernet networks which would
insure interoperability among vendors of switches and terminal devices. In June
2003, the IEEE Standards Association approved the 802.3af Power Over Ethernet
standard (the "Standard"), which covers technologies deployed in delivering
power over Ethernet cables including whether deployed in switches or as
standalone midspan hubs both of which provide power to remote devices including
wireless access points, IP phones and network based cameras. The technology is
commonly referred to as Power Over Ethernet ("PoE"). We believe our Remote Power
Patent covers several of the key technologies covered by the Standard. However,
there is a risk that as a result of litigation a court may determine otherwise
and such a determination would limit our ability to enter into license
agreements and achieve revenue and profits from our Remote Power Patent.

     WE FACE INTENSE COMPETITION AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE.

     The telecommunications and data networking market is characterized by
intense competition and rapidly changing business conditions, customer
requirements and technologies. Our current and potential competitors have longer
operating histories, greater name recognition and possess substantially greater
financial, technical, marketing and other competitive resources than us.
Although we believe that we have rights to enforceable patents relating to
telecommunications and data networking, there can be no assurance that third
parties will not invalidate any or all of our patents. In addition, the
telecommunications and data networking industries may develop technologies that
may be more effective than our proprietary technologies or that render our
technologies less marketable or obsolete.

     OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND OUR TECHNOLOGIES
     FACE POTENTIAL TECHNOLOGY OBSOLESCENCE.

     The telecommunications and data networking technology market including,
transmission of audio, video and data over computer and telephony networks and
the delivery of remote power over Ethernet markets, are characterized by rapid
technological changes, changing customer requirements, frequent new product
introductions and enhancements, and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards may render our technologies obsolete or less marketable. To
the extent we are able to achieve revenue in the future, such revenue will be
derived from licensing our technologies based on existing and evolving industry
standards.

                                        4
<PAGE>

     DEPENDENCE UPON CEO AND CHAIRMAN.

     Our success will largely be dependent upon the personal efforts of Corey M.
Horowitz, Chairman and Chief Executive Officer and Chairman of the Board of
Directors. On November 26, 2004, we entered into a two (2) year employment
agreement with Mr. Horowitz pursuant to which he will continue to serve as our
Chairman and Chief Executive Officer. We do not maintain key man life insurance
on the life of Mr. Horowitz. The loss of the services of Mr. Horowitz could have
a material adverse effect on our business and prospects.

     RISKS RELATED TO LOW PRICED STOCKS.

     Our common stock currently trades on the OTC Bulletin Board under the
symbol NSSI.OB. Since the trading price of our common stock is below $5.00 per
share, our common stock is considered a penny stock. SEC regulations generally
define a penny stock to be an equity security that is not listed on Nasdaq or a
national securities exchange and that has a market value of less than $5.00 per
share, subject to certain exceptions. SEC regulations require broker-dealers to
deliver to a purchaser of our common stock a disclosure schedule explaining the
penny stock market and the risks associated with it. Various sales practice
requirements are also imposed on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors (generally
institutions). Broker-dealers must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and monthly account statements disclosing recent price information for the penny
stock held in the customer's account.

     THE SIGNIFICANT NUMBER OF OPTIONS AND WARRANTS OUTSTANDING MAY ADVERSELY
     EFFECT THE MARKET PRICE FOR OUR COMMON STOCK.

     As of December 15, 2004, there are outstanding (i) options and warrants to
purchase an aggregate of 7,452,375 shares of our common stock at exercise prices
ranging from $.12 to $10.13, and (ii) 257,630 additional shares of our common
stock which may be issued in the future under our stock option plan. To the
extent that outstanding options and warrants are exercised, your percentage
ownership will be diluted and any sales in the public market of the common stock
underlying such options may adversely affect prevailing market prices for our
common stock.

     WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK,
     WHICH MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.

     Our Board of Directors has the authority, without further action by the
stockholders, to issue 10,000,000 shares of preferred stock on such terms and
with such rights, preferences and designations as our Board of Directors may
determine. Such terms may include restricting dividends on our common stock,
dilution of the voting power of our common stock or impairing the liquidation
rights of the holders of our common stock. Issuance of such preferred stock,
depending on the rights, preferences and designations thereof, may have the
effect of delaying, deterring or preventing a change in control. In addition,
certain "anti-takeover" provisions in Delaware law may restrict the ability of
our stockholders to authorize a merger, business combination or change of
control.

                                        5
<PAGE>

                                    EXHIBIT C
                          REGISTRATION RIGHTS AGREEMENT

     REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December __,
2004, among Network-1 Security Solutions, Inc., a Delaware corporation (the
"Company"), and the Persons (as hereinafter defined) identified on Schedule 1
hereto (the "Investors"). This Agreement is made pursuant to the Securities
Purchase Agreement dated December 21, 2004, by and among the Company and the
Investors (the "Securities Purchase Agreement"). The Company has agreed to
provide the Investors and any transferees and subsequent purchasers of
Registrable Securities (as hereinafter defined) that may be issued, from time to
time, the registration rights with respect to the Registrable Securities, as set
forth in this Agreement. Capitalized terms used herein without definition shall
have the meanings set forth in the Securities Purchase Agreement.

