UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.


FORM 10-Q

 


 

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to

 

Commission file number: 001-34785

 

VRINGO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   20-4988129

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     
780 3rd Ave. 15th Floor, New York, NY   10017
(Address of principal executive offices)   (Zip Code)

 

(212) 309-7549

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
Common Stock, par value $0.01 per share   NYSE MKT
Warrants to purchase Common Stock   NYSE MKT

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x      No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer £ Accelerated filer £
       
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨     No  x  

  

As of November 14, 2012, 80,328,144 shares of the registrant’s common stock were outstanding

 

 
 

 

VRINGO, INC.

 

Table of Contents

 

      Page
     
PART I. FINANCIAL INFORMATION   3
       
Item 1. Financial Statements   3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   24
Item 3. Quantitative and Qualitative Disclosures About Market Risk   37
Item 4. Controls and Procedures   37
     
PART II. OTHER INFORMATION   38
       
Item 1. Legal Proceedings   38
Item 1A. Risk Factors   39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   49
Item 3. Defaults Upon Senior Securities   49
Item 4. Mine Safety Disclosures   49
Item 5. Other Information   49
Item 6. Exhibits   49

 

1
 

 

Explanatory Note

 

On July 19, 2012, Vringo, Inc., a Delaware corporation (“Vringo” or “Legal Parent”), closed a merger transaction (the “Merger”) with Innovate/Protect, Inc., a privately held Delaware corporation (“I/P”), pursuant to an Agreement and Plan of Merger, dated as of March 13, 2012 (the “Merger Agreement”), by and among Vringo, I/P and VIP Merger Sub, Inc., a wholly-owned subsidiary of Vringo (“Merger Sub”). Pursuant to the Merger Agreement, I/P became a wholly-owned subsidiary of Vringo through a merger of I/P with and into Merger Sub (which was renamed Innovate/Protect, Inc.), and the former stockholders of I/P received shares of Vringo that constituted more than a majority of the outstanding shares of Vringo.

 

The Merger has been accounted for as a reverse acquisition under which I/P was considered the acquirer of Vringo. As such, the financial statements of I/P are treated as the historical financial statements of the combined company, with the results of Vringo being included from July 19, 2012.

 

All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Vringo, Inc., a Delaware corporation, and its consolidated subsidiaries for periods after the closing of the Merger, and to I/P and its consolidated subsidiaries for periods prior to the closing of the Merger unless the context requires otherwise.

 

2
 

 

Part I — FINANCIAL INFORMATION

 

Item 1.         Financial Statements

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

  

        September 30,
2012
    December 31,
2011
 
    Note   U.S.$     U.S.$  
Current assets                    
Cash and cash equivalents         9,549       5,212  
Accounts receivable         155        
Prepaid expenses and other current assets         606       26  
                     
Total current assets         10,310       5,238  
                     
Long-term deposit         54        
Property and equipment, at cost, net of $22 and $1 accumulated depreciation and amortization, as of September 30, 2012 and December 31, 2011, respectively         262       8  
Intangible assets, net   4,6     34,559       3,068  
Goodwill   4     69,511        
                     
Total assets         114,696       8,314  

 

The accompanying notes form an integral part of these consolidated financial statements.

 

3
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands except share and per share data)

 

        September 30,
2012
    December 31,
2011
 
    Note     U.S.$     U.S.$  
Current liabilities                    
Deferred short-term tax liabilities, net   4     648        
Accounts payable and accrued expenses         2,976       449  
Accrued employee compensation         844        
Current portion, note payable—related party   5           2,000  
                     
Total current liabilities         4,468       2,449  
                     
Long-term liabilities                    
Deferred long-term tax liabilities   4     2,837        
Derivative liabilities on account of warrants   3     17,280        
Note payable—related party   5           1,200  
                     
Total long-term liabilities         20,117       1,200  
                     
Commitments and contingencies   9                
                     
Series A Convertible Preferred stock, $0.0001 par value per share; 0 and 10,000,000 authorized; 0 and 6,968 issued; 0 and 6,968 outstanding, as of September 30, 2012 and December 31, 2011, respectively   7           1,800  
                     
Stockholders’ equity   8                
Series A Convertible Preferred stock, $0.01 par value per share; 5,000,000 and 0 authorized; 6,673 and 0 issued; none outstanding, as of September 30, 2012 and December 31, 2011, respectively                
Common stock, $0.01 par value per share 150,000,000 authorized;  64,809,694 and 16,972,977 issued and outstanding as of September 30, 2012 and December 31, 2011, respectively         648       170  
Additional paid-in capital         99,053       5,449  
Deficit accumulated during the development stage         (9,590 )     (2,754 )
                     
Total stockholders’ equity         90,111       2,865  
                     
Total liabilities and stockholders’ equity         114,696       8,314  

  

The accompanying notes form an integral part of these consolidated financial statements.

 

4
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands except share and per share data)

    Three months ended September 30,     Nine months ended September 30,     Period from
June 8, 2011 (inception)
to September 30,
    Cumulative
from June 8, 2011 (inception)
to September 30,
 
    2012     2011     2012     2011     2012  
    U.S.$     U.S.$     U.S.$     U.S.$     U.S.$  
Revenue     266             266             266  
                                         
Costs and Expenses                                        
Cost of revenue*     3,415       547       5,976       561       7,536  
Research and development*     997             997             997  
Marketing, general and administrative*     6,364       323       7,508       762       8,694  
Total operating expenses     10,776       870       14,481       1,323       17,227  
Operating loss     (10,510 )     (870 )     (14,215 )     (1,323 )     (16,961 )
                                         
Non-operating income     82             82             82  
Non-operating expenses     (12 )     (4 )     (19 )     (4 )     (27 )
Gain on revaluation of derivative warrants     7,240             7,240             7,240  
                                         
Loss before taxes on income     (3,200 )     (874 )     (6,912 )     (1,327 )     (9,666 )
Income tax benefit     76             76             76  
                                         
Net loss     (3,124 )     (874 )     (6,836 )     (1,327 )     (9,590 )
Basic net loss per common share     (0.06 )     (0.16 )     (0.27 )     (0.25 )     (0.52 )
Diluted net loss per common share     (0.18 )     (0.16 )     (0.40 )     (0.25 )     (0.60 )
                                         
Weighted average number of shares used in computing net loss per common share:    
          Basic:     48,790,819       5,365,225       25,611,159       5,221,328       18,445,471  
          Diluted:     58,227,100       5,365,225       35,047,440       5,221,328       27,891,752  

  

* Includes stock based compensation expense, as follows:
Cost of revenue     318             318             318  
Research and development     452             452             452  
Marketing, general and administrative     4,592       50       4,762       373       5,236  
      5,362       50       5,532       373       6,006  

 

The accompanying notes form an integral part of these consolidated financial statements.

 

5
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

 

    Series A
Convertible
Preferred
Stock
    Common stock     Additional
paid-in capital
    Deficit
accumulated
during the
development
stage
    Total  
    U.S.$     U.S.$     U.S.$     U.S.$     U.S.$  
Balance as of June 8, 2011 (Inception)                              
Issuance of shares of common stock           170       4,975             5,145  
Stock based compensation                 474             474  
Net loss for the period                       (2,754 )     (2,754 )
Balance as of December 31, 2011           170       5,449       (2,754 )     2,865  
Conversion of Series A Preferred Convertible Preferred stock, classified as mezzanine equity           8       68             76  
Stock based compensation, including grant of shares to consultants           3       5,529             5,532  
Recording of Legal Parent’s equity instruments upon Merger, net of issuance cost of $463, see Note 4     *—       152       54,809             54,961  
Conversion of Series A Preferred Convertible Preferred stock, classified as equity     *—       201       (201 )            
Exercise of warrants           16       2,178             2,194  
Exercise of stock options           2       169             171  
Issuance of shares in connection with a financing round, net of issuance cost of $52           96       31,052             31,148  
Net loss for the period                       (6,836 )     (6,836 )
Balance as of September 30, 2012           648       99,053       (9,590 )     90,111  

 

* Represents amounts less than $1.

 

The accompanying notes form an integral part of these consolidated financial statements.

 

6
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

    Nine months ended
September 30,
    Period from June 8, 2011 (inception)
to September 30,
    Cumulative from
June 8, 2011 (inception) to
September 30,
 
    2012     2011     2012  
    U.S.$     U.S.$     U.S.$  
Cash flows from operating activities                        
Net loss     (6,836 )     (1,327 )     (9,590 )
Adjustments to reconcile net cash flows used in operating activities:                        
Items not affecting cash flows                        
Depreciation and amortization     1,211       170       1,540  
Change in deferred tax assets and liabilities     (162 )           (162 )
Stock based compensation expense     5,532       373       6,006  
Decrease in fair value of warrants     (7,240 )           (7,240 )
Exchange rate gains     (6 )           (6 )
Changes in current assets and liabilities                        
Increase in receivables, prepaid expenses and other current assets     (504 )     (15 )     (530 )
Increase in payables and accruals     2,043       545       2,491  
Net cash used in operating activities     (5,962 )     (254 )     (7,491 )
Cash flows from investing activities                        
Acquisition of property and equipment     (151 )     (5 )     (160 )
Acquisition of patents     (22,548 )     (3,395 )     (25,943 )
Increase in deposits     (46 )           (46 )
Cash acquired as part of acquisition of Vringo (1)     3,326             3,326  
Net cash used in investing activities     (19,419 )     (3,400 )     (22,823 )

 

The accompanying notes form an integral part of these consolidated financial statements.

 

7
 

  

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

    Nine months ended
September 30,
    Period from June
8, 2011 (inception)
to September 30,
    Cumulative from
June 8, 2011 (inception)
to September 30,
 
    2012     2011     2012  
    U.S.$     U.S.$     U.S.$  
Cash flows from financing activities                        
Financing round net of issuance cost of $52     31,148             31,148  
Proceeds from issuance (repayment) of note payable—related party     (3,200 )     3,200        
Proceeds from issuance of preferred stock           1,800       1,800  
Proceeds from issuance of common stock           2,360       5,145  
Exercise of options     171             171  
Exercise of warrants     1,598             1,598  
Net cash provided by financing activities     29,717       7,360       39,862  
Effect of exchange rate changes on cash and cash equivalents     1             1  
Increase in cash and cash equivalents     4,337       3,706       9,549  
Cash and cash equivalents at beginning of period     5,212              
Cash and cash equivalents at end of period     9,549       3,706       9,549  
Supplemental disclosure of cash flows information                        
Interest paid     9             17  
Income taxes paid     14             14  
Non-cash investing and financing transactions                        
Conversion of Series A Convertible Preferred stock, classified as mezzanine equity, into common stock, prior to the Merger     76             76  
Conversion of Series A Convertible Preferred stock, classified as mezzanine equity, into common stock, upon Merger     1,724             1,724  
Conversion of Series A Convertible Preferred stock, classified as equity, into common stock, post-Merger     201             201  
Stock subscription receivable           325        
Conversion of derivative warrants     596             596  

 

(1) Cash acquired as part of acquisition of Vringo        
Working capital (excluding cash and cash equivalents)     739  
Long term deposit     (8 )
Fixed assets, net     (124 )
Goodwill     (69,511 )
Intangible assets     (10,133 )
Fair value of Legal Parent’s shares of common stock and vested $0.01 options     58,211  
Fair value of warrants and vested stock options     17,443  
Long-term liabilities     6,709  
         
      3,326  

 

The accompanying notes form an integral part of these consolidated financial statements.

 

8
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except for share and per share data)

 

Note 1—General

 

Vringo, Inc., together with its consolidated subsidiaries (the “Company”), is engaged in the innovation, development and monetization of mobile technologies and intellectual property. Vringo's intellectual property portfolio consists of over 500 patents and patent applications covering telecom infrastructure, internet search, and mobile technologies. The patents and patent applications have been developed internally and acquired from third parties. Vringo also operates a global platform for the distribution of mobile social applications and services.

 

On July 19, 2012, Vringo, Inc., a Delaware corporation (“Vringo” or “Legal Parent”), closed a merger transaction (the “Merger”) with Innovate/Protect, Inc., a privately held Delaware corporation (“I/P”), pursuant to an Agreement and Plan of Merger, dated as of March 13, 2012 (the “Merger Agreement”), by and among Vringo, I/P and VIP Merger Sub, Inc., a wholly owned subsidiary of Vringo (“Merger Sub”). Pursuant to the Merger Agreement, I/P became a wholly-owned subsidiary of Vringo through a merger of I/P with and into Merger Sub, and the former stockholders of I/P received shares of Vringo that constituted a majority of the outstanding shares of Vringo.

 

Because former I/P stockholders owned, immediately following the Merger, approximately 67.61% of the combined company on a fully diluted basis and as a result of certain other factors, I/P was deemed to be the acquiring company for accounting purposes and the transaction was accounted for as a reverse acquisition in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Accordingly, the Company’s financial statements for periods prior to the Merger reflect the historical results of I/P, and not Vringo’s historical results prior to the Merger, and the Company’s financial statements for all periods from July 19, 2012 reflect the results of the combined company.

 

Unless specifically noted otherwise, as used throughout these consolidated financial statements, the term “Company” refers to the combined company after the Merger and the business of I/P before the Merger. The terms I/P and Vringo refer to such entities’ standalone businesses prior to the Merger.

 

I/P (a Development Stage Company) was incorporated on June 8, 2011 under the laws of Delaware as Labrador Search Corporation.

 

The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a “going concern”, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. There is no certainty, however, in its ability to successfully monetize its intellectual property assets through licensing or litigation. In addition, there is no certainty in its ability to successfully develop and/or market its products. The Company has incurred significant losses since its inception, and it might continue to operate at a net loss in the foreseeable future. For the three and nine month periods ended September 30, 2012, and for the cumulative period from inception of I/P (June 8, 2011) until September 30, 2012, the Company incurred net losses of $3,124, $6,836 and $9,590, respectively. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Based on current operating plans, the current resources of the Company, after taking into account the net funds received in a subsequent to balance sheet date private registered direct offering, in the total amount of approximately $44,900, as well as $8,332 received, subsequent to balance sheet date, from the exercise of the Company’s convertible equity instruments, are expected to be sufficient for at least the next twelve months. The Company may choose to raise additional funds in connection with any future acquisition of additional intellectual property assets, operating businesses or other assets that it may choose to pursue. There can be no assurance, however, that any such opportunities will materialize. Moreover, any potential financing would likely be dilutive to the Company’s stockholders.

 

As of September 30, 2012, approximately $609 of the Company's net assets were located outside of the United States. In addition, the Company owns patents issued outside of the United States.

 

9
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except for share and per share data)

 

Note 2—Significant Accounting and Reporting Policies

 

(a) Basis of presentation

 

The accompanying consolidated financial statements include the accounts of I/P, Legal Parent and their wholly-owned subsidiaries, and are presented in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements include the results of operations of I/P and subsidiaries for all periods presented, with the results of operations of the Legal Parent and its subsidiaries for the period from July 19, 2012 (the effective date of the Merger) through September 30, 2012. Moreover, common stock amounts presented for comparative periods differ from those previously presented by I/P, due to application of accounting requirements applicable to a reverse acquisition.

 

The accompanying unaudited consolidated financial statements were prepared in accordance with U.S. GAAP and instructions to Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2011 contained in the Company’s definitive proxy statement/prospectus filed with the Securities and Exchange Commission (“SEC”) on June 21, 2012. The results of operations for the three and nine month period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.

 

(b) Development stage enterprise

 

The Company’s principal activities to date have been focused on enforcement and development of its intellectual property, as well as on the research and development of its products. To date, the Company has not generated any significant revenues from its planned principal operations. Accordingly, the Company’s financial statements are presented as those of a development stage enterprise.

 

(c) Translation into U.S. dollars

 

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar (“dollar” or “U.S. $”). Therefore, the dollar has been determined to be the Company’s functional currency. Transactions in foreign currencies (primarily in New Israeli Shekels or “NIS”) are recorded at the exchange rate as of the transaction date. All exchange gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected as finance expense in the statement of operations, as they arise.

 

(d) Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include valuation of assets assumed and liabilities incurred as part of the Merger, useful lives of the Company’s tangible and intangible assets, valuation of its derivative warrants, valuation of its share-based compensation, deferred tax assets and liabilities, income tax uncertainties and other contingencies.

 

(e) Intangible assets

 

Intangible assets include technology (see Note 4) recorded at fair value, and patents purchased, recorded based on the cost to acquire them. These assets are amortized over their remaining estimated useful lives. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.

 

10
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except for share and per share data)

   

Note 2—Significant Accounting and Reporting Policies—(cont’d)  

 

(f) Goodwill

 

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually, and when triggering events occur, in accordance with the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other . The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to an acquisition price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

 

(g) Legal costs

 

Legal costs incurred in connection with ongoing litigation are expensed as occurred.

 

(h) Net loss per share data

 

Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. Such dilutive shares consist of incremental shares that would be issued upon exercise of the Company’s derivative warrants (see also Note 3). The table below presents the computation of basic and diluted net losses per common share: 

 

                      Period from     Cumulative from  
    Three months ended     Nine months ended     June 8, 2011 (inception),     June 8, 2011 (inception) to  
    September 30,     September 30,     to September 30,     September 30,  
    2012     2011     2012     2011     2012  
    (in thousands, except share and per share data)  
Basic Numerator:                                        
Net loss attributable to shares of common stock     (3,124 )     (874 )     (6,836 )     (1,327 )     (9,590 )
Basic Denominator:                                        
Weighted average number of shares of common stock outstanding during the period     48,437,587       5,365,225       25,493,415       5,221,328       18,386,492  
Weighted average number of penny stock options     353,232             117,744             68,979  
Basic common stock share outstanding     48,790,819       5,365,225       25,611,159       5,221,328       18,445,471  
Basic net loss per common stock share     (0.06 )     (0.16 )     (0.27 )     (0.25 )     (0.52 )
Diluted Numerator:                                        
Net loss attributable to shares of common stock     (10,364 )     (874 )     (14,076 )     (1,327 )     (16,830 )
Diluted Denominator:                                        
Weighted average number of shares of common stock outstanding during the period     57,873,868       5,365,225       34,929,696       5,221,328       27,822,773  
Weighted average number of penny stock options     353,232             117,744             68,979  
Diluted common stock share outstanding     58,227,100       5,365,225       35,047,440       5,221,328       27,891,752  
Diluted net loss per common stock share     (0.18 )     (0. 16)       (0.40 )     (0.25 )     (0.60 )

 

 

11
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 2—Significant Accounting and Reporting Policies—(cont’d)  

 

At September 30, 2012, the Company excluded from the calculation of its diluted net loss the following potentially dilutive securities: (i) 21,026,636 shares of common stock underlying shares of Series A Convertible Preferred stock prior to their conversion in full into shares of common stock during the period; (ii) 7,317,817 Series 2 Warrants to purchase 7,317,817 shares of common stock of the Company; (iii) 712,716 non-Preferential Reload Warrants to purchase 712,716 shares of common stock of the Company; (iv) 4,784,000 IPO Warrants to purchase 4,784,000 shares of common stock of the Company; (v) 9,160,429 of both vested and unvested options at $0.96-$5.50 exercise price, to purchase 9,160,429 shares of common stock of the Company; (vi) 3,126,667 unvested Restricted Stock Units (“RSU”) to purchase 3,126,667 shares of common stock of the Company and (vii) 30,250 unvested $0.01 options at to purchase 30,250 shares of common stock of the Company; (viii) 108,625 shares granted, but not vested. Also, the Company excluded from the calculation of its diluted net loss the following potentially dilutive securities outstanding as of September 30, 2011: (i) 21,026,636 shares of common stock underlying shares of Series A Convertible Preferred stock prior to their conversion in full into shares of common stock during the period; (ii) 250,000 Warrants to purchase 754,400 shares of common stock of the Company; (iii) 41,178 options to purchase 41,178 shares of common stock of the Company; and (iv) 4,455,154 shares of common stock granted, but not yet vested.