     The parties hereto agree as follows:

     1. Definitions.

     As used in this Agreement, the following capitalized terms shall have the
following meanings:

     "Common Stock" means the common stock, $.01 par value per share, of the
Company.

     "Effectiveness Period" shall have the meaning ascribed thereto in Section 3
hereof.

     "Filing Date" means, with respect to the Registration Statement required to
be filed hereunder, on or before June 21, 2005.

     "Holder" shall mean an Investor or its respective transferee, who is the
owner of Registrable Securities.

     "Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint state company trust, unincorporated
organization, joint venture, a government authority or other entity of whatever
nature.

     "Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments to the Registration
Statement of which such Prospectus is a part, and all material incorporated by
reference in such Prospectus.

     "Registrable Securities" shall mean (i) the Securities as defined in this
Section 1, or (ii) stock issued in respect of securities referred to in clause
(i) in any reorganization; or (iii) stock issued in respect of the securities
referred to in clauses (i) or (ii) as a result of a stock split, stock dividend,
recapitalization or combination.

<PAGE>

     "Registration Expenses" shall have the meaning ascribed thereto in Section
5 hereof.

     "Registration Statement" means any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits, and
all material incorporated by reference in such Registration Statement.

     "SEC" shall mean the Securities and Exchange Commission.

     "Securities" shall mean any and all shares of Common Stock, issued or to be
issued, to Investors pursuant to the Securities Purchase Agreement including
shares of Common Stock to be issued upon the exercise of Warrants.

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

     2. Securities Subject to this Agreement. The Securities entitled to the
benefits of this Agreement are the Registrable Securities.

     3. Registration.

     (a) On or prior to the Filing Date, the Company shall prepare and file with
the SEC the Registration Statement covering the resale of all of the Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement required hereunder shall be on Form S-3 (except
if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case the Registration shall be on another
appropriate form in accordance herewith). Subject to the terms of this
Agreement, the Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, and shall use its best efforts to keep the
Registration Statement continuously effective under the Securities Act until the
date when all Registrable Securities covered by the Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion to such
effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "Effectiveness Period").

     4. Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:

     (a) In accordance with the Securities Act and the rules and regulations of
the SEC, prepare and file with the SEC a Registration Statement in the form of
an appropriate registration statement with respect to the Registrable Securities
and use its best efforts to cause such Registration Statement to become and
remain continuously effective for the Effectiveness Period;

                                        2
<PAGE>

     (b) Furnish to each Holder participating in such registration (each of such
Persons being referred to herein as a "Participant" in such registration) such
reasonable number of copies of the Registration Statement and Prospectus and
such other documents as such Participant may reasonably request in order to
facilitate the public offering of the Registrable Securities;

     (c) Use its best efforts to register or qualify the Securities covered by
such Registration Statement under such state securities or blue sky laws of such
jurisdictions as such Participants may reasonably request; provided, however,
that the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation in any jurisdiction in which
it is not so qualified or to subject itself to taxation in connection with any
such registration or qualification of such Securities;

     (d) Notify the Participants in such registration, promptly after it shall
receive notice thereof, of the date and time when such Registration Statement
and each post-effective amendment thereto has become effective or a supplement
to any Prospectus forming a part of such Registration Statement has been filed;

     (e) Notify the Participants in such registration promptly of any request by
the SEC for the amending or supplementing of such Registration Statement or
Prospectus or for additional information;

     (f) Prepare and file with the SEC, promptly upon the request of any
Participant in such registration, the Registration Statement and any amendments
or supplements to such Registration Statement or Prospectus that, in the
reasonable opinion of counsel for such Participants, is required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of the Securities by such Participants or to otherwise comply with
the requirements of the Securities Act and such rules and regulations;

     (g) Prepare and promptly file with the SEC and promptly notify the
Participants in such registration of the filing of such amendments or
supplements to such Registration Statement or Prospectus as may be necessary to
correct any statements or omissions if, at the time when a Prospectus relating
to such Securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such Prospectus or any other
Prospectus then in effect may include an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;

     (h) Advise the Participants in such registration, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;

     (i) Otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make generally available to the Company's security
holders earnings

                                        3
<PAGE>

statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than forty-five (45) days after the end of any twelve (12) month period
(or ninety (90) days, if such a period is a fiscal year) beginning with the
first month of the Company's first fiscal quarter commencing after the effective
date of a Registration Statement;

     (j) Not file any amendment or supplement to such Registration Statement or
Prospectus to which a majority in interest of the Participants in such
registration has reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of the
Securities Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least three (3) business days prior to the
filing thereof unless the Company shall have been advised in writing by its
counsel that such amendment is required under the Securities Act or the rules or
regulations adopted thereunder in connection with the distribution of Securities
by the Company or the Participants.