 

(i) Impact of recently issued accounting standards

 

In July 2012, the FASB issued ASU 2012-02, Balance Sheet (Topic 350), Intangibles-Goodwill and Other , which allows an organization to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test for indefinite-lived intangible assets. An organization that elects to perform a qualitative assessment is required to perform the quantitative impairment test for an indefinite-lived intangible asset if it is more likely than not that the asset is impaired. This is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not expect the adoption of ASU 2012-02 to have a material impact on its financial position, results of operations, or cash flows.

 

(j) Reclassification

 

Certain comparative figures were reclassified to conform to the Company’s post-Merger presentation.

 

Note 3—Fair Value Measurements

 

The Company measures fair value in accordance with ASC 820-10, “ Fair Value Measurements and Disclosures ” (formerly SFAS 157, “ Fair Value Measurements ”). ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received by selling an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1 Inputs : Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

 

Level 2 Inputs : Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The Company measures its derivative liabilities at fair value. The Special Bridge Warrants, Conversion Warrants, Preferential Reload Warrants and Series 1 Warrants (as they are defined in Note 8) are classified within Level 3 because they are valued using the Black-Scholes-Merton and the Monte-Carlo models (as all of these warrants include down-round protection clauses), which utilize significant inputs that are unobservable in the market such as the expected stock price volatility and the dividend yield, and the remaining period of time the warrants will be outstanding before they expire.

 

12
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 3—Fair Value Measurements—(cont’d)

 

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2012, aggregated by the level in the fair-value hierarchy within which those measurements fall:

 

          Fair value measurement at reporting date using  
    September 30,
2012
    Quoted prices in
active markets
for identical
assets (Level 1)
    Significant other
observable
inputs (Level 2)
    Significant
unobservable
inputs (Level 3)
 
Description   U.S.$ thousands  
                         
Liabilities                                
Derivative liabilities on account of warrants     17,280                   17,280  
Total liabilities     17,280                   17,280  

 

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2011, aggregated by the level in the fair-value hierarchy within which those measurements fall:

 

            Fair value measurement at reporting date using  
      December 31,
2011
      Quoted prices in
active markets
for identical
assets (Level 1)
      Significant other
observable
inputs (Level 2)
      Significant
unobservable
inputs (Level 3)
 
Description     U.S.$ thousands  
                                 
Liabilities                                
Derivative liabilities on account of warrants                        
Total liabilities                        

 

13
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 3—Fair Value Measurements—(cont’d)

 

In addition to the above, the Company’s financial instruments at September 30, 2012 and December 31, 2011 consisted of cash and accounts payable, as well as accounts receivable and long term deposits, at September 30, 2012 only. The carrying amounts of all the aforementioned financial instruments approximate fair value. The following table summarizes the changes in the Company’s liabilities measured at fair value using significant unobservable inputs (Level 3) during the three and nine month periods ended September 30, 2012 (as there was no such activity in 2011): 

 

    Level 3  
    2012     2011  
    U.S.$     U.S.$  
Balance at January 1,            
Balance at July 1,            
Derivative warrants recorded in connection with the Merger, July 19, 2012     25,116        
Fair value adjustment prior to exercise of warrants, included in statement of operations     (386 )      
Exercise of derivative warrants     (596 )      
Fair value adjustment at end of period, included in statement of operations     (6,854 )      
Balance at September 30,     17,280        

 

Valuation processes for Level 3 Fair Value Measurements

 

Fair value measurement of the derivative liability on account of Special Bridge Warrants, Conversion Warrants, Preferential Reload Warrants and Series 1 Warrants (as defined in Note 8) fall within Level 3 of the fair value hierarchy. The fair value measurements are evaluated by management to ensure that changes are consistent with expectations of management based upon the sensitivity and nature of the inputs.

 

    Valuation   Unobservable      
Description   Technique   Inputs   Range  
               
Special Bridge Warrants, Conversion Warrants, Preferential Reload Warrants and the Series 1 Warrants   Black-Scholes-Merton and the Monte-Carlo models   Volatility   63.75% – 67.43%  
    Risk free interest rate   0.27% – 0.63%  
    Expected term, in years   2.25 – 4.80  
    Dividend yield   0%  
    Probability and timing of down-round triggering event   15% occurrence in December 2012  

 

Sensitivity of Level 3 measurements to changes in significant unobservable inputs

 

The inputs to estimate the fair value of the Company’s derivative warrant liability are the current market price of the Company’s common stock, the exercise price of the warrant, its remaining expected term, the volatility of the Company’s common stock market price, the Company’s estimations regarding the probability and timing of a down-round protection triggering event and the risk-free interest rate. Significant changes in any of those inputs in the isolation can result in a significant change in the fair value measurement. Generally, a positive change in the market price of the Company’s common stock, and an increase in the volatility of the Company’s shares of common stock, or an increase in the remaining term of the warrant, or an increase of a probability of a down-round triggering event would each result in a directionally similar change in the estimated fair value of the Company’s warrants and thus an increase in the associated liability and vice-versa. An increase in the risk-free interest rate or a decrease in the positive differential between the warrant’s exercise price and the market price of the Company’s shares of common stock would result in a decrease in the estimated fair value measurement of the warrants and thus a decrease in the associated liability. The Company has not, nor plans to, declare dividends on its common stock, and thus, there is no change in the estimated fair value of the warrants due to the dividend assumption.

 

14
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 4 – Business Combination

 

On July 19, 2012, I/P consummated the Merger with the Legal Parent, as also described in Note 1. The consideration consisted in full of various equity instruments, such as: shares of common stock, options, preferred stock and warrants. The purpose of the Merger was to increase the combined company's intellectual property portfolio and array of products, as well as to gain access to capital markets. Upon completion of the Merger, (i) all then outstanding 6,169,661 shares common stock of I/P, par value $0.0001 per share, were exchanged for 18,617,569, shares of the Company’s common stock, par value $0.01 per share, and (ii) all outstanding shares of Series A Convertible Preferred Stock of I/P, par value $0.0001 per share, were exchanged for 6,673 shares of the Legal Parent’s Series A Convertible Preferred Stock, which shares were convertible into 20,136,445 shares of common stock of the Legal Parent. In addition, the Legal Parent issued to the holders of I/P capital stock an aggregate of 15,959,838 warrants to purchase an aggregate of 15,959,838 shares of the Company’s common stock with an exercise price of $1.76 per share. In addition, all outstanding and unexercised options to purchase I/P common stock, whether vested or unvested, were converted into 41,178 options to purchase the Company’s common stock. Immediately following the completion of the Merger, the former stockholders of I/P owned approximately 55.04% of the outstanding common stock of the combined company (or 67.61% of the outstanding shares of the Company’s common stock, calculated on a fully diluted basis), and the Legal Parent’s stockholders prior to the Merger owned approximately 44.96% of the outstanding common stock of the combined company (or 32.39% of the outstanding shares of our common stock calculated on a fully diluted basis). For accounting purposes, I/P was identified as the accounting “acquirer”, as it is defined in FASB Topic ASC 805 . The total purchase price of $75,654 was allocated to the assets acquired and liabilities assumed of the Legal Parent. Registration and issuance cost, in the total amount of $463 was recorded against the additional paid-in capital.

    Allocation of Purchase Price  
Current assets, net of current liabilities     2,587  
Long-term deposit     8  
Property and equipment     124  
Technology     10,133  
Goodwill     69,511  
Total assets acquired     82,363  
         
Fair value of outstanding warrants granted by Legal Parent prior to the Merger, classified as a long-term derivative liability     (3,162 )
Deferred tax liability, in respect of the acquired technology     (3,547 )
Total liabilities assumed     (6,709 )
         
      75,654  
Measurement of consideration:        
Fair value of vested stock options granted to employees, management and consultants, classified as equity     7,364  
Fair value of outstanding warrants granted by the Legal Parent prior to the Merger, classified as equity     10,079  
Fair value of Vringo shares of common stock and vested $0.01 options granted to employees, management and consultants     58,211  
Total estimated purchase price     75,654  

 

15
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 4 – Business Combination—(cont’d)

 

The fair values of the identified intangible assets were estimated using an income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. The goodwill recognized as a result of the acquisition is primarily attributable to the value of the workforce and other intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors which could not be separately identified. The useful life of the intangible assets for amortization purposes was determined considering the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive economic or other factors that may limit the useful life of intangible assets. Goodwill recognized is expected not to be deductible for income tax purposes. The Company is currently evaluating the impact of the Merger on its tax assets.

 

The Company’s consolidated statements of operations include revenues attributable to the Legal Parent in the total amount of $166 and a net loss of $371, for the three and nine months ended September 30, 2012. Had the acquisition taken place on June 8, 2011, the revenue in the consolidated statement of operations and the consolidated net loss would have been as follows:

 

    2012     2011  
    Revenue     Net Loss     Revenue     Net Loss  
    U.S.$     U.S.$     U.S.$     U.S.$  
Three month period     281       (6,632 )     182       (3,194 )
Nine month period (in 2011, from inception through September 30, 2011)     487       (17,997 )     280       (4,100 )

 

Pro forma adjustments consist of amortization of acquired technology asset, net of changes in respective deferred tax liability. The above pro forma disclosure excludes the possible impact of valuation of equity and derivative instruments valued in connection with the Merger. The amortization, net, for the three and nine month periods ended September 30, 2012 was $827 and $270, respectively. The amortization, net, for the three month period and for the period from inception of I/P through September 30, 2011 was $270 and $338, respectively.

 

Note 5 – Note Payable – Related Party

 

On June 22, 2011, I/P issued a senior secured note payable, in the total amount of $3,200, to one of its principal stockholders, Hudson Bay Master Fund Ltd. (“Hudson Bay”) (the “Note”). The Note accrued interest at 0.46% per annum. After the Merger was consummated, on July 19, 2012, the Note was amended and restated and the holder was able to exercise any and all rights and remedies pursuant to such amended and restated Note, including with respect to any optional redemption provisions contained therein. The amended and restated Note was to mature on June 22, 2013 and I/P had granted Hudson Bay a security interest in all of its tangible and intangible assets, in order to secure I/P’s obligations under the senior secured note. After the consummation of the Merger, the Note became an obligation of the Company, as it is to guarantee I/P’s obligations. On August 15, 2012, the Company repaid in full the outstanding balance, as well as the then accrued and unpaid interest of $2.

 

16
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 6 – Acquired Intangible Assets, Net

 

As of September 30, 2012, intangible assets, net consisted of the following:

 

    Amount     Weighted Average Life - Years
    U.S.$     U.S.$
Acquired technology (see a below)     9,795     6 years
Patents (see b below)     24,764     4.8-9.93 years
Total     34,559      

 

a. Acquired technology:

 

Fair value of $ 10,133 allocated to technology, as also described in Note 4, is amortized over its estimated useful life of 6 years. During the three and nine month periods, total amortization expense of $338 was recorded by the Company.

 

b. Patents:

 

In August 2012, the Company purchased from Nokia a portfolio consisting of various patents and patent applications worldwide. The portfolio encompasses a broad range of technologies relating to telecom infrastructure, including communication management, data and signal transmission, mobility management, radio resources management and services. The total consideration paid for the portfolio was $22,000. In addition, the Company capitalized certain costs related to the acquisition of patents in the total amount of $578. Under the terms of the purchase agreement, to the extent that the gross revenue generated by such portfolio exceeds $22,000, the Company is obligated to pay a royalty of 35% of such excess. The Company has not recorded any amounts in respect of this contingent consideration, for which appropriate estimations are not yet available.

 

In addition, the Company’s patent portfolio includes patents purchased in June 2011 from Lycos. The gross carrying amount of those patents is comprised of the original purchase price of $3,200 and $195 of associated patent acquisition costs.

 

During the three and nine month periods ended September 30, 2012, the Company recorded an amortization expense of $542 and $852, respectively. During the three month period ended September 30, 2011 and the period from June 8, 2011 (inception of I/P) through September 30, 2011, the Company recorded an amortization expense of $14 and $157, respectively. For subsequent events, see Note 11.

 

Estimated amortization expense for each of the five succeeding years, based upon intangible assets owned at September 30, 2012 is as follows:

 

    U.S.$  
Period ending December 31,        
2012 (three months ending December 31, 2012)     1,244  
2013     4,960  
2014     4,960  
2015     4,960  
2016 and thereafter     18,435  
      34,559  

 

17
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 7 – Series A Convertible Preferred Stock

 

Prior to the Merger, I/P was authorized to issue up to 10,000,000 shares of preferred stock, par value $0.0001, of which 6,968 shares of preferred stock were designated as Series A Convertible Preferred Stock with such rights and preferences designated in the relevant Certificate of Designations (the “Series A Preferred Stock”). In June 2011, I/P issued 6,968 shares of Series A Preferred Stock to Hudson Bay for $1,800. The Series A Preferred Stock had a liquidation preference of $1,250 per share and was otherwise convertible, at the option of the holder, into 6,968,000 shares of I/P’s common stock at a conversion price of $1 per common share received, subject to adjustment for anti-dilution and other corporate events. In 2012, prior to the Merger, 295 shares of Series A Convertible Preferred Stock were converted to 295,000 shares of common stock of I/P.

 

Prior to the Merger, the Series A Convertible Preferred Stock was classified as mezzanine equity, because certain cash redemption triggering events were outside the control of the Company. Upon the Merger, the remaining 6,673 Series A Preferred stock shares were exchanged for 6,673 shares of equity-classified new Series A Convertible Preferred Stock, $0.01 par value (“New Series A Convertible Preferred Stock”), issued by Legal Parent to former stockholders of I/P, as part of the Merger. The shares of New Series A Convertible Preferred Stock were convertible into 20,136,445 shares of the Legal Parent’s shares of common stock and were classified as equity, as a cash based redemption event is only triggered by events which are fully in the control of the Company. In July and August 2012, following the consummation of the Merger, all outstanding shares of New Series A Convertible Preferred Stock were converted.

 

Note 8—Stockholders’ Equity

 

Shares

 

The following table summarizes information about the Company's issued and outstanding common stock from inception of I/P through September 30, 2012. Pre-Merger common stock share amounts and balance sheet disclosures were retrospectively restated to reflect Vringo’s equity instruments after the Merger:

 

    Shares of common stock  
Balance as of June 8, 2011 (Inception)      
Issuance of shares of common stock     16,972,977  
Balance as of December 31, 2011     16,972,977  
Conversion of Series A Preferred Convertible Preferred stock, classified as mezzanine equity     890,192  
Grant of shares to consultants, compensation expense of $704 was recorded     265,000  
Legal Parent’s shares of common stock, recorded upon Merger     15,206,118  
Exercise of 250,000 warrants, issued and exercised prior to the Merger     754,400  
Post-Merger exercise of warrants     816,005  
Exercise of stock options and RSUs     168,557  
Conversion of Series A Preferred Convertible Preferred stock, classified as equity     20,136,445  
Issuance of shares of common stock in connection with $31,200 received in a private financing round, net of issuance cost of $52     9,600,000  
Balance as of September 30, 2012     64,809,694  

 

Following the Merger with the Legal Parent, the vesting of shares of common stock with repurchase rights, granted in 2011, to I/P’s management and directors was fully accelerated. As a result, an additional 2,702,037 shares previously issued became vested and an additional compensation expense of $294 was recorded. See also Note 4.

  

18
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 8—Stockholders’ Equity — (cont’d)

 

New Equity Incentive Plan

 

On July 19, 2012, following the Merger with the Legal Parent, the Company’s stockholders approved the 2012 Employee, Director and Consultant Equity Incentive Plan (“2012 Plan”), replacing the existing 2006 Stock Option Plan of the Legal Parent, and the remaining 9,100,000 authorized shares thereunder were cancelled. The 2012 Plan was approved in order to ensure full compliance with legal and tax requirements under U.S. law. The number of shares subject to the 2012 Plan is the sum of: (i) 15,600,000 shares of common stock, which constitutes 6,500,000 new shares and 9,100,000 previously authorized but unissued shares under the 2006 Stock Option Plan and (ii) any shares of common stock that are represented by awards granted under the Legal Parent’s 2006 Stock Option Plan that are forfeited, expire or are cancelled without delivery of shares of common stock or which result in the forfeiture of shares of common stock back to the Company, or the equivalent of such number of shares after the administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with the 2012 Plan; provided, however, that no more than 3,200,000 shares shall be added to the 2012 Plan.

 

Stock options and RSUs

 

Following the Merger, the Board approved the acceleration of vesting of certain options granted to certain officers and directors of the Legal Parent. As a result, an additional 908,854 options have vested.

  

On July 26, 2012, the Board approved the granting of 4,975,000 options to management, directors and employees of the Company at an exercise price of $3.72 per share. These options will vest quarterly over a three year period. In addition, the Board also approved the granting of 15,000 options at an exercise price of $3.72 per share to one of the Company’s consultants. These options will vest over a one year period. In addition, certain options granted to officers, directors and certain key employees are subject to acceleration of vesting of 75% - 100% (according to the agreement signed with each grantee), upon a subsequent change of control.

 

In addition, on July 26, 2012, the Board approved the granting of 3,105,000 RSUs to management, directors and key employees of the Company. These RSUs will vest quarterly over three year and one year periods (dependent upon the agreement made with each grantee). The Board also approved the granting of 25,000 RSUs to certain of the Company’s consultants. These RSUs will vest over a 6-12 month period (according to the agreement signed with each grantee).

 

In addition, on August 8, 2012, the Board approved the granting of 500,000 options to a member of its management, at an exercise price of $3.44 per share. These options will vest quarterly over a three year period.

 

During the period from inception through September 30, 2011, no RSUs were granted. The following table summarizes information about RSU activity for the nine month period ended September 30, 2012:

 

 

    No. of RSUs  
       
Outstanding at January 1, 2012      
Assumed at the Merger      
Granted following the Merger     3,130,000  
Exercised     (3,333 )
Expired      
Forfeited      
Outstanding at September 30, 2012     3,126,667  
Exercisable at September 30, 2012      

 

19
 

  

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 8—Stockholders’ Equity — (cont’d)

 

The following table summarizes information about option activity for the nine month period ended September 30, 2012:

 

    No. of options     Weighted average
exercise price
    Exercise price range     Weighted average
grant date fair value
 
          U.S.$     U.S.$     U.S.$  
Outstanding at January 1, 2012     41,178       3.00       3.00       1.83  
Assumed at the Merger     4,391,170       2.43       0.01 – 5.50       2.61  
Grants after the Merger     5,490,000       3.69       3.44 – 3.72       2.63  
Exercised     (165,334 )     1.03       0.01 – 1.65       3.13  
Expired     (12,000 )     5.50       5.50       0.99  
Forfeited     (53,000 )     0.01       0.01       3.69  
Outstanding at September 30, 2012     9,692,014       3.18       0.01 – 5.50       2.60  
Exercisable at September 30, 2012     3,980,826                          

  

For the three month periods ended September 30, 2012 and 2011, the Company recorded a total stock compensation expense of $5,363 and $50, respectively. For the nine month period ended September 30, 2012 and for the period from June 8, 2011 through September 30, 2011, the Company recorded stock compensation expense of $5,532 and $373, respectively. Cumulative from inception through September 30, 2012, the Company has recorded stock compensation expense of $6,006, in respect of stock options granted.

 

As of September 30, 2012, there was approximately $24,248 of total unrecognized share-based payment cost related to non-vested options, shares and RSUs, granted under the incentive stock option plans. Overall, the cost is expected to be recognized on a straight line basis, over an estimated 4 year period. As of September 30, 2012, there were approximately 7,045,000 shares of common stock available for grant under the 2012 Plan. For subsequent events, see also Note 11.

 

Warrants

 

The following table summarizes information about warrant activity for the nine month period ended September 30, 2012: 

 

    No. of warrants     Weighted average
exercise price
    Exercise
price range
 
          U.S.$     U.S.$  
Outstanding at January 1, 2012   (*) 250,000       1.00       1.00  
Recorded pursuant to the Merger     22,695,411       2.45       0.94 - 5.06  
Exercised     (1,066,005 )     1.76       1.76  
Outstanding at September 30, 2012     21,879,406       1.25       0.94 – 5.06  

  

(*) Represents warrants issued and exercised prior to the Merger. 754,400 shares of the Legal Parent’s common stock issued upon Merger.

 

20
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 8—Stockholders’ Equity — (cont’d)

 

The Company’s outstanding warrants, after the Merger, consist of the following:

 

(a) Series 1 and Series 2 Warrants

 

As part of the Merger, on July 19, 2012, the Legal Parent issued to I/P’s stockholders 8,299,116 warrants at an exercise price of $1.76 per share and contractual term of 5 years (“Series 1 Warrant”). These warrants bear down-round protection clauses and as a result, they were classified as a long-term derivative liability and recorded at fair value. In addition, I/P’s stockholders received another 7,660,722 warrants at an exercise price of $1.76 per share and contractual term of 5 years (“Series 2 Warrant”). As the Series 2 Warrants do not have down-round protection clauses, they were classified as equity. Following the Merger and through September 30, 2012, 371,440 Series 1 Warrants and 342,873 Series 2 Warrants were exercised.

 

(b) Conversion Warrants, Special Bridge Warrants and Reload Warrants

 

On July 19, 2012, the date of the Merger, Legal Parent’s outstanding warrants included: (i) 148,390 Special Bridge Warrants, at an exercise price of $0.94 per share, with a remaining contractual term of 2.44 years; (ii) 101,445 Conversion Warrants, at an exercise price of $0.94 per share, with a remaining contractual term of 2.44 years; (iii) 887,330 Preferential Reload Warrants, at an exercise price of $1.76 per share, with a remaining contractual term of 4.55 years; and (iv) 814,408 non-Preferential Reload Warrants, at an exercise price of $1.76 per share, with a remaining contractual term of 4.55 years. Following the Merger and through September 30, 2012, 101,692 non-Preferential Reload Warrants were exercised.

  

(c) IPO Warrants

 

Upon completion of its initial public offering, the Legal Parent issued 4,784,000 warrants at an exercise price of $5.06 per share. These warrants are publicly traded and are exercisable until June 21, 2015, at an exercise price of $5.06 per share. As of September 30, 2012, all of these warrants were outstanding.

 

Note 9—Commitments and Contingencies

 

The Company retains the services of law firms that specialize in intellectual property licensing, enforcement and patent law. These law firms may be retained on an hourly fee, contingent fee, or blended fee basis.  In a contingency fee arrangement, law firms are paid a scaled percentage of any negotiated fees, settlements or judgments awarded, based on how and when the fees, settlements or judgments are obtained. For subsequent events, see also Note 11.

 

In July 2012, the Company signed a rental agreement for its new headquarters in New York. According to the new agreement, the Company shall pay an annual fee of approximately $137 (subject to certain adjustments). The term of the lease agreement is 3 years and 1 month.

 

Future minimum lease payments under non-cancelable operating leases for office space and automobiles, as of September 30, 2012, are as follows: 

 

    U.S.$  
Year ending December 31,        
2012 (three months ending December 31, 2012)     61  
2013     200  
2014     146  
2015     104  
      511  

 

Rental expense for operating leases for both office space and automobiles for the nine months ended September 30, 2012 and for the period since inception through September 30, 2011 was $69 and $4, respectively. Rental expense for operating leases for both office space and automobiles for the three months ended September 30, 2012 and 2011 was $48 and $4, respectively.

  

21
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 10—Risks and Uncertainties

 

  (a) Failure to maintain or protect the Company’s patents assets or other intellectual property may significantly impair its return on investment from such assets and harm its brand, business and results.
     
  (b) The Company’s commenced legal proceedings are expected to be time consuming and costly, which may adversely affect its financial condition and its ability to operate its business.
     
  (c) A significant portion of the Company’s current business operations are reliant on the patents acquired from Lycos and Nokia. Its failure to successfully monetize these patents through litigation or via licensing may have a significant adverse effect on its financial condition.
     
  (d) New legislation, regulations or rulings that impact the patent enforcement process or the rights of patent holders, could negatively affect the Company’s current business model. For example, limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively affect the Company’s ability to assert its patent or other intellectual property rights.
     
  (e) The Company’s products are subject to regulation in the markets in which the service operates. Regulatory changes can adversely affect the Company’s ability to generate revenue from its products in that market.

  

  (f) The wireless industry in which the Company conducts its business is characterized by rapid technological changes, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards.
     
  (g) The Company may be held liable to cover a significant portion of the legal costs incurred by its defendants in European legal proceedings, should the outcome of the respective proceeding be unfavorable for the Company.
     
  (h) Financial instruments which potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with various major financial institutions. These major financial institutions are located in the United States and Israel, and the Company’s policy is designed to limit exposure to any one institution. With respect to accounts receivable, the Company is subject to a concentration of credit risk, as a majority of its outstanding trade receivables relate to sales to a limited number of customers.  
     
  (i) A portion of the Company’s expenses are denominated in NIS. The Company expects this level of NIS expenses to continue for the foreseeable future. If the value of the U.S. dollar weakens against the value of NIS, there will be a negative impact on the Company’s operating costs. In addition, to the extent the Company holds monetary assets and liabilities that are denominated in currencies other than the U.S. dollar, the Company will be subject to the risk of exchange rate fluctuations.  

 

22
 

 

Vringo, Inc. and Subsidiaries

(a Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

Note 11—Subsequent Events

 

  (a) On October 4, 2012, the Company entered into subscription agreements with several investors with respect to the registered direct offering and sale by the Company of an aggregate of 10,344,998 shares of the Company’s common stock, par value $0.01 per share, at a purchase price of $4.35 per share in a privately negotiated transaction in which no party acted as an underwriter or placement agent. The net proceeds to the Company were approximately $44,900 after deducting estimated offering expenses payable by the Company. The Company intends to use the net proceeds from this offering for general corporate working capital purposes.
     
  (b) On October 8, 2012, the Company’s subsidiary filed a patent infringement lawsuit against a subsidiary of ZTE Corporation in the United Kingdom.
     
  (c) On October 10, 2012, the Company’s subsidiary in the United States entered into a patent purchase agreement, according to which the Company will issue to seller 160,600 unregistered shares of its common stock, as well as 20% from collected future revenue.
     
  (d) On October 12, 2012, the Company entered into an agreement with certain of its warrant holders, pursuant to which such warrant holders exercised in cash 3,721,062 of their outstanding warrants, with an exercise price of $1.76 per share, and the Company granted such warrant holders unregistered warrants of the Company to purchase an aggregate of 3,000,000 shares of the Company’s common stock, par value $0.01 per share, at an exercise price of $5.06 per share. The newly issued warrants do not bear down round protection clauses. The Company is still evaluating the accounting impact of this transaction; nevertheless, it expects the impact on its financial statements to be material.
     
  (e) In addition, in October and November 2012, warrants to purchase an aggregate of 790,903 shares of the Company’s common stock, at an exercise price of $1.76 per share, were exercised in cash by the Company’s warrant holders, pursuant to which the Company received an additional $1,391.
     
  (f) As of November 6, 2012, the vesting of all of the Legal Parents’ pre-Merger granted options outstanding (except for separation grants) was accelerated by 50%, as the Company’s market capitalization reached $250,000 for twenty of thirty consecutive trading days. The Company expects total, non-cash share based compensation expense of $328 to be recorded, due to the impact of acceleration of vesting of these options.  
     
  (g) On November 6, 2012, the Company received a verdict in its case against AOL, Inc., Google, Inc., IAC Search & Media, Inc., Gannett Company, Inc. and Target Corporation (collectively, "Defendants") with respect to the Defendants' infringement of the asserted claims of U.S. Patent Nos. 6,314,420 and 6,775,664 (collectively, the "Patents"). After finding that the asserted claims of the Patents were both valid and infringed by Google, the jury found that reasonable royalty damages should be based on a "running royalty", and that the running royalty rate should be 3.5%. After finding that the asserted claims of the Patents were both valid and infringed by the Defendants, the jury found that the following sums of money, if paid now in cash, would reasonably compensate I/P Engine for the Defendants past infringement as follows: Google: $15,800, AOL: $7,943, IAC: $6,650, Gannett: $4, Target: $99. I/P Engine and Defendants are allowed to file post-trial motions with the Court, the schedule for which has yet been determined. According to certain scaled fee agreements, I/P Engine will pay between 15% and 20% of any recovery to professional service providers.  See also Note 9 above.

 

23
 

 

Item 2.                 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2011 as updated in our Quarterly Report on Form 10-Q for the period ended June 30, 2012 filed on August 14, 2012 and other public reports we filed with the Securities and Exchange Commissions, or the SEC. The forward-looking statements set forth herein speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. In this report, “Vringo,” the “Company,” “we,” “us,” and “our” refer to Vringo, Inc.

 

Overview

 

We were incorporated in Delaware on January 9, 2006 and commenced operations during the first quarter of 2006. In March 2006, we formed a wholly-owned subsidiary, Vringo (Israel) Ltd., primarily for the purpose of providing research and development services, as detailed in the intercompany service agreement. On July 19, 2012, Innovate/Protect, Inc. (“I/P”) merged with us through an exchange of equity instruments of I/P for those of Vringo (the “Merger”). I/P is a holding company, incorporated under the laws of Delaware on June 8, 2011, as Labrador Search Corporation, which holds two wholly-owned subsidiaries: I/P Engine Inc., formed under the laws of Virginia on June 14, 2011, originally as Smart Search Labs Inc., which operates for the purpose of realizing economic benefits, and I/P Labs, Inc., incorporated in Delaware on June 8, 2011 originally as Scottish Terrier Capital Inc., which operated to acquire and develop other patented technologies or intellectual property. On August 31, 2012, we formed two wholly-owned subsidiaries, incorporated in Delaware: Vringo Labs, Inc. which operates to acquire and develop new patented technologies or intellectual property and Vringo Infrastructure, Inc., which operates for the purpose of realizing economic benefits from patent portfolio acquired from Nokia Corporation (“Nokia”), as further described below. In addition, on October 18, 2012, we formed a wholly-owned subsidiary in Germany, Vringo Germany GmbH, for the purpose of innovating, developing, and monetizing mobile technology and intellectual property in Germany.

 

As a combined company, our attempts are focused on maximizing the economic benefits from our growing intellectual property portfolio. We plan to add significant talent in technological innovation, and continue to enhance our technology capabilities to create, build and deliver mobile applications and services to our handset and mobile operator partners, as well as directly to consumers.

 

The combined company has two key areas of operation:

 

maximization of the economic benefits from developed and acquired intellectual property, and

 

delivery and monetization of mobile social applications.

 

We are a development stage company. The Merger has been accounted for as a reverse acquisition under which I/P was considered the acquirer of Vringo. As such, the financial statements of I/P are treated as the historical financial statements of the combined company, with the results of Vringo being included from July 19, 2012.

 

From inception of I/P (June 8, 2011) to date, we have raised approximately $84,862,000. These amounts have been used to finance our operations, as until now, we have not yet generated any significant revenues. From inception of I/P through September 30, 2012, we recorded losses of approximately $9,590,000 and net cash outflow from operations of approximately $7,491,000. Our average monthly cash burn rate from operations for the three and nine month period ended September 30, 2012 was approximately $1,110,000 and $662,000, respectively.

 

As of November 14, 2012, we had approximately $60,500,000 in cash and cash equivalents. Based on current operating plans, we expect to have sufficient funds for at least the next twelve months. In addition, we may choose to raise additional funds in connection with potential acquisitions of patent portfolios or other intellectual property assets that we may pursue. There can be no assurance, however, that any such opportunities will materialize.

 

As of September 30, 2012, we had 26 full time employees and two part-time employees. 

 

24
 

 

Intellectual Property

 

As a combined company, we focus on the economic benefits of intellectual property assets through acquiring or internally developing patents or other intellectual property assets (or interests therein) and then monetize such assets through a variety of value enhancing initiatives, including, but not limited to:

 

licensing,

 

customized technology solutions,

 

strategic partnerships, and

 

litigation.

 

Upon formation in June 2011, I/P acquired its initial patent assets from Lycos through its wholly-owned subsidiary, I/P Engine. Such assets were comprised of eight patents relating to information filtering and search technologies. As part of our strategy to monetize the patents acquired from Lycos, I/P Engine commenced litigation against AOL, Inc., Google, Inc., IAC Search & Media, Inc., Gannett Company, Inc. and Target Corporation (collectively, "Defendants").

 

Trial commenced on October 16, 2012, and the case was submitted to the jury on November 1, 2012. On November 6, 2012, the jury unanimously returned a verdict as follows: (i) I/P Engine had proven by a preponderance of the evidence that the Defendants infringed the asserted claims of the patents; and (ii) Defendants had not proven by clear and convincing evidence that the asserted claims of the patents are invalid by anticipation. The jury also found certain specific facts related to the ultimate question of whether the patents are invalid as obvious. Based on such facts , the Court will issue a ruling on obviousness. We believe that the jury’s factual findings will support a finding that the patents are not invalid as obvious. After finding that the asserted claims of the Patents were both valid and infringed by Google, the jury found that reasonable royalty damages should be based on a "running royalty", and that the running royalty rate should be 3.5%.

 

After finding that the asserted claims of the Patents were both valid and infringed by the Defendants, the jury found that the following sums of money, if paid now in cash, would reasonably compensate I/P Engine for the Defendants past infringement as follows: Google: $15,800,000, AOL: $7,943,000, IAC: $6,650,000, Gannett: $4,322, Target: $98,833. I/P Engine and Defendants are allowed to file post-trial motions with the court, the schedule for which has yet been determined.

 

On August 9, 2012, we entered into a patent purchase agreement with Nokia, pursuant to which, Nokia agreed to sell us a portfolio consisting of over 500 patents and patent applications worldwide, including 109 issued United States patents. We agreed to compensate Nokia with a cash payment and certain ongoing rights in revenues generated from the patent portfolio. The portfolio encompasses a broad range of technologies relating to telecom infrastructure, including communication management, data and signal transmission, mobility management, radio resources management and services. Thirty-one of the 124 patent families acquired have been declared essential by Nokia to wireless communications standards. Standards represented in the portfolio are commonly known as 2G, 2.5G, 3G and 4G and related technologies and include GSM, WCDMA, T63, T64, DECT, IETF, LTE, SAE, and OMA. The purchase price for the portfolio was $22,000,000, plus capitalized acquisition costs of $578,000. To the extent that the gross revenue (as defined in the purchase agreement) generated by such portfolio exceeds $22,000,000, a royalty of 35% of such excess is due to be paid to Nokia. The $22,000,000 cash payment was made to Nokia on August 10, 2012. The purchase agreement provides that Nokia and its affiliates will retain a non-exclusive, worldwide and fully paid-up license (without the right to grant sublicenses) to the portfolio for the sole purpose of supplying (as defined in the purchase agreement) Nokia’s products. The purchase agreement also provides that if we bring a proceeding against Nokia or its affiliates within seven years, Nokia shall have the right to re-acquire the patent portfolio for a nominal amount. Further, if we either sell to a third party any assigned essential cellular patent, or more than a certain portion of the other assigned patents (other than in connection with a change of control of our company), or file an action against a telecom provider to enforce any of the assigned patents (other than in response to any specified action filed by a telecom provider against us or our affiliate) which action is not withdrawn after notice from Nokia, then we will be obligated to pay to Nokia a substantial impairment payment. Because all of the foregoing actions are within our sole control, we do not expect to be obligated to pay any such impairment payment.

 

25
 

 

As one of the means of realizing the value of the patents acquired from Nokia, on October 5, 2012, our wholly-owned subsidiary, Vringo Infrastructure, Inc., filed suit in the UK High Court of Justice, Chancery Division, Patents Court, alleging infringement of European Patents (UK) 1,212,919; 1,166,589; and 1,808,029. Declarations have been filed at the European Telecommunications and Standards Institute (ETSI) that cover the patents. The complaint alleges that ZTE's cellular network elements fall within the scope of all three patents, and ZTE's GSM/UMTS multi-mode wireless handsets also fall within the scope of the '029 patent. On October 23, 2012, counsel for ZTE acknowledged service. ZTE (UK) formal response to the complaint is anticipated by November 22, 2012. A case management conference where among other matters, the schedule for the suit will be set, is anticipated in January 2013.

 

We continue to grow our technology portfolio.   From September 4 through October 12, 2012, as part of our efforts to develop new technology assets in the mobile and social media space, inventors working for Vringo filed 9 provisional patent applications covering a wide range of technologies including: Determining content relevance based on a user’s relationships; Using mobile technologies as sleep aids; Combining social media and on-line videos; Improving mobile security using facial recognition technology; Monitoring usage patterns of mobile devices and computers to make recommendations; Technology that allows to post call information to social media; Technology to assist in prioritizing electronic communications; Technology that rewards a user’s specific wireless device activity. Additionally, Vringo’s existing mobile portfolio continues to mature; including the grant on August 1, 2012 of EP 1,982,549 and on October 23, 2012 of USP 8,295,205.

 

As part of our efforts to develop new technology in the telecom infrastructure space, we filed 12 continuation applications in the US. In addition, we filed a continuation-in-part application that combines internally developed innovation in the DRM space with telecom infrastructure. Further, through our wholly owned subsidiary, Vringo Labs, Inc., we filed a patent application relating to wireless energy charging.

 

On October 10, 2012, I/P Engine entered into a patent purchase agreement, pursuant to which we issued seller 160,600 unregistered shares of Vringo common stock, as well as a 20% royalty from collected future revenue. The portfolio comprises U.S. Patent numbers 7,831,512 and 8,315,949, and US application number 13/653,894. This intellectual property relates to the placement of advertisements on web pages when there is a vacancy for an advertisement, and such advertisement is placed via a bidding process.

 

Mobile Social Applications

 

We have developed a platform for the distribution of mobile applications. We believe that our technology and business relationships will allow us to distribute new applications and services through:

 

mobile operators,

 

handset makers, and

 

application storefronts.

 

Our video ringtone platform has been operating since 2008 and remains the primary source of subscription revenues among our mobile products and we continue to develop business for this product with mobile operators and content providers. Our solution, which encompasses a suite of mobile and PC-based tools, enables users to create, download and share video ringtones and provides our business partners with a consumer-friendly and easy-to-integrate monetization platform.

 

The revenue model for our video ringtone service offered through the carriers is a subscription-based model where users pay a monthly fee for access to our service and additional fees for premium content.

 

26
 

 

Our Vringo video ringtone mobile app also functions as a standalone direct-to-consumer offering. Our free version has been released as an ad-supported application on the Google Play marketplace and is still available in markets where we have not entered into commercial arrangements with carriers or other partners.

 

As of November 14, 2012, we have commercial video ringtone services with nine carriers and partners. We are currently in discussions with several other mobile carriers and we will be pursuing additional agreements with mobile carriers over the next 12, with a focus on Android-based apps as the cornerstone for future subscriber services. Separately, we continue to expand the distribution of our free to the user ad-supported mobile application.

 

Our Facetones® social ringtone platform generates social visual ringtone content automatically by aggregating and displaying a user’s friends’ pictures from social networks and then displaying as a video ringtone, as well as a video ringback tone. These ringtones do not replace, but rather enhance, standard ringtone and ringback tones with relevant, current social content that is visually displayed. The product is available to consumers on several operating systems, most notably is Android and is delivered in various configurations, with a variety of monetization methods. As of August 31, 2012, the Facetones® free ad-supported version had more than 1,500,000 downloads and is generating more than 2,500,000 advertising impressions on a weekly basis. Facetones® is offered directly to consumers via leading mobile application stores and download sites where both for purchase versions, as well as ad-supported free versions are available. Our revenue model is based on proceeds received from advertisers, as well as from related development projects and potential payment of royalties, as described below.