     5. Expenses of Registration. Except as provided in the following sentence,
all expenses of the Company incident to the Company's performance of or
compliance with the provisions of Sections 3 and 4 of this Agreement shall be
borne by the Company including without limitation:

     (a) All registration and filing fees (exclusive of underwriting discounts
and commissions);

     (b) Fees and expenses of compliance with all securities or blue sky laws
(including fees and disbursements of counsel for the Company in connection with
blue sky qualifications of the Registrable Securities), provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation in any jurisdiction in which it
is not so qualified or to subject itself to taxation in connection with any such
registration or qualification of such Registrable Securities;

     (c) Printing, messenger, telephone and delivery expenses; and

     (d) Fees and disbursements of the Company's counsel and independent
auditors; and

     (e) All other expenses of registration, including fees and disbursements of
one counsel for the Holders of the Registrable Shares with respect to each
registration of such securities pursuant to this Agreement.

     Nothing in this Section 8 shall be deemed to require the Company to pay or
bear any expenses of more than one counsel for the Participants or accountants
for the Participants or any other personal expenses or any underwriting
discounts, selling commissions or similar fees of the Participants, except as
otherwise set forth herein.

     6. Indemnification and Contribution.

     (a) Indemnification by the Company. Whenever, pursuant to Section 3 a
Registration Statement relating to the Registrable Securities is filed under the
Securities Act, the

                                        4
<PAGE>

Company will (except as to matters covered by Section 10(b) hereof) indemnify
and hold harmless each Participant in the registration, each of their partners,
members, shareholders, officers, directors and employees, each underwriter of
Registrable Securities, and each Person, if any, who controls any such Person
(collectively, the "Participant Indemnitees" and, individually, a "Participant
Indemnitee"), against any losses, claims, damages or liabilities, joint or
several, to which such Participant Indemnitees may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or Prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless any such
statement or omission is based on written information provided by the
Participant Indemnitee, or a representation of a Participant Indemnitee made in
writing, that such Participant Indemnitee has requested be included in such
Registration Statement or Prospectus, and will reimburse each Participant
Indemnitee for all legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action.

     (b) Indemnification by Participants. Each Participant in such registration
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement and each other Person, if
any, who controls the Company, within the meaning of the Securities Act, each
underwriter of Registrable Securities and each Person, if any, who controls any
such underwriter within the meaning of the Securities Act (collectively, the
"Company Indemnitees" and, individually, a "Company Indemnitee") and each other
Participant Indemnitee against all losses, claims, damages or liabilities, joint
or several, to which any of the Company Indemnitees or the other Participant
Indemnitees may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement, or Prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only if, and to the extent that, such statement or omission was
in reliance upon and in conformity with written information furnished to the
Company by such participant specifically for use in the preparation thereof.
Notwithstanding the foregoing, the indemnification obligation of each
Participant herein shall be limited to the net proceeds received by such
Participant in the offering of the Registrable Securities effected by the
Registration Statement.

                                        5

<PAGE>

     (c) Indemnification Procedures. Promptly after receipt by a Participant
Indemnitee or a Company Indemnitee (collectively, "Indemnitees" and,
individually, an "Indemnitee") under Section 6(a) or 6(b) hereof of notice of
the commencement of any action, such Indemnitee will, if a claim in respect
thereof is to be made against the indemnifying party under such clause, notify
the indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve the indemnifying party from
any liability that it may have to any Indemnitee except to the extent such
omission resulted in actual detriment to the indemnifying party, nor shall such
omission relieve the indemnifying party from any liability it may have to any
Indemnitee otherwise than under such clauses. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party a release from all liability in
respect of such claim or litigation. In case any such action shall be brought
against any Indemnitee, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such Indemnitee, and after notice from the indemnifying party to
such Indemnitee of its election to assume the defense thereof, the indemnifying
party shall not be liable to such Indemnitee under such clause for any legal or
other expenses subsequently incurred by such Indemnitee in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that the Indemnitee shall have the right to employ one counsel to represent such
Indemnitee if, in the reasonable judgment of such Indemnitee, it is advisable
for such party to be represented by separate counsel because separate defenses
are available, or because a conflict of interest exists between such indemnified
and indemnifying party in respect of such claim, and in that event the fees and
expenses of such separate counsel shall be paid by the indemnifying party.
Notwithstanding the foregoing, if the Company is an Indemnitee, the Company
shall designate the one counsel, and in all other circumstances, the one counsel
shall be designated by a majority in interest based upon the aggregate amount of
Registrable Securities of the Indemnitees. For purposes of this Section 6 the
terms "control," and "controlling person" have the meanings that they have under
the Securities Act.