 

We also continue to pursue business for Facetones® together with handset manufacturers. We have developed five separate versions of Facetones in partnership with Nokia. In January 2012, we launched Facetones® for iPhone which generates, as of the end of February 2012, close to a 1,000 daily downloads without any promotion. In November 2011, we announced an agreement with ZTE Corporation, the largest handset maker in China and fourth-largest globally, to preload the Facetones® application on Android handsets manufactured by ZTE. ZTE is to pay a royalty for each preloaded device, the first of which launched with the release of ZTE’s GrandX handsets in the United Kingdom in August 2012.

 

Our Fan Loyalty platform was launched in mid-2011 by co-branding our Fan-Loyalty application with Star Academy 8, the largest music competition in the Middle East and Nokia, the world’s largest handset maker. The Fan Loyalty application for Star Academy was made available exclusively for download on the Ovi Store, and had more than 200,000 downloads during the season. In the first quarter of 2012, we entered into an agreement with Endemol, a producer of entertainment and reality TV programming, to collaborate on additional sponsored versions of this application.

 

27
 

 

Recent Financing Activity

 

On October 4, 2012, we entered into subscription agreements with several investors with respect to the registered direct offer and sale by us of an aggregate of 10,344,998 shares of our common stock, par value $0.01 per share, at a purchase price of $4.35 per share in a privately negotiated transaction in which no party acted as an underwriter or placement agent. The net proceeds were approximately $44,900,000, after deducting estimated offering expenses payable by us. We intend to use the net proceeds from this offering for general corporate working capital purposes.

 

In October 2012, we entered into an agreement with certain of our warrant holders, pursuant to which such warrant holders exercised in cash 3,721,062 of their outstanding warrants, with an exercise price of $1.76 per share, and we issued such warrant holders unregistered warrants to purchase an aggregate of 3,000,000 of our shares of common stock, par value $0.01 per share, at an exercise price of $5.06 per share. The newly issued warrants do not bear down round protection clauses. We are still evaluating the accounting impact of this transaction; nevertheless, we expect such impact on our financial statements to be material.

 

In addition, in October and November 2012, warrants to purchase an aggregate of 790,903 shares of our common stock, at an exercise price of $1.76 per share, were exercised by our warrant holders, pursuant to which we received an additional $1,391,989.

 

Merger

 

On July 19, 2012, we consummated the Merger with I/P. I/P merged with and into VIP Merger Sub, Inc., a wholly owned subsidiary of Vringo (“Merger Sub”), with Merger Sub being the surviving corporation through an exchange of capital stock of I/P for our capital stock. Upon completion of the Merger, (i) all of the 6,169,661 outstanding shares of common stock of I/P, par value $0.0001 per share were converted into 18,617,569 shares of our common stock, par value $0.01; and (ii) all share outstanding of Series A Convertible Preferred Stock of I/P, par value $0.0001 per share, were converted into 20,136,445 shares of our Series A Convertible Preferred Stock. The preferred stock issued, has the powers, designations, preferences and other rights as set forth in a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock filed by us prior to closing. In addition, we issued to the holders of I/P capital stock (on a pro rata as-converted basis) an aggregate of 15,959,838 warrants to purchase an aggregate of 15,959,838 shares of our common stock with an exercise price of $1.76 per share.

 

Immediately following the completion of the Merger, the former stockholders of I/P owned approximately 55.04% of the outstanding common stock of the combined company, and our current stockholders owned approximately 44.96% of the outstanding common stock of the combined company. On a fully diluted basis, the former stockholders of I/P owned approximately 67.61% of the outstanding common stock of the combined company, and our current stockholders owned approximately 32.39% of the outstanding common stock of the combined company.

 

For accounting purposes, I/P was identified as the accounting “acquirer”, as it is defined in FASB Topic ASC 805. As a result, in the post-combination consolidated financial statements, as of the third quarter 2012, I/P’s assets and liabilities are presented at its pre-combination amounts, and our assets and liabilities are recognized and measured in accordance with the guidance for business combinations in ASC 805. See also Notes 4 and 8 to the accompanying financial statements.

 

Hudson Bay Note

 

On June 22, 2011, I/P issued a senior secured note payable, in the total amount of $3,200,000, to one of its principal stockholders, Hudson Bay Master Fund Ltd. (“Hudson Bay”) (the “Note”). The Note accrued interest at 0.46% per annum. After the Merger was consummated, on July 19, 2012, the Note was amended and restated and the holder was able to exercise any and all rights and remedies pursuant to such amended and restated Note, including with respect to any optional redemption provisions contained therein. The amended and restated Note was to mature on June 22, 2013 and I/P had granted Hudson Bay a security interest in all of its tangible and intangible assets, in order to secure I/P’s obligations under the senior secured note. After the consummation of the Merger, the Note became our obligation, as it is to guarantee I/P’s obligations after the Merger. On August 15, 2012, we repaid the outstanding balance in full.

 

28
 

   

Grants of Stock Options and RSUs

 

Immediately following the Merger, the vesting of shares of common stock granted prior to the Merger to I/P’s officers and directors was fully accelerated. As a result, an additional 2,702,037 shares previously issued became vested. In addition, our board of directors approved the granting of 265,000 shares to certain consultants, as well as the acceleration of vesting of 908,854 options granted to certain officers and directors of Vringo. Finally, according to resolution made by our board of directors in January 2012, upon Merger, the vesting of all Vringo pre-Merger outstanding options was accelerated by one year.

 

On July 26, 2012, our board of directors approved the granting of 4,975,000 options to management, directors and employees at an exercise price of $3.72 per share. These options will vest quarterly over a three year period. In addition, the board also approved the granting of 15,000 options at an exercise price of $3.72 per share to one of our consultants. These options will vest over a one year period. Certain options granted to officers, directors and certain key employees are subject to acceleration of vesting of 75% - 100% (according to the agreement signed with each grantee), upon subsequent change of control. Moreover, on July 26, 2012, the board of directors approved the granting of 3,105,000 RSUs to management, directors and key employees. These RSUs will vest quarterly over a three and year periods (dependent on the agreement made with each grantee). In addition, we approved the granting of 25,000 RSUs to two of our consultants. These RSUs will vest over a 6-12 month period (according to the agreement signed with each grantee).

 

On August 8, 2012, the board of directors approved the granting of 500,000 options to a member of our management, at an exercise price of $3.44 per share. These options will vest quarterly over a three year period.

 

As of November 6, 2012, the vesting of all of Vringo’s pre-Merger granted options outstanding (except for separation grants) was accelerated by 50%, as our market capitalization reached $250,000,000 for twenty of thirty consecutive trading days.

 

Revenue

 

We recognize revenue when all the conditions for revenue recognition are met: (i) persuasive evidence of an arrangement exists, (ii) collection of the fee is probable, (iii) the sales price is fixed and determinable and (iv) delivery has occurred or services have been rendered. Intellectual property rights for patented technologies may include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by operating subsidiaries, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) dismissal of any pending litigation. Our subscription service arrangements are evidenced by a written document signed by both parties. Our revenues from monthly subscription fees, content purchases and advertisement revenues are recognized when we have received confirmation that the amount is due to us, which provides proof that the services have been rendered, and making collection probable. We recognize revenue from non-refundable up-front fees relating to set-up and billing integration across the period of the contract for the subscription service as these fees are part of hosting solution that we provide to the carrier. The hosting is provided on our servers for the entire period of the arrangement with this carrier, and the revenues relating to the monthly subscription, set-up fees and billing integration have been recognized over the period in the agreement. We also recognize revenue from development projects, based on percentage of completion, if the required criteria are met, or when the project is completed.

   

Cost of revenue

 

Cost of revenues mainly include the costs and expenses incurred in connection with our patent licensing and enforcement activities, contingent legal fees paid to external patent counsels, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third parties, the amortization of patent-related acquisition costs and of the acquired technology. Cost of revenue also includes third party expenses directly related to providing our service in launched markets. In addition, these costs include royalty fees for content sales and amortization of prepaid content licenses. Cost of revenue does not include expenses related to product development, integration, and support. These costs are included in research and development and marketing expenses.

   

Research and development expenses

 

 Research and development expenses consist primarily of salary expenses of our development and quality assurance engineers in our research and development facility in Israel, outsourcing of certain development activities, preparation of patent filings, server and support functions for our development environment.

 

Marketing, general and administrative expenses

 

Marketing, general and administrative expenses include the cost of management, administrative and marketing personnel, public relations, advertising, overhead/office cost and various professional fees, as well as insurance, depreciation and amortization.

 

29
 

 

Non-operating income (expenses)

 

Non-operating income (expenses) includes transaction gains (losses) from foreign exchange rate differences, interest on deposits, bank charges, as well as fair value adjustments of derivative liabilities on account of the Preferential Reload Warrants, Special Bridge Warrants, Series 1 Warrants and the Conversion Warrants, which are highly influenced by our stock price at the period end (revaluation date).

 

Income taxes

 

Our effective tax rate differs from the statutory federal rate primarily due to differences between income and expense recognition prescribed by income tax regulations and generally accepted accounting principles. We utilize different methods and useful lives for depreciating and amortizing property and equipment and different methods and timing for certain expenses. Furthermore, permanent differences arise from certain income and expense items recorded for financial reporting purposes but not recognizable for income tax purposes. In addition, our income tax expense has been adjusted for the effect of foreign income from our wholly owned subsidiary in Israel. At September 30, 2012, deferred tax assets generated from our U.S. activities were offset by a valuation allowance because realization depends on generating future taxable income, which, in our estimation, is not more likely than not to be generated. The deferred tax assets and liabilities generated from our subsidiary in Israel’s operations are not offset by an allowance, as in our estimation, they are more likely than not to be realized.

 

Our subsidiary in Israel generates net taxable income from services it provides to us. The subsidiary in Israel charges us for research, development, certain management and other services provided to us, plus a profit margin on such costs, which is currently 8%. In the zone where the production facilities of the subsidiary in Israel are located the statutory tax rate is 15% in 2011 and 2012 and expected to be 12.5% in 2013 and 2014, and 12% in 2015 and thereafter.

 

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Results of Operations

 

Three and nine month periods ended September 30, 2012 compared to three month period ended September 30, 2012 and period from June 8, 2011 (inception of I/P) through September 30, 2011 and the development stage period, cumulative from inception of I/P through September 30, 2012  

 

Revenue

    Three months ended September 30,     Nine months
ended September 30,
    Period from
inception of I/P (June
8, 2011) through
September 30,
          Cumulative 
from inception
to September 30,
 
    2012     2011     Change     2012     2011     Change     2012  
                                           
Revenue     266,000             266,000       266,000             266,000       266,000  

 

In the third quarter of 2012, following the consummation of the Merger, for the first time since inception of I/P, we recorded total revenues of $266,000. The recognized revenue consisted of: (i) subscription and content sales based revenue of $76,000, which represents legacy Vringo revenue from July 19, 2012, the date of the Merger, through September 30, 2012, (ii) revenue from a development project with Nokia of $90,000 and (iii) proceeds from partial settlement with AOL in the total amount of $100,000.

 

As a combined company, after the recently issued verdict in our litigation against AOL, Inc., Google, Inc., IAC Search & Media, Inc., Gannett Company, Inc., and Target Corporation for infringement of the Patents acquired from Lycos, we expect to generate revenue based on the verdict, although both sides have the right for an appeal, we also intend to continue to expand our planned operations through acquisitions and monetization of additional patents and other intellectual property. In particular, following the incorporation of our subsidiary in Germany and the acquisition of a patent portfolio from Nokia, we intend to expand our intellectual property monetization efforts in Europe. In October 2012, we filed litigation against a UK subsidiary of ZTE, with a goal of achieving a positive verdict or settlement, including, potentially, a licensing arrangement on terms beneficial to us.

 

We also expect to continue to generate a portion of our future revenues from: (i) Facetones® preloads, as well as from additional clients in the handset makers, (ii) Facetones® app, and Fan Loyalty application platforms, (iii) revenue-sharing agreements in India, Malaysia, Singapore, United Arab Emirates and UK, (iv) new revenue-sharing agreements for subscription-based services in new territories, (v) one-time service fees for customized production and development of the Facetones® and Fan Loyalty application platforms, and (vi) monetization of our intellectual property.

 

Cost of revenue

 

    Three months ended September 30,     Nine months ended
September 30,
    Period from
inception of I/P (June
8, 2011) through
September 30,
          Cumulative
from inception to
September 30,
 
    2012     2011     Change     2012     2011     Change     2012  
                                           
Cost of services provided     18,000             18,000       18,000             18,000       18,000  
Amortization of intangibles     878,000       157,000       721,000       1,189,000       170,000       1,018,000       1,517,000  
Operating legal     2,519,000       390,000       2,129,000       4,769,000       391,000       4,379,000       6,001,000  
                                                         
Total     3,415,000       547,000       2,868,000       5,976,000       561,000       5,415,000       7,536,000  

 

31
 

 

During the three month period ended September 30, 2012, our cost of revenue was $3,415,000, which represents an increase of $2,868,000 (or 524%) compared to our cost of revenue for the three month period ended September 30, 2011. The increase in cost of revenue, compared to the third quarter of 2011, was mainly related to increased amortization of patents, due to the newly acquired patents from Nokia ($541,000, compared to $157,000 in 2011), as well as due to amortization of technology, the value to which was allocated upon consummation of the Merger ($338,000, compared to $0 in 2011). In addition, we incurred significant costs in connection with the commencement of I/P Engine patent trial on October 16, 2012 and share based compensation related costs ($318,000 in 2012 compared to $0 in 2011). Finally, the increase in cost of services, related to legacy Vringo mobile app services, reflects the costs recorded for the first time during the quarter, pursuant to the Merger with I/P.

 

During the nine month period ended September 30, 2012, our cost of revenue was $5,976,000, which represents an increase of $5,415,000 (or 962%) compared to our cost of revenue for the period from June 8, 2011 through September 30, 2011. The increase in cost of revenue, compared to the parallel period in 2011, was mainly related to increased amortization expenses related to the patents acquired from Nokia and Lycos ($852,000, compared to $171,000 in 2011), as well as to amortization of acquired technology ($338,000, compared to $0 in 2011). In addition, we incurred increased costs in connection with commencement of the Lycos patent trial on October 16, 2012 and share based compensation related costs ($318,000 in 2012 compared to $0 in 2011). Finally, the increase in cost of services, related to legacy Vringo mobile app services, reflects the costs accounted for the first time, pursuant to the Merger with I/P.

   

From inception through September 30, 2012, cost of revenue expenses amounted to $7,536,000. Of this amount, $18,000 was attributed to the cost of mobile services provided to our clients, $318,000 to share based compensation expense, $338,000 was attributed to amortization of the acquired technology, $5,682,000 was attributed to operating legal expenses, mainly related to I/P Engine patent litigation, and $1,180,000 was attributed to patent amortization.

 

We expect that cost of revenue will increase over time, as we diversify the portfolio of our products and increase our intellectual property. As most of these costs are incurred irrespective of our revenues, we expect our gross margin to increase as our revenues grow.

 

Research and development

  

    Three months ended September 30,     Nine months
ended September 30,
    Period from inception of
I/P (June 8, 2011)
through September 30,
          Cumulative 
from inception to
September 30,
 
    2012     2011     Change     2012     2011     Change     2012  
                                           
Research and development     997,000             997,000       997,000             997,000       997,000  

 

Research and development expenses, in the total amount of $997,000, recorded following the Merger with I/P, consist primarily of the cost of our development team ($454,000, compared to $0 in 2011) and share based compensation ($452,000, compared to $0 in 2011). We anticipate that our research and development costs will increase over time, as we seek to develop additional products and intellectual property to diversify and enhance our original core business.

 

Marketing, general and administrative

 

    Three months ended September 30,     Nine months
ended September 30,
    Period from inception of
I/P (June 8, 2011)
through September 30,
          Cumulative
from inception to
September 30,
 
    2012     2011     Change     2012     2011     Change     2012  
                                           
Marketing, general and administrative     6,364,000       323,000       6,041,000       7,508,000       762,000       6,746,000       8,694,000  

  

During the three month period ended September 30, 2012, marketing, general and administrative expenses increased by $6,041,000 (or 1,870%), to $6,364,000, from $323,000 during the three month period ended September 30, 2011. Marketing general and administrative expenses increased mostly due to the increase in payroll expense ($941,000, compared to $81,000 in 2011), as well as due to an increase in non-cash share based compensation expense ($4,592,000, compared to $50,000 in 2011), increased merger and acquisition expense ($90,000, compared to $0 in 2011) and increased corporate legal expenses ($240,000, compared to $73,000).

 

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During the nine month period ended September 30, 2012, marketing, general and administrative expenses increased by $6,746,000 (or 885%), to $7,508,000, from $762,000 during the period from inception of I/P through September 30, 2011. Marketing, general and administrative expenses increased mostly due to the increase in payroll expense ($1,274,000, compared to $88,000 in 2011), as well as due to increase in non-cash share based compensation expense ($4,762,000, compared to $373,000 in 2011), increased merger and acquisition expense ($267,000, compared to $0 in 2011) and increased corporate legal expenses ($310,000, compared to $178,000 in 2011). 

 

From inception through September 30, 2012, general and administrative expenses totaled approximately $8,694,000. $1,493,000 was attributed to salaries and related expenses, $5,236,000 were attributed to share based payments, $267,000 was attributed to merger and acquisition activity, and $1,109,000 was attributed to various professional fees.

 

We expect that our general and administrative expenses will increase, as our expenses will incorporate full costs of the new management, on a post-Merger basis (accounted for from July 19, 2012). In addition, increased costs include increased administration, rent, office, accounting, legal and insurance costs.

 

Non-operating income (expense), Net

 

    Three months ended September 30,     Nine months
ended September 30,
    Period from inception of
I/P (June 8, 2011) through
September 30,
          Cumulative
from inception to
September 30,
 
    2012     2011     Change     2012     2011     Change     2012  
                                           
Non-operating Income, Net     7,310,000       (4,000 )     7,314,000       7,303,000       (4,000 )     7,307,000       7,295,000  

 

Following the Merger, our non-operating income, net, included mainly the impact of changes in fair value of derivative warrants, the fair value of which is highly affected by our share price at the measurement date. Consequently, as of September 30, 2012, we recorded an income of $7,240,000 due to the decrease of our share price at quarter end, compared to the price on the date of the Merger. In 2011, and prior to the Merger, our non-operating expense consisted of bank charges, as well as of interest expense related to the note payable (see also Note 5 to the accompanying financial statements). Finally, our non-operating income/expense includes the impact of dollar/shekel fluctuations, in connection with which we recorded income of approximately $75,000 in the three and nine months of 2012.

 

Income tax benefit

 

    Three months ended September 30,     Nine months ended
September 30,
  Period from inception of
I/P (June 8, 2011)
through September 30,
      Cumulative
from inception to
September 30,
 
    2012     2011     Change     2012     2011   Change     2012  
                                           
Income tax benefit   76,000         76,000     76,000         76,000     76,000  

 

During the three and nine month period ended September 30, 2012, we recorded an income tax benefit in the total amount of $76,000, compared to $0 in all previous periods. In general, taxes on income are mainly due to taxable profits generated by our subsidiary in Israel, as a result of the intercompany cost plus agreement between us and the subsidiary in Israel, whereby the subsidiary in Israel performs development and other services for us and is reimbursed for its expenses plus 8%. For financial statements purposes, these profits are eliminated upon consolidation. In addition, income tax benefit included $118,000 due to a decrease in deferred tax liability in respect of the acquired technology (see also Note 4 of the accompanying financial statements). In all periods since inception, we have fully offset our U.S. net deferred tax asset with a valuation allowance. Our lack of earning history and the uncertainty surrounding our ability to generate U.S. taxable income prior to the expiration of such deferred tax assets were the primary factors considered by management in establishing the valuation allowance.

 

We expect taxable income in our subsidiary in Israel, in 2012, under the terms of the intercompany agreement. We also expect our income tax expense will be offset by a tax benefit derived from the decrease in deferred tax liability related to the acquired technology, as discussed above.

 

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Off-Balance Sheet Arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had a cash balance of $9,549,000 and approximately $5,842,000 in net working capital. The increase of $4,337,000 in our cash balance from December 31, 2011 was mainly due to $31,200,000 received in a private registered direct financing round and $1,769,000 from exercise of options and warrants, offset by net cash used by us in our business operations, in the total amount of approximately $5,962,000, $22,548,000 used to acquire Nokia patents, as well as $3,200,000 used to repay outstanding notes to Hudson Bay, as also described in Note 5 to the accompanying financial statements. As of September 30, 2012, our total stockholders' equity was $90,111,000, mainly increased by the net assets of Vringo recorded upon consummation of the Merger, offset by continued operating deficits from inception to date.

 

On October 4, 2012, we entered into subscription agreements with several investors with respect to the registered direct offer and sale by us of an aggregate of 10,344,998 shares of our common stock, par value $0.01 per share, at a purchase price of $4.35 per share in a privately negotiated transaction in which no party acted as an underwriter or placement agent. The net proceeds to us were approximately $44,900,000 after deducting estimated offering expenses payable by us. We intend to use the net proceeds from this offering for general corporate working capital purposes.

 

In October 2012, we entered into an agreement with certain of our warrant holders, pursuant to which such warrant holders exercised in cash 3,721,062 of their outstanding warrants, with an exercise price of $1.76 per share, and we issued such warrant holders unregistered warrants to purchase an aggregate of 3,000,000 of our shares of common stock, par value $0.01 per share, at an exercise price of $5.06 per share. The newly issued warrants do not bear down round protection clauses. We are still evaluating the accounting impact of this transaction; nevertheless, we expect such impact on our financial statements to be material.

 

In addition, in October and November 2012, 790,903 warrants at an exercise price of $1.76 were exercised by our warrant holders, pursuant to which we received an additional $1,391,989.

 

The accompanying financial statements have been prepared on a basis which assumes that we will continue as a “going concern”, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of November 14, 2012, we had approximately $60,500,000 in cash and cash equivalents. Based on current operating plans, we expect to have sufficient funds for at least the next twelve months. In addition, we may choose to raise additional funds in connection with potential acquisitions of patent portfolios or other intellectual property assets that we may pursue. There can be no assurance, however, that any such opportunities will materialize.

 

Cash flows

 

    Nine month period ended
September 30, 2012
    Period from June 8,
2011 to
September 30, 2011
    Change     Cumulative
from June 8, 2011 to September 30,
2012
 
             
Net cash used in operating activities     (5,962,000 )     (254,000 )     (5,708,000 )     (7,491,000 )
Net cash used in investing activities     (19,419,000 )     (3,400,000 )     (16,019,000 )     (22,823,000 )
Net cash provided by financing activities     29,717,000       7,360,000       22,357,000       39,862,000  

 

Operating activities

 

During the nine month period ended September 30, 2012, net cash used in operating activities totaled $5,962,000. During the period from inception through September 30, 2011, net cash used in operating activities totaled $254,000. The increase of $5,708,000 in cash used in operating activities was mainly due I/P’s incorporation in June 2011, the Merger with Vringo, and further development of our business. Operating activities include merger and acquisition related payments of $267,000 that reflect I/P’s and post-merger Vringo’s non-capitalized expenses.

 

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We expect our net cash used in operating activities to increase due to further development of our business, development of our products and enhancement of our intellectual property. As we move towards greater revenue generation, we expect that these amounts will be offset over time by collection of funds generated by generated revenues.

 

Investing activities

 

During the nine month period ended September 30, 2012, net cash used in investing activities totaled $19,419,000. During the period from inception through September 30, 2011, net cash used in investing activities totaled $3,400,000. The increase in cash used in investing activities, in the total amount of $16,019,000 was primarily due to the purchase of the patent portfolio from Nokia, in the total amount of $22,548,000, compared to the cost of patents acquired from Lycos in 2011, for $3,395,000. Fixed asset purchases in the nine month period ended September 30, 2012 amounted to $151,000 compared to $5,000 for the period from inception of I/P through September 30, 2011, due to post-Merger relocation of our headquarters.

 

We expect that net cash used in investing activities will increase as we intend to continue to acquire additional intellectual property and upgrade our computers and software.

 

Financing activities

 

During the nine month period ended September 30, 2012, net cash provided by financing activities totaled $29,717,000, which relates to the August private financing round, in which we raised approximately, $31,148,000, offset by repayment of notes payable to Hudson Bay, and funds received from exercise of warrants and options in the total amount of $1,769,000. During the from inception of I/P through September 30, 2011, net cash provided by financing activities totaled $7,360,000, which included the receipt of notes payable from Hudson Bay and proceeds from the issuance of Series A Convertible Preferred Stock and shares of common stock in the total amount of $4,160,000.

 

As mentioned above, a significant portion of our issued and outstanding warrants are currently “in the money” and the shares of common stock underlying such warrants held by non-affiliates are freely tradable, with the potential of up to $21,904,382 of incoming funds. We may choose to raise additional funds in connection with any acquisition of patent portfolios or other intellectual property assets that we may pursue. There can be no assurance, however, that any such opportunity will materialize, moreover, any such financing would likely be dilutive to our current stockholders.

 

Future operations

 

We believe that through the Merger we will create a company with enhanced technology capabilities to create, build and deliver mobile applications and services to its handset and mobile operator partners as well as directly to consumers. We believe that the value of each company’s intellectual property portfolio will be enhanced through the combined company’s ability to license and enforce its intellectual property rights. Together with the executive team from I/P we anticipate the creation of additional products and services that will be distributed through our existing operator and handset relationships. We may choose to raise additional funds in connection with any potential acquisition of patent portfolios or other intellectual property assets that we may pursue. There can be no assurance, however, that any such opportunities will materialize, moreover, any such financing would likely be dilutive to our stockholders.

 

As one of the means of realizing the value of the patents on telecom infrastructure, on October 5, 2012, our wholly-owned subsidiary, Vringo Infrastructure, Inc., filed suit in the UK High Court of Justice, Chancery Division, Patents Court, alleging infringement of European Patents (UK) 1,212,919; 1,166,589; and 1,808,029. Declarations have been filed at the European Telecommunications and Standards Institute (ETSI) that cover the patents. The complaint alleges that ZTE's cellular network elements fall within the scope of all three patents, and ZTE's GSM/UMTS multi-mode wireless handsets also fall within the scope of the '029 patent. On October 23, 2012, counsel for ZTE acknowledged service. ZTE (UK) formal response to the complaint is anticipated by November 22, 2012. A case management conference where among other matters, the schedule for the suit will be set, is anticipated in January 2013.

 

On October 10, 2012, our subsidiary in the United States entered into a patent purchase agreement, as part of which we issued to seller 160,600 unregistered shares of our common stock, as well as a 20% royalty from collected future revenue.

 

We are currently in discussions with several potential strategic partners and mobile carriers and we will be pursuing additional agreements over the next 12 to 24 months. In addition, we are continuing to explore further opportunities for strategic business alliances, as well as, potential acquisition of patent portfolios or other intellectual property assets. However, there can be no assurance that any such opportunities may arise, or that any such opportunities will be consummated.

 

35
 

 

Critical Accounting Estimates

 

While our significant accounting policies are more fully described in the notes to our audited consolidated financial statements for the years ended December 31, 2011 contained in the definitive proxy statement/prospectus filed with the SEC on July 21, 2012, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements.

 

Goodwill and intangible Assets

 

We accounted for the Merger in accordance with FASB Topic ASC 805 ”Business Combinations” and for identified goodwill and technology in accordance with FASB Topic ASC 350 ”Intangibles - Goodwill and Other” . Additionally, we review our long-lived assets for recoverability in accordance with FASB Topic ASC 360 “Property, Plant and Equipment”

 

The identification and valuation of intangible assets and the determination of the estimated useful lives at the time of acquisition are based on various valuation methodologies including reviews of projected future cash flows. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of our goodwill and other intangible assets, and potentially result in a different impact to our results of operations.  Further, changes in business strategy and/or market conditions may significantly impact these judgments thereby impacting the fair value of these assets, which could result in an impairment of the goodwill and acquired intangible assets.

 

We evaluate our long-lived tangible and intangible assets for impairment in accordance with FASB Topic ASC 350 ”Intangibles - Goodwill and Other” and FASB Topic ASC 360 “Property, Plant and Equipment” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill is subject to an annual test for impairment, or for impairment testing up on the occurrence of triggering events. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. While we use available information to prepare our estimates and to perform impairment evaluations, the completion of annual impairment tests requires significant management judgments and estimates.

 

Valuation of Financial Instruments

 

On July 19, 2012, the date of the Merger, Vringo’s outstanding warrants included: (i) 148,390 Special Bridge Warrants, at an exercise price of $0.94, with an expected remaining term of 2.44 years; (ii) 101,445 Conversion Warrants, at an exercise price of $0.94, with an expected remaining term of 2.44 years; (iii) 887,330 Preferential Reload Warrants, at an exercise price of $1.76, with an expected remaining term of 4.55 years; and (iv) 814,408 non-Preferential Reload Warrants, at an exercise price of $1.76, with an expected remaining term of 4.55 years. Following the Merger and through September 30, 2012, 101,692 non-Preferential Reload Warrants were exercised.

 

As part of the Merger, on July 19, 2012, we issued to I/P’s stockholders 8,299,116 warrants at an exercise price of $1.76 and expected term of 5 years (“Series 1 Warrant”). These warrants bear down-round protection clauses, as a result, they were classified as a long-term derivative liability and recorded at fair value. In addition, I/P’s stockholders received another 7,660,722 warrants at an exercise price of $1.76 and expected term of 5 years (“Series 2 Warrant”). As these warrants do not have down-round protection clauses, they were classified as equity. Following the Merger and through September 30, 2012, 371,440 Series 1 Warrants and 342,873 Series 2 Warrants were exercised. The following table represents the assumptions, valuation models and inputs used, as of September 30, 2012:

 

    Valuation   Unobservable      
Description   Technique   Inputs   Range  
               
Special Bridge Warrants, Conversion Warrants, Preferential Reload Warrants and the Series 1 Warrants   Black-Scholes-Merton and the Monte-Carlo models   Volatility   63.75% – 67.43%  
    Risk free interest rate   0.27% – 0.63%  
    Expected term, in years   2.25 – 4.80  
    Dividend yield   0%  
    Probability and timing of down-round triggering event   15% occurrence in December 2012  

 

Had we made different assumptions about the risk-free interest rate, volatility, the impact of the down-round provision, or the estimated time that the above-mentioned warrants will be outstanding before they are ultimately exercised, the recorded expense, our net loss and net loss per share amounts could have been significantly different.

 

36
 

 

Accounting for Stock-based Compensation

 

We account for stock-based awards under ASC 718, “Compensation—Stock Compensation” , which requires measurement of compensation cost for stock-based awards at fair value on the date of grant and the recognition of compensation over the service period in which the awards are expected to vest. In addition, for options granted to consultants, FASB ASC 505- 50, “ Equity-Based Payments to Non Employees ” is applied. Under this pronouncement, the measurement date of the option occurs on the earlier of counterparty performance or performance commitment. The grant is revalued at every reporting date until the measurement date. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider various factors when estimating expected forfeitures, including historical experience. Actual results may differ substantially from these estimates.

 

We determine the fair value of stock options granted to employees, directors and consultants using the Black-Scholes-Merton and the Monte-Carlo (for grants that include market conditions) valuation models, those require significant assumptions regarding the expected stock price volatility, the risk-free interest rate and the dividend yield, and the estimated period of time option grants will be outstanding before they are ultimately exercised. Due to insufficient history, we estimate our expected stock volatility incorporating historical stock volatility from comparable companies.

 

These option pricing models utilize various inputs and assumptions, which are highly subjective. Had we made different assumptions about risk-free interest rate, volatility, or the estimated time that the options will be outstanding before they are ultimately exercised, the recorded expense, our net loss and net loss per share amounts could have been significantly different. Had we used different assumptions, our results may have been significantly different.

 

Accounting for Income Taxes

 

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves management estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. At September 30, 2012 and December 31, 2011, we have offset our U.S. net deferred tax asset with a valuation allowance. Our lack of earnings history and the uncertainty surrounding our ability to generate U.S. taxable income prior to the expiration of such deferred tax assets were the primary factors considered by management in establishing the valuation allowance. Also, refer to Note 14 of Vringo consolidated financial statements for the year ended December 31, 2011.

 

ASC 740, “Income Taxes”, prescribes how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Additionally, for tax positions to qualify for deferred tax benefit recognition under ASC 740, the position must have at least a “more likely than not” chance of being sustained upon challenge by the respective taxing authorities, which criteria is a matter of significant judgment.

 

Item 3.             Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company and, therefore, we are not required to provide information required by this Item of Form 10-Q.

 

Item 4.             Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ineffective for the reasons set forth below.

 

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In the past, our management has identified a material weakness in our disclosure controls and procedures relating to insufficient controls in connection with recognition, valuation and accounting for equity, debt and derivative instruments. We have been enhancing our proficiency of the professional literature on these subjects. In addition, we are in the process of remediating this material weakness by broadening the role of external qualified valuation and accounting experts, to allow for our stronger oversight in this area.

 

Changes in Internal Controls

 

During the three month period ended September 30, 2012, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Part II— OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

I/P Engine

 

As one of the means of realizing the value of the patents acquired from Lycos, on September 15, 2011, I/P initiated (through I/P Engine) litigation in the United States District Court, Eastern District of Virginia, against AOL, Inc. (“AOL”), Google, Inc. (“Google”), IAC Search & Media, Inc. (“IAC”), Gannett Company, Inc. (“Gannett”), and Target Corporation (“Target”) for patent infringement regarding two of the patents acquired from Lycos (U.S. Patent Nos. 6,314,420 and 6,775,664) (together the “Defendants”). The case number is 2:11 CV 512-RAJ/FBS. The court docket for the case, including the parties’ briefs, is publicly available on the Public Access to Court Electronic Records website (“PACER”), www.pacer.gov, which is operated by the Administrative Office of the U.S. Courts.

  

On March 15, 2012, Google submitted a request to the USPTO for ex parte reexamination of U.S. Patent No. 6,314,420, one of the two patents-in-suit. The request was deposited on March 16, 2012 and was assigned Control No. 90/009,991. We expected Google to seek reexamination and believe this request is a standard and typical tactic used by defendants in patent litigation cases. The filing of a request for reexamination is the first step in a process that ordinarily takes several years. On July 18, 2012 the USPTO issued a determination ordering a reexamination. On September 25, 2012, the USPTO issued a first, non-final office action where it adopted the rejections proposed by Google. Our response is due by November 25, 2012.

 

Trial commenced on October 16, 2012 and the case was submitted to the jury on November 1, 2012. On November 6, 2012, the jury unanimously returned a verdict as follows: (i) I/P Engine had proven by a preponderance of the evidence that the Defendants infringed the asserted claims of the patents; and (ii) Defendants had not proven by clear and convincing evidence that the asserted claims of the patents are invalid by anticipation. The jury also found certain specific facts related to the ultimate question of whether the patents are invalid as obvious. Based on such facts, the Court will issue a ruling on obviousness. We believe that the jury’s factual findings will support a finding that the patents are not invalid as obvious. After finding that the asserted claims of the Patents were both valid and infringed, the jury found that reasonable royalty damages should be based on a "running royalty", and that the running royalty rate should be 3.5%.

 

After finding that the asserted claims of the Patents were both valid and infringed by the Defendants, the jury found that the following sums of money, if paid now in cash, would reasonably compensate I/P Engine for the Defendants past infringement as follows: Google: $15,800,000, AOL: $7,943,000, IAC: $6,650,000, Gannett: $4,322, Target: $98,833. I/P Engine and Defendants are allowed to file post-trial motions with the court, the schedule for which has yet been determined.

 

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Vringo Infrastructure

 

As one of the means of realizing the value of the patents on telecom infrastructure, on October 5, 2012 our wholly-owned subsidiary, Vringo Infrastructure, Inc., filed suit in the UK High Court of Justice, Chancery Division, Patents Court, alleging infringement of European Patents (UK) 1,212,919; 1,166,589; and 1,808,029. Declarations have been filed at the European Telecommunications and Standards Institute (ETSI) that cover the patents. The complaint alleges that ZTE’s cellular network elements fall within the scope of all three patents, and ZTE’s GSM/UMTS multi-mode wireless handsets also fall within the scope of the ‘029 patent. On October 23, 2012, counsel for ZTE acknowledged service. ZTE (UK) formal response to the complaint is anticipated by November 22, 2012. A case management conference where among other matters, the schedule for the suit will be set, is anticipated in January 2013.

 

Item 1A. Risk Factors.

 

The risk factors set forth below update the risk factors in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011 as updated in our Quarterly Report on Form 10-Q for the period ended June 30, 2012 filed on August 14, 2012. In addition to the risk factors below, you should carefully consider the other risks highlighted elsewhere in this report or in our other filings with the Securities and Exchange Commission, which could materially affect our business, financial position and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial position and results of operations.

 

Our limited operating history makes it difficult to evaluate our current business and future prospects.

 

We are a development stage company and we generated no significant revenue to date. I/P, the accounting acquirer, was incorporated in June 2011, at which time it acquired its main patent assets. To date, our business focused mainly on prosecution based on these patents. Therefore we not only have a very limited operating history, but also a very limited track record in executing our business model which includes, among other things, creating, prosecuting, licensing, litigating or otherwise monetizing its patent assets. Our limited operating history makes it difficult to evaluate our current business model and future prospects.

 

In light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development with no operating history, there is a significant risk that we will not be able to:

 

implement or execute our current business plan, or demonstrate that our business plan is sound; and/or

 

raise sufficient funds in the capital markets to effectuate our business plan.

 

If we are unable to execute any one of the foregoing or similar matters relating to its operations, our business may fail.

 

We commenced legal proceedings against the major online search engines and communications companies, and we expect such proceedings to be time-consuming and costly, which may adversely affect our financial condition and our ability to operate our business.

 

To license or otherwise monetize the patent assets acquired, we commenced legal proceedings against the owners of online search engines and other companies (including AOL, Inc., Google, Inc., IAC Search & Media, Inc., Gannett Company, Inc., and Target Corporation), as well as against other leading communications companies, pursuant to which we allege that such companies infringe on one or more of our patents. Our viability is highly dependent on the outcome these litigations, and there is a risk that we may be unable to achieve the results we desire from such litigation, which failure would harm our business to a great degree. In addition, the defendants in these litigations have substantially more resources than we do, which could make our litigation efforts more difficult.

 

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We anticipate that legal proceedings may continue for several years and may require significant expenditures for legal fees and other expenses. Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. Once initiated, we may be forced to litigate against others to enforce or defend our intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. The defendants or other third parties involved in the lawsuits in which we are involved may allege defenses and/or file counterclaims in an effort to avoid or limit liability and damages for patent infringement. If such defenses or counterclaims are successful, they may preclude our ability to derive licensing revenue from the patents. A negative outcome of any such litigation, or one or more claims contained within any such litigation, could materially and adversely impact our business. Additionally, we anticipate that our legal fees and other expenses will be material and will negatively impact our financial condition and results of operations and may result in our inability to continue our business. Expenses are also dependent on the outcome of current processes. Our failure to monetize our patent assets would significantly harm our business.