     (d) Contribution. If for any reason the foregoing indemnity is unavailable,
or is insufficient to hold harmless an Indemnitee, then the indemnifying party
shall contribute to the amount paid or payable by the Indemnitee as a result of
such losses, claims, damages, liabilities or expenses (i) in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the Indemnitee on the other from the registration or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, or provides a lesser sum to the Indemnitee than the amount
hereinafter calculated, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand and the
Indemnitee on the other but also the relative fault of the indemnifying party
and the Indemnitee as well as any other relevant equitable considerations. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

                                        6
<PAGE>

     (e) Survival of Indemnification Obligations. The indemnification provided
by this Section 6 shall be a continuing right to indemnification and shall
survive the registration and sale of any Registrable Securities by any person
entitled to indemnification hereunder and the expiration or termination of this
Agreement.

     7. Amendment and Modification. This Agreement may be amended, modified or
supplemented in any respect only by written agreement by the Company and Holders
owning a majority of the issued and outstanding Registrable Securities (provided
that no such amendment shall unfairly discriminate against a particular Holder
relative to the other Holders).

     8. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York, without giving effect to the
choice of law principles thereof.

     9. Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.

     10. Notices. All notices and other communications hereunder shall be in
writing and, unless otherwise provided herein, shall be deemed duly given if
delivered personally or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses or (at such other address
for the party as shall be specified by like notice):

     (a) If to the Company:

          Network-1 Security Solutions, Inc.
          445 Park Avenue, Suite 1028
          New York, New York 10022
          Attn: Corey M. Horowitz, Chairman and Chief Executive Officer

          with a copy to:

          Olshan Grundman Frome Rosenzweig & Wolosky LLP
          Park Avenue Tower
          65 East 55th Street
          New York, New York 10022
          Attn: Sam Schwartz, Esq.

     or as the Company shall designate to the Investors in writing,

     (b) If to a Holder, as listed on the signature pages attached hereto or as
such Holder shall designate to the Company in writing,

     11. Headings; Execution in Counterparts. The headings and captions
contained herein are for convenience of reference only and shall not control or
affect the meaning or construction of

                                        7
<PAGE>

any provision hereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.

     12. Entire Agreement. This Agreement, including any exhibits hereto and the
documents and instruments referred to herein and therein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

     13. Attorneys' Fees. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover such reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled, as may be ordered in connection with such
proceeding.

     14. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their successors and assigns.

                    [Signatures begin on the following page.]

                                        8
<PAGE>

                [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

     IN WITNESS WHEREOF, this Agreement has been duly executed on the date
herein above set forth.

                                    NETWORK-1 SECURITY SOLUTIONS, INC.

                                    By:  _______________________________
                                         Corey M. Horowitz
                                         Chairman and Chief Executive Officer

                                    INVESTORS:

                                    EMIGRANT CAPITAL CORPORATION

                                    By:  _______________________________

                                    ____________________________________
                                    David M. Seldin

                                    ____________________________________
                                    Gilbert S. Stein

                                    ____________________________________
                                    John R. Hart

                                    ____________________________________
                                    Barry S. Friedberg

                                    ____________________________________
                                    Francis May

                                    ____________________________________
                                    Kenneth L. Walters, Jr.

                                    ____________________________________
                                    Robert Graifman

                                        9
<PAGE>

                [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

                                    Singer Opportunity Fund LLC

                                    By:  ________________________________

                                    The Singer Fund LLC

                                    By:  ________________________________

                                    CGA Resources, LLC

                                    By:  ________________________________
                                         Cass Gunther Adelman, Sole Member

                                    The Granite Fund, L.P.

                                    By:  __________________________________

                                    _____________________________________
                                    Matthew Balk

                                       10
<PAGE>

                [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

                                    Dasa Sada, LLC

                                    By:  _______________________________
                                         Alyssa Ackerman

                                    ____________________________________
                                    Steven Ackerman

                                       11
<PAGE>

                                   SCHEDULE 1

NAME AND ADDRESS OF INVESTOR
----------------------------

Emigrant Capital Corporation
6 East 43rd Street, 8th Floor
New York, New York 10017