 

While we believe that the patents acquired are being infringed by certain major online search engines and communications companies, there is a risk that a court will find the patents invalid, not infringed or unenforceable and/or that the U.S. Patent Office will either invalidate the patents or materially narrow the scope of their claims during the course of a re-examination. In addition, even with a positive trial court verdict, the patent may be invalidated, found not infringed or rendered unenforceable on appeal. This risk may occur either presently or from time to time in connection with future litigations we may bring. If this were to occur, it would have a material adverse effect on the viability of our company and our operations.

 

We believe that companies infringe on our patents, but recognize that obtaining and collecting a judgment against such infringers may be difficult or impossible. Patent litigation is inherently risky and the outcome is uncertain. Some of the parties we believe infringe on our patents are large and well-financed companies with substantially greater resources than ours. We believe that these parties would devote a substantial amount of resources in an attempt to avoid or limit a finding that they are liable for infringing our patents or, in the event liability is found, to avoid or limit the amount of associated damages. In addition, there is a risk that these parties may file re-examinations or other proceedings with the USPTO or other government agencies in an attempt to invalidate, narrow the scope or render unenforceable the patents we acquired.

 

Moreover, in connection with any of our present or future patent enforcement actions, it is possible that a defendant may request and/or a court may rule that we violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorneys’ fees and/or expenses to one or more defendants, which could be material, and if we or our subsidiaries are required to pay such monetary sanctions, attorneys’ fees and/or expenses, such payment could materially harm our operating results and its financial position.

 

In addition, it is difficult in general to predict the outcome of patent enforcement litigation at the trial level. There is a higher rate of appeals in patent enforcement litigation than more standard business litigation. Such appeals are expensive and time-consuming, and the outcomes of such appeals are sometimes unpredictable, resulting in increased costs and reduced or delayed revenue.

 

Finally, we believe that the more prevalent patent enforcement actions become, the more difficult it will be for us to license our patents without engaging in litigation. As a result, we may need to increase the number of our patent enforcement actions to cause infringing companies to license the patent or pay damages for lost royalties. This will adversely affect our operating results due to the high costs of litigation and the uncertainty of the results.

 

Our subsidiary, Vringo Infrastructure Inc., has commenced legal proceedings against ZTE (UK) Ltd. (“ZTE”) and expects such litigation to be time-consuming and costly, which may adversely affect our financial position and our ability to operate our business.

 

To license or otherwise monetize the patent assets we acquired from Nokia, Vringo Infrastructure has commenced legal proceedings against ZTE, pursuant to which, Vringo Infrastructure alleges that ZTE infringe three of Vringo Infrastructure’s patents. The defendant’s parent company in the UK is much larger than Vringo and has substantially more resources, which could make our litigation efforts more difficult.

 

We anticipate that the above mentioned legal proceedings may continue for several years and may require significant expenditures for legal fees and other expenses. Disputes regarding the assertion of patents and other intellectual property rights are highly complex and technical. Once initiated, Vringo Infrastructure may be forced to litigate against others to enforce or defend their intellectual property rights or to determine the validity and scope of other parties’ proprietary rights. ZTE may allege defenses and/or file counterclaims for inter alia revocation or file collateral litigations or initiate investigations in the UK or elsewhere in an effort to avoid or limit liability and damages for patent infringement. If such actions by ZTE are successful, they may preclude our ability to derive licensing revenue from the patents currently being asserted.

 

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Additionally, we anticipate that its legal fees and other expenses will be material and will negatively impact our financial condition and results of operations and may result in its inability to continue its business. We estimate that our legal fees in the UK actions over the next twelve months will be approximately $2,400,000. Expenses thereafter are dependent on the outcome of the status of the litigation. Our failure to monetize our patent assets would significantly harm our business.

 

Further, should we be deemed the losing party in any of its applications to the Court in the UK Litigation or for the entire litigation, we may be held responsible for a substantial percentage of the defendant’s legal fees for the relevant application or for the litigation. These fees may be substantial. To date, ZTE has asserted that its anticipated fees in defending the UK litigation may be approximately $3,100,000. However, should we be successful on any court applications or the entire litigation, ZTE would be responsible for a substantial percentage of our legal fees.

 

Further, if any of the patents in suit are found not infringed or invalid, it is highly unlikely that the relevant European patents (UK) could be viewed as essential and therefore necessarily infringed by all unlicensed market participants.

 

It is also possible that, in light of our litigation with ZTE, it will choose to suspend or sever its Facetones® related commercial relationship with us.

 

We may not be able to successfully monetize the patents we have acquired from Nokia and thus we may fail to realize all of the anticipated benefits of such acquisition.

 

There is no assurance that we will be able to successfully monetize the patent portfolio that we have acquired from Nokia. The acquisition of Nokia patents could fail to produce anticipated benefits, or could have other adverse effects that we currently do not foresee. Failure to successfully monetize these patent assets may have a material adverse effect on our business, financial condition and results of operations.

 

In addition, the acquisition of the patent portfolio is subject to a number of risks, including, but not limited to the following: 

 

There is a significant time lag between acquiring a patent portfolio and recognizing revenue from those patent assets. During that time lag, material costs are likely to be incurred that would have a negative effect on our results of operations, cash flows and financial position.

 

The integration of a patent portfolio will be a time consuming and expensive process that may disrupt our operations. If our integration efforts are not successful, our results of operations could be harmed. In addition, we may not achieve anticipated synergies or other benefits from such acquisition.

 

Therefore, there is no assurance that we will realize enough revenues from the monetization of such patent portfolio we have acquired from Nokia in order to recoup our investment.

 

We may seek to internally develop additional new inventions and intellectual property, which would take time and would be costly. Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities.

 

Members of our management team have significant experience as inventors. As such, part of our business may include the internal development of new inventions or intellectual property that we will seek to monetize. However, this aspect of our business would likely require significant capital and would take time to achieve. Such activities could also distract our management team from its present business initiatives, which could have a material and adverse effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such activities.

 

In addition, even if we are able to internally develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop and maintain, and it would heavily rely on, a proprietary position with respect to such inventions and intellectual property. However, there are significant risks associated with any such intellectual property we may develop principally including the following:

 

  patent applications we may file may not result in issued patents or may take longer than we expect to result in issued patents;

 

  we may be subject to interference proceedings;

 

  we may be subject to opposition proceedings in the U.S. or foreign countries;

 

  any patents that are issued to us may not provide meaningful protection;

 

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  we may not be able to develop additional proprietary technologies that are patentable;

 

  other companies may challenge patents issued to us;

 

  other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies;

 

  other companies may design around technologies we have developed; and

 

  enforcement of our patents would be complex, uncertain and very expensive.

 

We cannot be certain that patents will be issued as a result of any future applications, or that any of our patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we will be the first to make our additional new inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct its business. As to those patents that we may license or otherwise monetize, our rights will depend on maintaining its obligations to the licensor under the applicable license agreement, and we may be unable to do so. Our failure to obtain or maintain intellectual property rights for our inventions would lead to the loss of our investments in such activities, which would have a material and adverse effect on our company.

 

Moreover, patent application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.

 

New legislation, regulations or court rulings related to enforcing patents could harm our business and operating results.

 

If Congress, the United States Patent and Trademark Office or courts implement new legislation, regulations or rulings that impact the patent enforcement process or the rights of patent holders, these changes could negatively affect our business model. For example, limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increases in the cost to resolve patent disputes and other similar developments could negatively affect our ability to assert its patent or other intellectual property rights.

 

In addition, on September 16, 2011, the Leahy-Smith America Invents Act (or the Leahy-Smith Act), was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These changes include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. Patent Office is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act will not become effective until one year or 18 months after its enactment. Accordingly, it is too early to tell what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued to us patents, all of which could have a material adverse effect on our business and financial condition.

 

Further, and in general, it is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become enacted as laws. Compliance with any new or existing laws or regulations could be difficult and expensive, affect the manner in which we conduct our business and negatively impact our business, prospects, financial condition and results of operations.

 

Acquisitions of additional patent assets may be time consuming, complex and costly, which could adversely affect our operating results.

 

Acquisitions of patent or other intellectual property assets, which are and will be critical to our business plan, are often time consuming, complex and costly to consummate. We may utilize many different transaction structures in its acquisitions and the terms of such acquisition agreements tend to be heavily negotiated. As a result, we expect to incur significant operating expenses and will likely be required to raise capital during the negotiations even if the acquisition is ultimately not consummated. Even if we are able to acquire particular patent assets, there is no guarantee that we will generate sufficient revenue related to those patent assets to offset the acquisition costs. While we will seek to conduct confirmatory due diligence on the patent assets we are considering for acquisition, we may acquire patent assets from a seller who does not have proper title to those assets. In those cases, we may be required to spend significant resources to defend our interest in the patent assets and, if we are not successful, our acquisition may be invalid, in which case we could lose part or all of its investment in the assets.

 

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We may also identify patent or other intellectual property assets that cost more than we are prepared to spend with our own capital resources. We may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition of any patent assets or, if consummated, proves to be unprofitable for us. These higher costs could adversely affect our operating results, and if we incur losses, the value of our securities will decline.

 

In addition, we may acquire patents and technologies that are in the early stages of adoption in the commercial, industrial and consumer markets. Demand for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees will adopt its patents and technologies in their products and services. As a result, there can be no assurance as to whether technologies we acquire or develop will have value that it can monetize.

 

In certain acquisitions of patent assets, we may seek to defer payment or finance a portion of the acquisition price. This approach may put us at a competitive disadvantage and could result in harm to our business.

 

We have limited capital and may seek to negotiate acquisitions of patent or other intellectual property assets where we can defer payments or finance a portion of the acquisition price. These types of debt financing or deferred payment arrangements may not be as attractive to sellers of patent assets as receiving the full purchase price for those assets in cash at the closing of the acquisition. As a result, we might not compete effectively against other companies in the market for acquiring patent assets, many of whom have greater cash resources than we have. In addition, any failure to satisfy our debt repayment obligations may result in adverse consequences to its operating results.

 

Any failure to maintain or protect our patent assets or other intellectual property rights could significantly impair our return on investment from such assets and harm our brand, business and operating results.

 

Our ability to operate our business and compete in the intellectual property market largely depends on the superiority, uniqueness and value of our patent assets and other intellectual property. To protect our proprietary rights, we rely on and will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with its employees and third parties, and protective contractual provisions. No assurances can be given that any of the measures we undertake to protect and maintain our assets will have any measure of success.

 

Following the acquisition of patent assets, we will likely be required to spend significant time and resources to maintain the effectiveness of those assets by paying maintenance fees and making filings with the United States Patent and Trademark Office. We may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with the United States Patent and Trademark Office. Further, there is a material risk that patent related claims (such as, for example, infringement claims (and/or claims for indemnification resulting therefrom), unenforceability claims, or invalidity claims) will be asserted or prosecuted against us, and such assertions or prosecutions could materially and adversely affect our business. Regardless of whether any such claims are valid or can be successfully asserted, defending such claims could cause us to incur significant costs and could divert resources away from our other activities.

 

Despite our efforts to protect its intellectual property rights, any of the following or similar occurrences may reduce the value of our intellectual property:

 

our applications for patents, trademarks and copyrights may not be granted and, if granted, may be challenged or invalidated;

 

issued trademarks, copyrights, or patents may not provide us with any competitive advantages versus potentially infringing parties;

 

our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; or

 

our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we acquire and/or prosecute.

 

Moreover, we may not be able to effectively protect our intellectual property rights in certain foreign countries where we may do business in the future or from which competitors may operate. If we fail to maintain, defend or prosecute our patent assets properly, the value of those assets would be reduced or eliminated, and our business would be harmed.

 

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Weak global economic conditions may cause infringing parties to delay entering into licensing agreements, which could prolong our litigation and adversely affect its financial condition and operating results.

 

After giving effect to the Merger, should our warrants outstanding as of November 14, 2012, be exercised (including the warrants issued in connection with the Merger), there would be an additional 20,346,640 shares of common stock eligible for trading in the public market. In addition, we currently have incentive equity instruments outstanding to purchase 9,284,362 shares of our common stock granted to our management, employees, directors and consultants. In addition, the vesting of all Vringo pre-Merger options are subject to further acceleration in case our common stock reaches certain price or market capitalization targets for 20 of 30 consecutive trading dates, as follows: (i) 75% acceleration if either the price of the our common stock is at least $10 or our market capitalization is $500,000,000 or more; and (ii) 100% acceleration if either the price of our common stock is at least $20 or our market capitalization is at least $1,000,000,000. Certain options that are outstanding have exercise prices that are below, and in some cases significantly below, recent market prices. Such securities, if exercised, will increase the number of issued and outstanding shares of common stock. Therefore, the sale, or even the possibility of sale, of the shares of common stock underlying the warrants and options could have an adverse effect on the market price for our securities or on our ability to obtain future financing. The average weighted exercise price of all currently outstanding warrants and options, as of November 14, 2012, is $3.01 per share.

 

Future sales of our shares of common stock by our stockholders could cause the market price of our common stock to drop significantly, even if our business is otherwise performing well.

 

As of November 9, 2012, we had 80,328,144 shares of common stock issued and outstanding, excluding shares of common stock issuable upon exercise of warrants or options. As shares saleable under Rule 144 are sold or as restrictions on resale need, the market price of our common stock could drop significantly, if the holders of restricted shares sell them, or are perceived by the market as intending to sell them. This decline in our stock price could occur even if our business is otherwise performing well.

 

If we are unable to adequately protect our intellectual property, we may not be able to compete effectively. In addition, the possibility of extensive delays in the patent issuance process could effectively reduce the term during which a marketed product is protected by patents.

 

We may need to obtain licenses to patents or other proprietary rights from third parties. We may not be able to obtain the licenses required under any patents or proprietary rights or they may not be available on acceptable terms. If we do not obtain required licenses, we may encounter delays in product development or find that the development, manufacture or sale of products requiring licenses could be foreclosed. We may, from time to time, support and collaborate in research conducted by universities and governmental research organizations. We may not be able to acquire exclusive rights to the inventions or technical information derived from these collaborations, and disputes may arise over rights in derivative or related research programs conducted by us or in such collaborators.

 

Our ability to compete depends in part upon the strength of its proprietary rights in our technologies, brands and content. We rely on a combination of U.S. and foreign patents, copyrights, trademark, trade secret laws and license agreements to establish and protect our intellectual property and proprietary rights. The efforts we have taken to protect our intellectual property and proprietary rights may not be sufficient or effective at stopping unauthorized use of our intellectual property and proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every country in which our services are made available through the Internet. There may be instances where we are not able to fully protect or utilize its intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our intellectual property and proprietary rights from unauthorized use, the value of its products may be reduced, which could negatively impact our business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and produce or sell the same or similar products. In addition, protecting our intellectual property and other proprietary rights is expensive and diverts critical managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results could be adversely affected.

 

If we are forced to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings. We also rely on trade secrets and contract law to protect some of its proprietary technology. We entered into confidentiality and invention agreements with its employees and consultants. Nevertheless, these agreements may not be honored and they may not effectively protect our right to its un-patented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

 

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If we or our users infringe on the intellectual property rights of third parties, we may have to defend against litigation and pay damages and our business and prospects may be adversely affected.

 

If a third party were to assert that our products infringe on its patent, copyright, trademark, right of publicity, right of privacy, trade secret or other intellectual property rights, we could incur substantial litigation costs and be forced to pay substantial damages. Third-party infringement claims, regardless of their outcome, would not only consume significant financial resources, but would also divert our management time and attention. Such claims or the lack of available access to certain sites or content could also cause our customers or potential customers to purchase competitors’ products if such competitors have access to the sites or contents that we are lacking or defer or limit their purchase or use of our products or services until resolution of the claim. In connection with any such claim or litigation, our mobile carriers and other partners may decide to re-assess their relationships with us, especially if they perceive that they may have potential liability or if such claimed infringement is a possible breach of our agreement with such mobile carrier. If any of our products are found to violate third-party intellectual property rights, we may have to re-engineer one or more of its products, or we may have to obtain licenses from third parties to continue offering its products without substantial re-engineering. Our efforts to re-engineer or obtain licenses could require significant expenditures of time and money and may not be successful. Accordingly, any claims or litigation regarding our infringement of intellectual property of a third party by us or our users could have a material adverse effect on our business and prospects.

 

Third party infringement claims could also significantly limit the Vringo Studio products and the content available in Vringo’s content library. The Vringo Studio tool allows users to access video from multiple sites on the web or from their computer and allows them to then edit and send these video clips to their mobile phones as customized video ringtones. These websites could choose to block Vringo from accessing their content for violating their terms of service by allowing users to download clips or for any other reason, which could significantly limit the availability of content in the Vringo Studio. Additionally, while we employ special software that seeks to determine whether a clip is copyrighted or otherwise restricted, it is not feasible for us to determine whether users of Vringo Studio own or acquire appropriate intellectual property permissions to use each clip before it is downloaded. Therefore, we require users of the Vringo Studio to certify that they have the rights to use the content that they desire to send to their phone. Additionally, while the majority of the clips in our content library are either licensed by us directly or are public domain or creative commons, our content library contains certain clips which we have not licensed from the content owner. As a result, we may receive cease-and-desist letters, or other threats of litigation, from website hosts and content owners asserting that we are infringing on their intellectual property or violating the terms and conditions of their websites. In such a case, we will remove or attempt to obtain licenses for such content or obtain additional content from other websites. However, there is no assurance that we will be able to enter into license agreements with content owners. Consequently, we may be forced to remove a portion of our content from the Vringo studio library and significantly limit the availability of content in the Vringo Studio. This would negatively impact our user experience and may cause users to cancel our service and make our service less attractive to its partners.

 

If we are unable to enter into or maintain distribution arrangements with major mobile carriers and/or other partners and develop and maintain our existing strategic relationships with mobile carriers, we will be unable to distribute our products effectively or generate significant revenue.

 

Our strategy for distributing our applications and services is dependent upon establishing distribution arrangements with major mobile carriers and other partners. We currently have distribution arrangements with Etisalat (Emirates Telecom), Orange (Everything Everywhere), Vodafone, Verizon, Maxis, Celcom (Axiata Berhard), Hungama Mobile and Du. We need to develop and maintain strategic relationships with these entities in order for them to market our service to their end users. While we have entered into agreements with the aforementioned mobile carriers pursuant to which our service may be made available to their end-users, such agreements are not exclusive and generally do not obligate the partner to market or distribute our service. In addition, a number of our distribution agreements allow the mobile carrier to terminate its rights under the agreement at any time and for any reason upon 30 days’ notice. We are dependent upon the subsequent success of these partners in performing their responsibilities and sufficiently marketing our service. We cannot provide any assurance that we will be able to negotiate, execute and maintain favorable agreements and relationships with any additional partners, that the partners with whom we have a contractual relationship will choose to promote our service or that such partners will be successful and/or will not pursue alternative technologies.

 

45
 

 

If we are unsuccessful in entering into and maintaining content license agreements, our revenue will be negatively affected.

 

The success of our service is dependent upon its providing end-users with content they desire. An important aspect of this strategy is establishing licensing relationships with third party content providers that have desirable content. Content license agreements generally have a fixed term, may or may not include provisions for exclusivity and may require us to make significant minimum payments. We have entered into approximately 35 content license agreements with various content providers. While our business is not dependent on any particular content license agreement, there is no assurance that we will enter into a sufficient number of content license agreements or that the ones that we enter into will be profitable and will not be terminated early.

 

We may not be able to generate revenues from certain of our prepaid mobile customers.

 

We currently operate in markets that have a high percentage of prepaid mobile customers. Many of these users may not have a sufficient balance in their prepaid account when their free trial ends and we bill them to cover the charges for subscribing to its service. As a result, the subscriber numbers that we periodically disclose may not generate revenues at the expected level.

 

We are dependent on mobile carriers and other partners to make timely payments to us.

 

We receive our revenue from mobile carriers and other distribution partners who may delay payment to us, dispute amounts owed to us, or in some cases refuse to pay us at all. Many of these partners are in markets where we may have limited legal recourse to collect payments from these partners. Our failure to collect payments owed to it from our partners will have an adverse effect on our business and our results of operations.

 

We may not be able to continue to maintain our application on all of the operating systems that we currently support.

 

Some of our applications are compatible with various mobile operating systems including Android, Blackberry, Sony Ericsson, Symbian, Apple’s iOS, Java, and Windows Mobile operating systems. While Windows Mobile, Blackberry and Android do not support video ringtones natively, our development team has enabled its application to work on many devices which utilize these operating systems. The user base for the video ringtone service is spread out amongst a number of smartphone and feature phone operating systems, with applications on each aforementioned operating system representing less than 5% of the total subscribers to our video ringtone platform. Our Facetones® platform, which represents less than 5% of our revenue for the three months ended September 30, 2012, is heavily reliant upon our Android devices users. Currently, over 96% of our Facetones® users utilize the Android operating system. In addition, our commercial agreement with ZTE is solely reliant on our ability to maintain our support for the Android operating system. Since these operating systems do not support our applications natively, any significant changes to these operating systems by their respective developers may prevent our application from working properly or at all on these systems. If we are unable to maintain our application on these operating systems or on any other operating systems, users of these operating systems will not be able to use our application, which could adversely affect our business and results of operations.

 

We operate in the digital content market where piracy of content is widespread.

 

Our business strategy is partially based upon users paying us for access to our content. If users believe they can obtain the same or similar content for free via other means including piracy, they may be unwilling to pay for our service. Additionally, since our own clips do not have any copy protection, they can theoretically be distributed by a paying user to a non-paying user without any additional payment to us. If users or potential users obtain our content or similar content without payment to us, our business and results of operations will be adversely affected.

 

Major network failures could have an adverse effect on our business.

 

Major equipment failures, natural disasters, including severe weather, terrorist acts, acts of war, cyber-attacks or other breaches of network or information technology security that affect third-party networks, transport facilities, communications switches, routers, microwave links, cell sites or other third-party equipment on which we rely, could cause major network failures and/or unusually high network traffic demands that could have a material adverse effect on our operations or its ability to provide service to our customers. These events could disrupt our operations, require significant resources to resolve, result in a loss of customers or impair our ability to attract new customers, which in turn could have a material adverse effect on our business, results of operations and financial condition.

 

Our data is hosted at a remote location. Although we have full alternative site data backed up, we do not have data hosting redundancy. Accordingly, we may experience significant service interruptions, which could require significant resources to resolve, result in a loss of customers or impair our ability to attract new customers, which in turn could have a material adverse effect on our business, results of operations and financial condition.

 

In addition, with the growth of wireless data services, enterprise data interfaces and Internet-based or Internet Protocol-enabled applications, wireless networks and devices are exposed to a greater degree to third-party data or applications over which we have less direct control. As a result, the network infrastructure and information systems on which we rely, as well as our customers’ wireless devices, may be subject to a wider array of potential security risks, including viruses and other types of computer-based attacks, which could cause lapses in our service or adversely affect the ability of our customers to access its service. Such lapses could have a material adverse effect on our business and its results of operations.

 

46
 

 

Our business depends upon its ability to keep pace with the latest technological changes and our failure to do so could make us less competitive in our industry.

 

The market for our products and services is characterized by rapid change and technological change, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards. Products using new technologies or emerging industry standards could make our products and services less attractive. Furthermore, our competitors may have access to technology not available to us, which may enable them to produce products of greater interest to consumers or at a more competitive cost. Failure to respond in a timely and cost-effective way to these technological developments may result in serious harm to our business and operating results. As a result, our success will depend, in part, on its ability to develop and market product and service offerings that respond in a timely manner to the technological advances available to our customers, evolving industry standards and changing preferences.

 

Our Facetones® application depends upon our continued access to Facebook® photos.

 

Our Facetones® application creates automated video slideshow using friends’ photos from social media web sites, primarily from Facebook®, the world’s leading social media site. Facetones® represented less than 5% of our revenue for the three months ended September 30, 2012; however, we believe that the rapid growth of our user base is critical to the value of our mobile application business. In the event Facebook® prohibits or restricts the ability of our application to access photos on its site, our business, financial condition, operating results and projected growth could be harmed. In February 2012, Vringo entered into an agreement with Facebook®, which clarifies our permitted use of the Facetones® mark and domain name.

 

Regulation concerning consumer privacy may adversely affect our business.

 

Certain technologies that we currently support, or may in the future support, are capable of collecting personally-identifiable information. We anticipate that as mobile telephone software continues to develop, it will be possible to collect or monitor substantially more of this type of information. A growing body of laws designed to protect the privacy of personally-identifiable information, as well as to protect against its misuse, and the judicial interpretations of such laws, may adversely affect the growth of our business. In the United States, these laws could include the Federal Trade Commission Act, the Electronic Communications Privacy Act, the Fair Credit Reporting Act and the Gramm-Leach Bliley Act, as well as various state laws and related regulations. In addition, certain governmental agencies, like the Federal Trade Commission, have the authority to protect against the misuse of consumer information by targeting companies that collect, disseminate or maintain personal information in an unfair or deceptive manner. In particular, such laws could limit our ability to collect information related to users or our services, to store or process that information in what would otherwise be the most efficient manner, or to commercialize new products based on new technologies. The evolving nature of all of these laws and regulations, as well as the evolving nature of various governmental bodies’ enforcement efforts, and the possibility of new laws in this area, may adversely affect our ability to collect and disseminate or share certain information about consumers and may negatively affect Vringo’s ability to make use of that information. If we fail to successfully comply with applicable regulations in this area, its business and prospects could be harmed.

 

Our ability to raise capital through equity or equity-linked transactions may be limited.

 

In order for us to raise capital privately through equity or equity-linked transactions, stockholder approval is required to enable us to issue more than 19.99% of our outstanding shares of common stock pursuant to the rules and regulations of the NYSE MKT (formerly, NYSE Amex). Should stockholders not approve such issuances, our sole means to raise capital would be through debt, which could have a material adverse effect on our balance sheet and overall financial condition.

 

If there are significant shifts in the political, economic and military conditions in Israel and its neighbors, it could have a material adverse effect on our business relationships and profitability.

 

Our research and development facility and finance department are located in Israel and some of our key personnel reside in Israel. Our business is directly affected by the political, economic and military conditions in Israel and its neighbors. Major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could have a material adverse effect on our existing business relationships and on our operating results and financial condition. Furthermore, several countries restrict business with Israeli companies, which may impair our ability to create new business relationships or to be, or become, profitable.

 

47
 

 

We may not be able to enforce covenants not-to-compete under current Israeli law, which may result in added competition.

 

We have non-competition agreements with all of our employees, almost all of which are governed by Israeli law. These agreements generally prohibit our employees from competing with or working for our competitors, during their term of employment and for up to 12 months after termination of their employment. However, Israeli courts may be reluctant to enforce non-compete undertakings of former employees and may not enforce those provisions, or only enforce those provisions for relatively brief periods of time in restricted geographical areas, and only when the employee has unique value specific to that employer’s business and not just regarding the professional development of the employee. If we are not able to enforce non-compete covenants, we may be faced with added competition.

 

Because our current revenues are, and are expected to be, generated in U.S Dollars, British Pounds and Euros, while a portion of our expenses is, and is expected to be, incurred in British Pounds, Euros and in New Israeli Shekels, our results may be significantly affected by currency exchange rate fluctuations.

 

Our revenues are, and are expected to be, generated in U.S Dollars, Euros and in the British Pound, while significant salary related expenses are paid in New Israeli Shekels and expenses related to maintaining, prosecuting and enforcing the patents acquired from Nokia are expected to be paid in British Pounds and in Euros. As a result, we are exposed to the adverse effect of increased dollar-measured cost of our operations, as value of these currencies may materially fluctuate against the U.S Dollar, as it is affected by, among other things, changes in political and economic conditions. Fluctuations in the abovementioned exchange rates, or even the appearance of instability in any such exchange rate, could adversely affect our ability to operate our business.

 

The termination or reduction of tax and other incentives that the Israeli government provides to domestic companies, such as our wholly-owned subsidiary, may increase the costs involved in operating a company in Israel.

 

The Israeli government currently provides tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities. Our wholly-owned Israeli subsidiary currently takes advantage of some of these programs. We cannot provide you with any assurance that such benefits and programs will continue to be available in the future to our Israeli subsidiary. In addition, it is possible that our subsidiary will fail to meet the criteria required for eligibility of future benefits. If such benefits and programs were terminated or further reduced, it could have an adverse effect on our business, operating results and financial condition.

 

48
 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On August 30, 2012, the Company issued 50,000 shares of its common stock to Chardan Capital Markets, LLC, pursuant to a consulting agreement. The issuance of the shares was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

On November 12, 2012, the Company released H. Van Sinclair, a member of the board of directors of the Company, from certain restrictions on sales and other dispositions and public announcement or disclosure which were included in that certain Lock-Up Agreement, dated July 19, 2012, entered into between the Company and each of the directors and executive officers, as previously disclosed on the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 20, 2012 in connection with the establishment of a pre-arranged trading plan that complies with Rule 10b5-1 under the Exchange Act. The Lock-Up Agreement was filed as Exhibit 10.6 to the Current Report. All other provisions of the Lock-Up Agreement have remained unchanged.

 

H. Van Sinclair intends to establish a stock trading plan with respect to shares of common stock owned by him or underlying warrants, restricted stock units or stock options owned by him in accordance with Rule 10b5-1 under the Exchange Act. All of such transactions will be made subject to the volume limitations under Rule 144.

 

This trading plan is in addition to trading plans already established by members of the Board and officers on August 31, 2012, some of which may be amended from time to time. The transactions under these trading plans will be disclosed publicly through Form 144 and Form 4 filings with the Securities and Exchange Commission. The trading plans are designed to align the interests of directors and officers with the Company’s investors by allowing them to monetize a portion of their equity positions in a systematic, nondiscretionary manner with the goal of minimal market impact, and compliance with federal securities laws and regulations adopted by the Securities and Exchange Commission.

 

Item 6. Exhibits.

 

Exhibit
No.
  Description
     
2.1   Agreement and Plan of Merger by and among Vringo, Inc., VIP Merger Sub, Inc. and I/P, Inc., dated as of March 12, 2012 (incorporated by reference from Exhibit 2.1 to our Current Report on Form 8-K filed on March 14, 2012)
3.1   Certificate of Amendment to Amended and Restated Certificate of Incorporation to effect an increase in authorized shares (incorporated by reference from Exhibit 3.1 to our Current Report on Form 8-K filed on July 20, 2012)
3.2   Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (incorporated by reference from Exhibit 3.2 to our Current Report on Form 8-K filed on July 20, 2012)
4.1   Form of Series 1 Warrant (incorporated by reference from Annex F to our Registration Statement on Form S-4 (File No. 333-180609) originally filed with the SEC on April 6, 2012)
4.2   Form of Series 1 Warrant (incorporated by reference from Annex G to our Registration Statement on Form S-4 (File No. 333-180609) originally filed with the SEC on April 6, 2012)
     
10.1#*   Confidential Patent Purchase Agreement, dated August 9, 2012, by and between Vringo, Inc. and Nokia Corporation
10.2†*   Vringo, Inc. 2012 Employee, Director and Consultant Equity Incentive Plan
10.3   Form of Subscription Agreement, dated August 9, 2012, by and between Vringo, Inc. and each of the investors named therein (incorporated by reference from Exhibit 10.1 to our Current Report on Form 8-K filed on August 9, 2012)
     

10.4*

 

  Lease, dated July 10, 2012, by and between Vringo, Inc. and Teachers Insurance and Annuity Association of America, for the benefit of its separate Real Estate Account Landlord
     
31.1*   Certification of Principal Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Principal Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.1***   The following information from Vringo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL: (i) Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2012, three month period ended September 30, 2011 and the period from inception of I/P (June 8, 2011) through September 30, 2011; (ii) Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011; (iii) Unaudited Consolidated Statements of Stockholders’ Equity as of September 30, 2012; (iv) Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and the Period from June 8, 2011 (inception) to September 30, 2011; and (v) Notes to Unaudited Consolidated Financial Statements tagged as blocks of text.
     
 
Indicates management compensatory plan, contract or arrangement.
# Confidential treatment has been requested with respect to certain portions of this exhibit, which portions have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities and Exchange Act of 1934, as amended.
* Filed herewith.
** Furnished herewith.
*** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

49
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 14th day of November, 2012.

 

VRINGO, INC.
   
By:   /S/     Ellen Cohl         
    Ellen Cohl
    Chief Financial Officer
    (Principal Financial Officer)

 

50

 

 

CONFIDENTIAL PATENT PURCHASE AGREEMENT

 

This CONFIDENTIAL PATENT PURCHASE AGREEMENT (this “ Agreement ”) is entered into on August 9, 2012 (the “ Effective Date ”), by and between Nokia Corporation, a company organized under the laws of Finland (“ Nokia ”) and Vringo, Inc., a corporation organized under the laws of the State of Delaware (“ Purchaser ”). Nokia and Purchaser are herein referred to separately as “a party” or collectively as “the parties.”

 

RECITALS

 

WHEREAS, Purchaser wishes to acquire certain patents and patent applications owned by Nokia, and Nokia wishes to sell such patents and patent applications to Purchaser in exchange for payments and consideration described herein.

 

NOW THEREFORE, in consideration of the mutual covenants and conditions stated herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as set forth herein.

 

AGREEMENT

 

1.           Definitions

 

Affiliate ” means (a) with respect to Purchaser, any entity Controlling, Controlled by, or under common Control with Purchaser whether in the past, present or future for so long, and only for so long, as such Control exists; (b) with respect to Nokia, any entity Controlling, Controlled by, or under common Control with Nokia as of the Effective Date and for so long, and only for so long, thereafter as such Control continues to exist; (c) [***], and (d) with respect to any third party, any entity Controlling, Controlled by, or under common Control with such third party for so long, and only for so long, as such Control exists.

 

Agreement ” shall have the meaning set forth in the first paragraph hereto.

 

Applicable Law ” shall have the meaning set forth in Section 13.6(a).

 

Assign ” means to sell, assign, convey, delegate or otherwise transfer any right, title or interest in or to this Agreement, in each case whether directly or indirectly, expressly or impliedly, voluntarily or involuntarily, in one or a series of transactions, by contract, operation of law or otherwise (including without limitation by means of any merger, consolidation, recapitalization, liquidation, dissolution, Change of Control, transfer or sale of all or substantially all of a business, or similar transaction).

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 1
 

 

Assigned Patents ” means (a) all patents and patent applications listed in Exhibit A hereto; (b) all reissues, reexaminations, continuations, continuations-in-part, divisionals, renewals and extensions of such patents and patent applications (whether pending, issued, abandoned or filed prior to, on or after the Effective Date); (c) all patents and patent applications (i) to which any or all of the foregoing directly or indirectly claims priority to, or the benefit of, the filing date, or (ii) for which any or all of the foregoing directly or indirectly forms a basis for priority or otherwise provides the benefit of an earlier filing date; and (d) all foreign counterparts to any or all of the foregoing, and all utility models, certificates of invention, patent registrations and equivalent rights worldwide.

 

Change of Control ” shall mean any one or more of the following, whether directly or indirectly, voluntarily or involuntarily, by agreement, operation of law or otherwise, and whether by means of one transaction or a series of related transactions: (a) the acquisition of a party or any Affiliate Controlling such party by another entity (including, without limitation, by means of any stock acquisition, reorganization, merger, consolidation or similar business combination) other than a transaction or series of transactions in which the holders of the voting securities of such party or any Affiliate Controlling such party (as applicable) outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of securities of such party or any Affiliate Controlling such party (as applicable) held by such holders prior to such transaction, at least fifty percent (50%) of the total voting power represented by the voting securities of such party or any Affiliate Controlling such party (as applicable), or such surviving entity, outstanding immediately after such transaction or series of transactions; (b) the sale, lease, license, assignment, transfer or other conveyance or disposition of all or substantially all the business, properties or assets of such party; or (c) the commencement of any a proceeding under Title 11 of the United States Code (11 U.S.C. § 101 et seq.) or other insolvency, liquidation, reorganization, receivership, moratorium, dissolution or winding up or other similar proceeding of such party or any Affiliate Controlling such party.

 

“Claims” means claims, counterclaims and cross-claims, as well as any and all actions, causes of action, costs, damages, debts, demands, expenses, liabilities, losses, obligations, proceedings, and suits of every kind and nature, liquidated or unliquidated, fixed or contingent, in law, equity or otherwise and whether presently known or unknown.

 

[***].

 

Control ” means (a) direct or indirect ownership of more than fifty percent (50%) of the outstanding shares representing the right to vote for members of the board of directors or other managing officers of an entity, or (b) for an entity that does not have outstanding shares, more than fifty percent (50%) of the direct or indirect ownership interest representing the right to make decisions for such entity.

 

Customer(s) ” means direct and indirect distributors, resellers, dealers and customers (including end-user customers) of Licensed Products of Nokia, its Affiliates or NSN (in each case, solely to the extent acting in such capacity).

 

Effective Date ” shall have the meaning set forth in the first paragraph hereto.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 2
 

  

Encumbrance ” means any lien, charge, claim, pledge, security interest, conditional sale agreement or other title retention agreement, lease, mortgage, security agreement, right, option, restriction, immunity, license, covenant, adverse claim or other encumbrance, including without limitation any (a) patent licenses or sublicenses, covenants not to assert and/or similar patent immunities; (b) rights to renew or extend pre-existing patent licenses exercised solely by third parties (such as legally binding options); and (c) releases for past infringement.

 

Enforcement Activities ” shall have the meaning set forth in Section 8.1.

 

Essential Cellular Patents ” means Assigned Patents which have been declared essential to the GSM/GPRS Standard or UMTS Standard, including Patents, listed in Exhibit B .

 

Existing Encumbrances ” means, in relation to the Assigned Patents, (a) pre-existing patent licenses, covenants not to assert and/or similar patent immunities, including the license to Nokia set forth herein; (b) rights to renew or extend pre-existing patent licenses exercised solely by third parties (such as legally binding options); (c) releases for past infringement; (d) pre-existing commitments or assurances pursuant to Nokia’s or its Affiliates’ standards- or specifications-related activities, and/or (e) [***], in each case of (a), (b), (c), (d) and (e) which transfer in connection with the transfer of the Assigned Patent(s) and/or which Nokia or any of its Affiliates has committed to maintain in connection with the transfer of such Assigned Patent(s), solely in the form they existed prior to the Effective Date.

 

[***].

 

Grantee ” shall have the meaning set forth in Section 6.1.

 

Grantor ” shall have the meaning set forth in Section 6.1.

 

Gross Revenue ” means (i) all cash and other tangible consideration collected and/or received by Purchaser or its Affiliates from third parties (including under patent licenses, covenants not to assert, releases from past infringement, other licenses and patent Sale (excluding any Sale that causes an Impairment Payment)) in consideration for the grant of rights or immunities under one or more of the Assigned Patents or Later Acquired Patents (whether in connection with or otherwise related to an agreement or other settlement that includes one or more Assigned Patents or Later Acquired Patents) and (ii) any withholdings by third parties from any such consideration collected by Purchaser, including contingency fee arrangements with attorneys relating to the Assigned Patents or Later Acquired Patents where such fee was withheld by such attorneys from any settlement amount. Any Gross Revenues collected under this Agreement in a currency other than US Dollars may be converted to US Dollars at the interbank rate as of the date on which such amount is collected and/or received by Purchaser.