Singer Opportunity Funds, LLC
650 Fifth Avenue
Suite 600
NY, NY 10019

Singer Fund, LLC
650 Fifth Avenue
Suite 600
NY, NY 10019

David M. Seldin
1571 Oceanview Drive
Tiessa Verde, Florida 33715

Robert Graifman
31 Grosvenor Road
Short Hills, NJ 07078

Gilbert S. Stein
8 High Meadow Court
Old Brookville, New York 11045

John R. Hart
731 Hillside Road
Fairfield, CT 06824

Granite Fund, L.P.
9820 E. Thompson Pkwy.
Scottsdale, Arizona 85255

CGA Resources, LLC
72 Hicks Street
Brooklyn, New York  11201

Barry S. Friedberg
134 E. 71st Street
New York, New York

                                       12
<PAGE>

Dasa Sada, LLC
1515 Old Cedar Swamp Road
Upper Brookville, New York   11545

Steven Ackerman
1515 Old Cedar Swamp Road
Upper Brookville, New York  11545

Francis May
613 Nod Hill Road
Wilton, Connecticut 06897

Matthew Balk
135 West 70th St
New York, New York

Kenneth L. Walters, Jr.
25 Muncy Drive
West Long Beach 07764

                                       13
<PAGE>

                                    EXHIBIT D

                              FORM OF LEGAL OPINION

     Olshan Grundman Frome Rosenzweig & Wolosky LLP, counsel to the Company,
will provide a legal opinion substantially covering the following matters:

     1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.

     2. The Common Stock has been duly authorized, and when issued and paid for,
will be validly issued, fully paid and non-assessable. The Warrants have been
duly authorized, and when issued and paid for, will be validly issued and the
Company has reserved the Warrant Shares for issuance upon exercise of the
Warrants. Upon issuance and delivery and payment therefor of the Warrant Shares
upon exercise of the Warrants, the Warrant Shares will be duly authorized,
validly issued, fully paid and non-assessable.

     3. The Company has the corporate power and authority to execute, deliver
and perform its obligations under the Transaction Documents. Each of the
Transaction Documents has been duly authorized, executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms.

     4. The execution, delivery and performance of the Transaction Documents and
issuance of the Common Stock, Warrants and Warrant Shares by the Company will
not: (a) violate any federal or state law or regulation applicable to the
Company; (b) violate or be in conflict with the Certificate of Incorporation or
Bylaws of the Company; or (c) to the best of counsel's knowledge, (i) violate
any order of any court or other agency of government binding on the Company,
(ii) violate or constitute (with or without due notice and/or lapse of time) a
default under the terms of any agreement, indenture, or other instrument to
which the Company is a party or by which it or its property is bound, or (iii)
result in the creation or imposition of any lien, charge or encumbrance of any
nature upon any of the property or assets of the Company.Exhibit 4.6

 

PROMISSORY NOTE

 

	
  Principal

  	
   

  	
  Loan
  Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No.

  	
   

  	
  Call/Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  315,000.00

  	
   

  	
  12-09-2004

  	
   

  	
  01-01-2011

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
																	

 

References in the shaded area are for Lender’s use only and do not
limit the applicability of this document to any particular loan or item.

Any item above containing “***” has been omitted due to text length
limitations.

 

Borrower: Quality Products, lnc.

2222 South Third Street

Columbus, OH 43207

 

Lender: THE HUNTINGTON NATIONAL BANK

Columbus Commercial Banking

P. O. Box 341470 -NC1W25

Columbus, OH 43234-9909

 

Principal Amount: $315,000.00       Initial
Rate: 4.990%       Date of Note: December 9,
2004

 

PROMISE TO PAY. Quality Products, Inc. (“Borrower”) promises to pay to
THE HUNTINGTON NATIONAL BANK (“Lender”), or order, In lawful money of the
United States of America, the principal amount of Three Hundred Fifteen
Thousand & 00/100 Dollars ($315,000.00), together with Interest on the
unpaid outstanding principal balance from December 9, 2004, until paid in full.

 

PAYMENT.   Subject to any payment
changes resulting from changes in the Index, Borrower will pay this loan in
accordance with the following schedule:

 

13 monthly consecutive interest payments, beginning on January 1, 2005;
59 monthly consecutive principal payments in the initial amount of $5,250.00
each, beginning on February 1, 2006; 59 monthly consecutive interest payments
beginning on February 1, 2006; and one principal and interest payment of
$5,272.56 on January 1, 2011, with interest calculated on the unpaid principal
balances at an interest rate based on the daily fluctuating LIBO rate as
defined below.  This estimated final
payment is based on the assumption that all payments will be made exactly as
scheduled and that the index does not change; the actual final payment will be
for all principal and accrued interest not yet paid, together with any other
unpaid amounts under this Note.

 

Unless otherwise agreed or required by applicable law, payments will be
applied first to any accrued unpaid Interest; then to principal; then to any
unpaid collection costs; and then to any late charges.  The annual Interest rate for this note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
Interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding.  Borrower will pay Lender at
Lender’s address shown above or at such other place as Lender may designate in
writing.

 

VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an independent index which is the
Daily Fluctuating LIBO Rate.  As used
herein, Daily Fluctuating LIBO Rate shall mean the rate obtained by dividing: (1)
the actual or estimated per annum rate, or the arithmetic mean of the per annum
rates, of interest for deposits in U.S. dollars for one (1) month periods, as
offered and determined by Lender in its sole discretion based upon information
which appears on page LIBOR01, captioned British Bankers Assoc. Interest Rate
Settlement Rates, of the Reuters America Network, a service of Reuters America
Inc. (or such other page that may replace that page on that service for the
purpose of displaying LIBO rates; or, if such service ceases to be available or
ceases to be used by Lender, such other reasonably comparable money rate
service as lender may select) or upon information obtained from any other
reasonable procedure, on each date the Daily Fluctuating LIBO Rate is
determined; by (2) an amount equal to one minus the stated maximum rate
(expressed as a

 

 

decimal), If any, of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
that is specified on each date the Daily Fluctuating LIBO Rate is determined by
the Board of Governors of the Federal Reserve System (or any successor agency
thereto) for determining the maximum reserve requirement with respect to
eurocurrency funding (currently referred to as “Eurocurrency liabilities” in
Regulation D of such Board) maintained by a member bank of such System, or any
other regulations of any governmental authority having jurisdiction with
respect thereto, all as conclusively determined by Lender, absent manifest
error, such result to be rounded up, if necessary, to the nearest whole
multiple of one-sixteenth of one percent (1/16 of 1.0%) per annum. Subject to
any maximum or minimum interest rate limitation specified herein or by
applicable law, the interest rate shall change automatically without notice to
Borrower immediately on each day with each change in the Daily Fluctuating LIBO
Rate or the reserve requirement, as applicable, with any change thereto effective
as of the opening of business on the day of the change (the “Index”). The Index
is not necessarily the lowest rate charged by lender on its loans.  If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower.  Lender will tell Borrower the
current Index rate upon Borrower’s request. The interest rate change will not
occur more often than each day (the “rate change event”).  Borrower understands that Lender may make
loans based on other rates as well. The initial rate is based on the Index as
of December 7, 2004 which was 2.340% per annum. 
Initially, the interest rate to be applied to the unpaid principal
balance of the Note is 4.990%.  After the
first rate change event, the interest rate to be applied to the unpaid
principal balance of this note will be at a rate of 2.650 percentage points
over the Index.  NOTICE: under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.  Whenever
increases occur in the interest rate, Lender, at its option, may do one or more
of the following: (A) increase Borrower’s payments to ensure Borrower’s loan
will pay off by its original final maturity date, (B) increase Borrower’s
payments to cover accruing interest, (C) increase the number of Borrower’s
payments, and (D) continue Borrower’s payments at the same amount and increase
Borrower’s final payment.

 

PREPAYMENT. Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed to by
lender In writing, relieve Borrower of Borrower’s obligation to continue to
make payments of accrued unpaid interest. Rather, early payments will reduce
the principal balance due.  Borrower
agrees not to send lender payments marked “paid in full”, “without recourse”,
or similar language. If Borrower sends such payment, lender may accept it
without losing any of lender’s rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment instrument
that indicates that the payment constitutes “payment in full” of the amount
owed or that is tendered with other conditions or limitations or as full
satisfaction of a disputed amount must be mailed or delivered to: The
Huntington National Bank, Commercial Customer Support, 2361 Morse Road NC1W26
Columbus, OH 43229.

 

LATE CHARGE. If a payment is 11 days or more late, Borrower will be
charged 5.000% of the regularly scheduled payment.

 

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon
final maturity, Lender, at its option, may, if permitted under applicable law,
Increase the variable interest rate in this Note to 5.650 percentage points
over the Index. The interest rate will not exceed the maximum rate permitted by
applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event
of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this
Note.

 

Other Defaults.  Borrower fails
to comply with or to perform any other term, obligation, covenant or condition
contained in this Note or in any of the related documents or to comply with or
to perform any term, obligation, covenant or condition contained in any other agreement
between Lender and Borrower.

 

 

False Statements.  Any warranty,
representation or statement made or furnished to Lender by Borrower or on
Borrower’s behalf under this Note or the related documents is false or
misleading in any material respect, either now or at the time made or furnished
or becomes false or misleading at any time thereafter.

 

Insolvency.  The dissolution or
termination of Borrower’s existence as a going business, the insolvency of
Borrower, the appointment of a receiver for any part of Borrower’s property,
any assignment for the benefit of creditors, any type of creditor workout, or
the commencement of any proceeding under any bankruptcy or insolvency laws by
or against Borrower.

 

Creditor or Forfeiture Proceedings. 
Commencement of foreclosure or forfeiture proceedings, whether by
judicial proceeding, self-help, repossession or any other method by any
creditor of Borrower or by any governmental agency against any collateral
securing the loan.  This includes a
garnishment of Borrower’s accounts, including deposit accounts, with Lender.
However, this Event of Default shall not apply if there is a good faith dispute
by Borrower as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding and if Borrower gives Lender
written notice of the creditor or forfeiture proceeding and deposits with
lender monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, in its sole discretion, as being an adequate
reserve or bond for the dispute.

 

Events Affecting Guarantor.  Any
of the preceding events occurs with respect to any Guarantor of any of the
indebtedness or any Guarantor dies or becomes incompetent, or revokes or
disputes the validity of, or liability under, any guaranty of the indebtedness
evidenced by this Note.

 

Change In Ownership.  Any change
in ownership of twenty-five percent (25%) or more of the common stock of
Borrower.

 

Adverse Change.  A material
adverse change occurs in Borrower’s financial condition, or Lender believes the
prospect of payment or performance of this Note is impaired.

 

Insecurity.  Lender in good faith
believes itself insecure.

 

LENDER’S RIGHTS.  Upon default,
Lender may declare the entire unpaid principal balance on this Note and all
accrued unpaid interest immediately due, and then Borrower will pay that
amount.

 

ATTORNEYS’ FEES; EXPENSES. 
Lender may hire or pay someone else to help collect this Note if
Borrower does not pay.  Borrower will pay
Lender that amount.  This includes,
subject to any limits under applicable law, Lender’s attorney fees and Lender’s
legal expenses, whether or not there is a lawsuit, including attorneys’ fees,
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), and appeals. 
If not prohibited by applicable law, Borrower also will pay any court
costs in addition to all other sums provided by law.

 

JURY WAIVER.  Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Ohio.  This Note has been accepted by Lender in the
State of Ohio.

 

CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and
empowers any attorney-at-law, including an attorney hired by Lender, to appear
in any court of record and to confess judgment against Borrower for the unpaid
amount of this Note as evidenced by an affidavit signed by an officer of Lender
setting forth the amount then due, attorneys’ fees plus costs of suit, and to
release all errors, and waive all rights of appeal. If a copy of this Note,
verified by an affidavit, shall have been filed in the proceeding, it will not
be necessary to file the original as a warrant of attorney. Borrower waives the
right to any stay of execution and the benefit of all exemption laws now or
hereafter in effect. No single exercise of the foregoing warrant and power to
confess judgment will be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void; but the
power will

 

 

continue undiminished and may be exercised from time to time as Lender
may elect until all amounts owing on this Note have been paid in full. Borrower
waives any conflict of interest that an attorney hired by Lender may have in
acting on behalf of Borrower in confessing judgment against Borrower while such
attorney is retained by Lender. Borrower expressly consents to such attorney
acting for Borrower in confessing judgment.

 

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if
Borrower makes a payment on Borrower’s loan and the check or preauthorized charge
with which Borrower pays is later dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender
reserves a right of setoff in all Borrower’s accounts with Lender (whether
checking, savings, or some other account). This includes all accounts Borrower
holds jointly with someone else and all accounts Borrower may open in the
future. However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all sums
owing on the indebtedness against any and all such accounts.

 

FINANCIAL STATEMENTS. Borrower agrees to furnish from time to time on
the request of the Lender true and complete financial statements and such other
information as the Lender may reasonably require.

 

PROCESSING FEE. Borrower shall pay to Lender on the date of this Note a
processing fee in the amount of $0.00. Lender and Borrower agree that the fee
shall be fully earned by Lender on the date of this Note.

 

SPECIAL LIBO RATE PROVISION. In the event that Lender reasonably
determines that by reason of (a) any change arising after the date of this Note
affecting the interbank eurocurrency market or affecting the position of Lender
with respect to such market, adequate and fair means do not exist for
ascertaining the applicable interest rates by reference to which the Daily
Fluctuating LIBO Rate then being determined is to be fixed, (b) any change
arising after the date of this Note in any applicable law or governmental rule,
regulation or order (or any interpretation thereof, including the introduction
of any new law or governmental rule, regulation or order), or (c) any other
circumstance affecting Lender or the interbank eurocurrency market (such as,
but not limited to, official reserve requirements required by Regulation D of
the Board of Governors of the Federal Reserve System), the Daily Fluctuating
LIBO Rate plus the applicable spread shall not represent the effective pricing
to Lender of accruing interest based upon the Daily Fluctuating LIBO Rate,
then, and in any such event, the accrual of interest hereunder based upon the Daily
Fluctuating LlBO Rate shall be suspended until Lender shall notify Borrower
that the circumstances causing such suspension no longer exist and beginning on
the date of such suspension interest shall accrue hereunder at a variable rate
of interest per annum, which shall change in the manner set forth below, equal
to            
percentage points (which shall be 0.00 percentage points, unless completed) in
excess of the Prime Commercial Rate (as hereinafter defined).

 

In the event that on any date Lender shall have reasonably determined
that accruing interest hereunder based upon the Daily Fluctuating LIBO Rate has
become unlawful by compliance by Lender in good faith with any law,
governmental rule, regulation or order, then, and in any such event, Lender
shall promptly give notice thereof to Borrower. In such case, when required by
law, interest shall accrue hereunder at a variable rate of interest per annum,
which shall change in the manner set forth below, equal to          
percentage points (which shall be 0.00 percentage points, unless completed) in
excess of the Prime Commercial Rate.

 

As used herein, Prime Commercial Rate shall mean the rate established
by Lender from time to time based on its consideration of economic, money
market, business and competitive factors, and it is not necessarily Lender’s
most favored rate. Subject to any maximum or minimum interest rate limitation
specified herein or by applicable law, any variable rate of interest on the
obligation evidenced hereby based upon the Prime Commercial Rate shall change
automatically without notice to Borrower immediately with each change in the
Prime Commercial Rate with any change thereto effective as of the opening of
business on the day of the change. If during any period of time while interest
is accruing hereunder based upon the Prime Commercial Rate the obligation
evidenced by this Note is not paid at maturity, whether maturity occurs by

 

 

lapse of time, demand, acceleration or otherwise, the unpaid principal
balance and any unpaid interest thereon shall, thereafter until paid, bear
interest at a rate equal to         
percentage points (which shall be 0.00 percentage points, unless completed) in
excess of the rate indicated in the immediately preceding two paragraphs.

 

If, due to (a) the introduction of or any change in or in the
interpretation of any law or regulation, (b) the compliance with any guideline
or request from any central bank or other public authority (whether or not
having the force of law), or (c) the failure of Borrower to pay any amount when
required by the terms of this Note, there shall be any loss or increase in the cost
to Lender of accruing interest hereunder based upon the Daily Fluctuating LIBO
Rate, then Borrower agrees that Borrower shall, from time to time, upon demand
by Lender, pay to Lender additional amounts sufficient to compensate Lender for
such loss or increased cost. A certificate as to the amount of such loss or
increase cost, submitted to Borrower by Lender, shall be conclusive evidence,
absent manifest error, of the correctness of such amount.

 

IMPORTANT INFORMATION ABOUT PROCEDURES REQUIRED BY THE USA PATRIOT ACT.
To help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each entity or person who opens an
account or establishes a relationship with the Lender.

 

What this means: When an entity or person opens an account or
establishes a relationship with the Lender, the Lender may ask for the name,
address, date of birth, and other information that will allow the Lender to
identify the entity or person who opens an account or establishes a
relationship with the Lender. The Lender may also ask to see identifying
documents for the entity or person.

 

DRAW PERIOD.  The proceeds of the
loan evidenced hereby may be advanced in partial amounts during the term hereof
and prior to maturity, and no partial advances shall be made after January 1,
2006.

 

LINE OF CREDIT. This Note evidences a straight line of credit. Once the
total amount of principal has been advanced, Borrower is not entitled to
further loan advances.  Advances under
this Note, as well as directions for payment from Borrower’s accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower’s accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender’s
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (A) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or
any guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (B) Borrower or any guarantor ceases doing business
or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor’s guarantee of this Note or any other
loan with Lender; (0) Borrower has applied funds provided pursuant to this Note
for purposes other than those authorized by Lender; or (E) Lender in good faith
believes itself insecure.

 

SUCESSOR INTERESTS.  The terms of
this note shall be binding upon Borrower, and 
upon Borrower’s heirs, personal representatives, successors and assigns,
and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS.  If any part
of this note cannot be enforced, this fact will not affect the rest of the
Note.  Borrower does not agree or intend
to pay, and Lender does not agree or intend to contract for , charge, collect,
take, reserve or receive (collectively referred to herein as “charge or collect”),
any amount in the nature of interest or in the nature of a fee for this loan,
which would in any way or event (including demand, prepayment, or acceleration)
cause Lender to charge or collect more for this loan than the maximum Lender
would be permitted to charge or collect by federal law or the law of the State
of Ohio (as applicable).  Any such excess
interest or unauthorized fee shall, instead of anything stated to the contrary,
be applied first to reduce the principal balance of this loan, and when the
principal has been paid in full, be refunded to Borrower.  Lender may delay or forgo enforcing any of
its rights or remedies under this Note without losing them.  Borrower and any other person who signs,
guarantees or endorses this Note, to the

 

 

extent allowed by law, waive presentment, demand for payment, and
notice of dishonor.  Upon any change in
the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability.  All
such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender’s security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone.  All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.  The obligations under this Note are joint and
several.

 

PRIOR TO SIGNING THIS NOTE. BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE. INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY
NOTE.

 

NOTICE: FOR THIS NOTICE “YOU” MEANS THE BORROWER AND “CREDITOR” AND
“HIS” MEANS LENDER.

 

WARNING – BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL.  IF YOU DO NOT PAY ON TIME A
COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE
POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU
MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE
ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.

 

BORROWER:

 

	
  QUALITY PRODUCTS, INC

  
	
   

  
	
  By:

  	
  /s/ T. P. Schwartz

  	
   

  
	
   

  	
  Ted P. Schwartz, President of Quality Products, Inc.

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