 

GSM/GPRS Standard ” means the TDMA based GSM/GPRS specification as defined by ETSI and/or 3GPP prior to and at the time of the Effective Date as well as any updates or releases in respect of such GSM/GPRS Standard by ETSI, 3GPP and/or other relevant telecommunications standard setting bodies, as long as not fundamentally technically altering the character thereof, and includes E-GPRS (EDGE), GPRS/HSCSD/EDGE/EGSM and GSM850.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 3
 

  

Impairment Event ” means any of the following by Purchaser or its Affiliate: (a)(i) the Sale of any Essential Cellular Patent to any third party, or (ii) the Sale to a third party in a single transaction of more than [***] percent ([***]%), or in aggregate [***] percent ([***]%), of the Assigned Patents (other than the Essential Cellular Patents); or (b) [***]. Notwithstanding the foregoing, an Impairment Event shall exclude (x) any Sale of an Assigned Patent (i) to any Affiliate of Purchaser, or (ii) in connection with the transfer or sale of all or substantially all of its business or assets to which this Agreement relates, or in the event of its merger, consolidation, recapitalization, liquidation, dissolution, Change of Control or similar transaction, provided that (A) any such assignee shall assume all obligations of Purchaser under this Agreement applicable to such Assigned Patent that is the subject of such Sale, and (B) if the Purchaser continues to be a separate legal entity after such Sale, Purchaser shall continue to be liable for all its obligations under this Agreement (including without limitation such Assigned Patent), and (y) [***].

 

Impairment Payment ” shall have the meaning set forth in Section 5.3.

 

Impairment Payment Amount ” means, with respect to an Impairment Event, the remainder of [***].

 

Initial Payment ” shall have the meaning set forth in Section 4.2.

 

Later Acquired Patents ” means any Patents which are acquired or controlled by Purchaser at any time after the Effective Date other than the Assigned Patents and which are received as consideration for rights acquired by a third party under the Assigned Patents or earlier Later Acquired Patents such as a patent license, covenant not to assert, release from past infringement, technology license and/or patent Sale (excluding any Sale that causes an Impairment Payment).

 

License ” shall have the meaning set forth in Section 6.1.

 

Licensed Products ” means all software, products and services of Nokia, its Affiliate or NSN, in each case that are designed, made, used, sold, offered for sale, imported and otherwise provided and disposed of by or for Nokia, its Affiliate or NSN (as applicable) as its own software, products and services.

 

Nokia ” shall have the meaning set forth in the first paragraph hereto.

 

NSN means Nokia Siemens Networks B.V., a private limited liability company incorporated under the laws of the Netherlands, including any and all Affiliates of such entity.

 

Patent means any and all (a) patents and patent applications; (b) reissues, reexaminations, continuations, continuations-in-part, divisionals, renewals and extensions of such patents and patent applications (whether pending, issued, abandoned or filed prior to, on or after the Effective Date); and (c) foreign counterparts to any or all of the foregoing, and all utility models, certificates of invention, patent registrations and equivalent rights worldwide.

 

Payment in Full Date ” shall have the meaning set forth in Section 3.1.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 4
 

   

“Pre-Assignment Agreements” means any and all agreements relating to any Encumbrance on the Assigned Patents entered into by Purchaser or its Affiliates between the Effective Date and the date of assignment of the Assigned Patents to Nokia or its designee pursuant to Section 8.

 

Purchaser ” shall have the meaning set forth in the first paragraph hereto.

 

[***].

 

[***].

 

[***].

 

Reporting Quarter ” means a three-month accounting period ending on each of March 31, June 30, September 30, and December 31; provided , however , that the initial Reporting Quarter shall begin on the Effective Date and end on December 31, 2012.

 

Reporting Year ” means each period of four (4) consecutive Reporting Quarters beginning upon the Effective Date and ending upon the last day of the fourth Reporting Quarter thereafter.

 

Royalty ” shall have the meaning set forth in Section 4.3.

 

Sale ” shall mean the sale, transfer, assignment or exclusive license (with the right to enforce and grant sublicenses) of an Assigned Patent, and “ Sell ” shall mean to consummate a Sale.

 

Standards Organization ” means any standards organization, standards body, standards developing organization (SDO), standards setting organization (SSO), or any other organization, entity, association, body or other group of any type whatsoever that may impose upon an affiliated or associated member or participant an obligation or commitment to any Encumbrance on an Assigned Patent.

 

Supply ” shall have the meaning set forth in Section 6.1.

 

[***].

 

UMTS Standard ” means The Universal Mobile Telecommunications System Standard as promulgated by 3GPP and/or ETSI, as well as the TD-SCDMA, FOMA, HSPA, HSPA+, HSUPA and HSDPA Standards being derivative standards thereof.

 

[***] shall mean[***].

 

2.           Assignment of Patents; Compliance with Existing Encumbrances

 

2.1          Patent Assignment . Nokia hereby sells and assigns to Purchaser, and Purchaser hereby acquires and accepts from Nokia, all right, title and interest in, to and under the Assigned Patents, including any and all inventions and discoveries claimed therein, any and all rights entitled by the original owner of the Assigned Patents and all rights to sue for past, present and future infringement, to collect royalties under such Assigned Patents, to prosecute all existing Assigned Patents worldwide, to apply for additional Assigned Patents worldwide and to have Assigned Patents issue in the name of Purchaser or its designated Affiliate. For the avoidance of doubt, no patent license or other agreements related to the Assigned Patents are being assigned to Purchaser under this Agreement.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 5
 

 

 

2.2          Assignment of Causes of Action . Nokia hereby sells and assigns to Purchaser, and Purchaser hereby acquires and accepts from Nokia, all right, title and interest in, to and under all causes of action and enforcement rights of any type or nature whatsoever, whether known, unknown, currently pending, filed, or otherwise, for the Assigned Patents, including all rights to pursue damages, injunctive relief and other remedies for past, current and future infringement of the Assigned Patents.

 

2.3          Existing Encumbrances . The Assigned Patents are assigned and transferred subject to the Existing Encumbrances, and Purchaser hereby commits to respect such Existing Encumbrances, including without limitation Purchaser shall ensure that any subsequent sale, assignment, lien, mortgage or other transfer of the Assigned Patents by Purchaser or its future assignees, transferees or successors of any Assigned Patents shall be made subject to Existing Encumbrances. For the avoidance of doubt, any pre-existing patent license agreements related to the Assigned Patents, including, without limitation, any related royalty payments, shall not be assigned or transferred to Purchaser.

 

3.           Delivery

 

3.1          Executed Assignment . Upon the date (the “ Payment in Full Date ”) on which Nokia receives payment in full of the Initial Payment, Nokia shall execute an assignment (“ Assignment ”) attached hereto as Exhibit C suitable for recordation with the United States Patent and Trademark Office and other patent offices worldwide.

 

3.2          Delivery . Within forty-five (45) days following the Payment in Full Date, Nokia shall send, or instruct its counsel and attorneys to send to Purchaser, the executed original or certified copy of the Assignment along with all material files and documents in the possession of or available to Nokia regarding patent prosecution of the Assigned Patents including (a) prosecution history files for all issued, pending or abandoned Assigned Patents, (b) a current electronic copy of a docketing report for the Assigned Patents accurately setting forth to the best of Nokia’s knowledge any and all dates relevant to the prosecution or maintenance of the Assigned Patents, including information relating to deadlines through and including a period of not less than the following three (3) months, payments and filings for the Assigned Patents, and the names, business addresses, email addresses, and phone numbers of all prosecution counsel and agents and (c) any other material files and documents not otherwise provided under Section 3.2 (a) through (b) in the possession of Nokia’s outside attorneys who have been involved in the prosecution of any of the Assigned Patents.

 

3.3          Cooperation After Payment in Full Date . Nokia further covenants and agrees that after the Payment in Full Date, it shall, upon request and without further consideration, promptly execute and deliver to Purchaser any and all other documents and materials, and take any and all reasonable further actions, that are reasonably necessary for Purchaser to perfect its title in the Assigned Patents.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 6
 

 

 

4.           Consideration and Payment Terms

 

4.1          Consideration . Consideration for the Assigned Patents shall be comprised of the Initial Payment and Royalty as set forth herein.

 

4.2          Initial Payment . Purchaser hereby agrees to pay to Nokia the amount of Twenty-Two Million US Dollars (USD22,000,000) (“ Initial Payment ”) as partial consideration for the Assigned Patents. Purchaser shall pay the Initial Payment to Nokia on or before September 14, 2012.

 

4.3          Royalty .

 

(a)           If and to the extent Gross Revenue exceed Twenty-Two Million US Dollars (USD22,000,000), Purchaser hereby agrees to pay to Nokia 35 % (thirty five per cent) of such excess Gross Revenue (the “ Royalty ”).

 

(b)           To the extent Gross Revenue comprises cash or cash equivalents, Purchaser shall pay the applicable Royalty in the form of such cash or cash equivalents. To the extent Gross Revenue comprises tangible consideration other than cash or cash equivalents, Purchaser shall pay the applicable Royalty (i) in the form of the applicable share of such tangible consideration representing the Royalty thereon (to the extent divisible and transferable), and (ii) in the form of the applicable interest in such tangible consideration representing the Royalty thereon (to the extent not divisible or transferable).

 

(c)           In the event of a Change of Control of Purchaser, Purchaser (or its successor-in-interest, as applicable) shall continue to be bound by the obligation to pay the Royalty and comply with any and all other obligations of Purchaser under this Agreement.

 

4.4          Royalty Payments . The Royalty is payable within forty five (45) days after the end of each Reporting Quarter ending on March 31, June 30 or September 30, and within seventy five (75) days after the end of each Reporting Quarter ending on December 31. The parties agree that the share of Gross Revenue payable to Nokia will be calculated and paid in US Dollars.

 

4.5          Payments . All payments from Purchaser to Nokia hereunder shall be made in United States Dollars by means of wire transfer to the account specified in Exhibit D .

 

4.6          Assignability of Royalty . Nokia shall have the right to transfer and assign, either in whole or in part, its right to receive the Royalty, subject to the following: If Nokia desires to transfer and assign, whether directly or indirectly in whole or in part, its right to receive the Royalty to a third party, Nokia shall not so assign and transfer such right unless and until Nokia first offers to enter into an agreement to assign and transfer to Purchaser such right on such terms and conditions as such third party in good faith is prepared to enter into such agreement with Nokia. Purchaser shall have seven (7) days to accept or reject the offer to enter into such an agreement with Nokia on such terms and conditions. Nokia shall not enter into such an agreement with any third party unless and until Purchaser rejects such offer or such seven (7) day period expires without being accepted by Purchaser, whichever comes first, and Nokia may only enter into such an agreement with such third party if the terms and conditions offered to such third party are the same as (or more favorable to Nokia than) those offered to Purchaser. Nokia shall give Purchaser prompt notice of any such sale or assignment to a third party. The foregoing right of first refusal shall not apply to any transfer and sale to an Affiliate of Nokia provided that such Affiliate shall continue to be bound by such right of first refusal if it desires to further transfer and assign such right. Any transfer or assignment, either in whole or in part, by Nokia of its right to receive the Royalty shall not relieve Nokia for any of its obligations hereunder.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 7
 

 

 

5.           General Obligations of Purchaser

 

5.1          Conduct of the Business . Purchaser shall exercise reasonable commercial efforts to monetize the Assigned Patents consistent with prudent business practices; provided, however, in light of the volume, breadth and extent of the Assigned Patents, Purchaser shall have the sole right in its discretion to determine the strategy, manner, timing, nature and extent of any and all actions (and inactions) to monetize the Assigned Patents. Purchaser shall employ, contract or otherwise retain the services of appropriate legal, technical, financial and administrative personnel, advisors and agents to conduct and operate its business. In addition to and without limiting the generality of the foregoing, no later than one business day following Purchaser’s or its Affiliate’s commencement of any patent infringement or other litigation to enforce the Assigned Patents that is filed in any court of law, which, for greater certainty, shall be in Purchaser’s sole discretion, Purchaser shall provide Nokia with notice of such action and, if the action is brought in the United States and to the extent that Purchaser’s counsel indicates disclosure is permitted under applicable rules or regulations, Purchaser shall provide Nokia a copy of the related complaint and initial filings. Nokia recognizes that such notice may be considered “material non-public information” for purposes of United States federal securities laws, and Nokia shall abide by all securities laws relating to the handling of, and acting upon, such information until (A) Purchaser or its Affiliate discloses such information publicly, (B) a third party discloses such information publicly, or (C) such information becomes otherwise publicly available through no fault of Nokia.

 

5.2          Bundling .

 

(a)         Neither Purchaser nor its Affiliates shall grant any Encumbrance on the Assigned Patents to any third party that has been granted an Encumbrance under other Patents by Purchaser or its Affiliate [***] ([***]) [***], nor shall Purchaser or its Affiliate grant an Encumbrance to any Patents to a third party that has been granted an Encumbrance by Purchaser or its Affiliate to the Assigned Patents within the previous [***] ([***]) [***]; and

 

(b)         No Encumbrance of any Assigned Patent shall be included, bundled, or otherwise combined with an Encumbrance of any other Patents under which Purchaser or its Affiliates has the right to grant an Encumbrance.

 

5.3          Impairment Events . Concurrent with the occurrence of an Impairment Event, Purchaser shall pay to Nokia the applicable Impairment Payment Amount (the “ Impairment Payment ”).

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 8
 

 

5.4          Non-Circumvention . Purchaser acknowledges and agrees that the Royalty is intended to capture Nokia’s share of the economic benefit of monetizing the Assigned Patents and agrees not to circumvent the Royalty, directly or indirectly, with the purpose or effect of impairing the economic value thereof to Nokia. Any Sale by Purchaser or its future assignees or transferees of any of the Assigned Patents shall be made subject to (a) the Existing Encumbrances and (b) the licenses granted herein, and Purchaser shall take appropriate measures to comply with this Section 5.4. Any Sale which fails to so provide shall be null and void.

 

6.           License

 

6.1          License to Nokia . Subject to the terms and conditions of this Agreement, Purchaser on behalf of itself and its Affiliates (collectively “ Grantor ”) grants to Nokia, its Affiliates, and NSN (each as a “ Grantee ”), effective as of the Effective Date, a worldwide, irrevocable, non-exclusive, perpetual, and fully paid-up license, without the right to grant sublicenses, under any and all Assigned Patents solely for Grantee’s own business purposes to (a) make, have made (including the right to have Customers make copies of Grantee’s software and distribute or use such copies), use, lease, import, offer for sale, sell, supply, distribute, host, render, otherwise transfer and promote the commercialization of (collectively “ Supply ”), Grantee’s Licensed Products, (b) use any software, product or service, and practice any process or method while carrying-out the Supply of Grantee’s Licensed Products, and (c) perform any activities that, in absence of this Agreement, would constitute inducement or contributory infringement in furtherance of the Supply of Grantee’s Licensed Products (the “ License ”).

 

6.2          Past Release . Purchaser, on behalf of itself and its Affiliates, irrevocably releases, acquits and forever discharges Nokia, its Affiliates, and NSN and all their respective Customers, and each of their respective officers, directors, employees, agents, successors, assigns, representatives, and attorneys from and against any and all Claims which Purchaser or its Affiliates may have or obtain based on acts prior to the Effective Date, which, had they been performed on or after the Effective Date, would have been licensed or otherwise immunized under this Agreement, including any infringement, misappropriation or other violation, or alleged infringement, misappropriation or other violation, of any Assigned Patents (whether direct, contributory or by inducement, and whether or not willful) based on Licensed Products (or the manufacture, use, sale, offer for sale, import, export or other exploitation thereof).

 

6.3          Combinations . Without limiting the rights granted hereunder, the licenses granted in Section 6.1 extend to the Supply by or on behalf of each Grantee, and their respective Customers, of a combination of a Licensed Product with any third-party software, products and services.

 

6.4          Reservation of Rights . All rights not expressly granted in this Agreement are reserved. No additional rights whatsoever (including, without limitation, any implied licenses) are granted by implication, exhaustion, estoppel or otherwise.

 

6.5          Changes of Status . Notwithstanding anything to the contrary in this Agreement, if an entity ceases to be an Affiliate of Nokia or Nokia Siemens Networks B.V., such entity automatically thereafter shall cease to be a Grantee. In the event of a Change of Control of Nokia or NSN, then Licensed Products of Nokia and its Affiliates, or NSN (as applicable), automatically thereafter shall be limited solely (a) to those Licensed Products of Nokia and its Affiliates, or NSN (as applicable), in commercial production or sale immediately prior to giving effect to such Change of Control, and (b) to products of Nokia and its Affiliates, or NSN (as applicable), that are designated in good faith as follow-on versions or models of the Licensed Products described in clause (a) and in the same product lines of Nokia and its Affiliates, or NSN (as applicable), provided that such follow-on versions or models do not alter or add in any material respect any new or different form, function or feature. In no event shall a Licensed Product directly or indirectly include any product that is not specifically described in clause (a) or (b) above.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 9
 

 

 

6.6          New Affiliates License . If an Affiliate is acquired by Nokia or an Affiliate thereof after the Effective Date, the Affiliate shall be deemed a Grantee under Section 6.1 and the licenses and covenants granted under this Agreement shall extend to such Affiliate as from the date of acquisition.

 

6.7         [***].

 

7.           Audit; Reporting Rights

 

7.1          Quarterly Reports . Within forty five (45) days after the end of each Reporting Quarter ending on March 31, June 30 or September 30, and within seventy five (75) days after the end of each Reporting Quarter ending on December 31, Purchaser shall provide a written report to Nokia containing the following information:

 

(a)         Gross Revenue with respect to such preceding Reporting Quarter;

 

(b)         the amount due and payable to Nokia, if any, under the Royalty with respect to such preceding Reporting Quarter; and

 

(c)         calculations supporting Purchaser’s determinations under Sections 7.1(a) and 7.1(b).

 

7.2          Annual Report . On at least an annual basis, Purchaser shall provide Nokia a written report summarizing key business developments and operations during the preceding year, as well as an overview of Purchaser’s licensing activities and market environment (including the number, but excluding the names, of its third party contacts during the reporting period). The annual report shall be provided in addition to the quarterly reports described above.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 10
 

 

 

7.3          Records . Purchaser shall maintain complete and accurate books, records and accounts in sufficient detail to confirm the accuracy of the Royalty due hereunder. Such books, records and accounts shall be retained by Purchaser until the later of (a) three (3) years after the end of the period to which such books, records and accounts pertain, and (b) the expiration of the applicable tax statute of limitations (or any extensions thereof), or for such longer period as may be required by applicable law.

 

7.4          Information Rights; Audit . Purchaser shall permit Nokia to audit Purchaser’s books of account and records in accordance with the procedures set forth below; provided , however , that Purchaser shall not be obliged pursuant to this Section 7.4 to provide access to any information the disclosure of which would adversely affect the attorney-client privilege between Purchaser and its counsel. Nokia shall have the right to have an independent certified public accounting firm of nationally recognized standing, selected by Nokia, inspect Purchaser’s books of account and records and have access to Purchaser’s officers during normal business hours, and upon reasonable prior notice, to such of the records of Purchaser (and its Affiliates) as may be reasonably necessary to verify the accuracy of any calculations that formed the basis for a payment to Nokia hereunder during the thirty six (36) months prior to the date of such request (other than records for any period for which Nokia already has conducted an audit); provided , however , that Nokia shall not have the right to conduct more than one such audit in any twelve (12) month period. Nokia shall bear the cost of such audit unless the audit reveals a variance of more than the greater of (a) [***] percent ([***]%) or (b) [***] ([***]) from the reported Gross Revenue, in which case Purchaser shall bear the out of pocket cost of such audit charged by such accounting firm for such audit. The parties agree that errors in form, including, e.g., allocating payments to an incorrect reporting period, and other acts which do not affect aggregate amounts paid under this Agreement will not be included in the calculation of the variance revealed by an audit, provided, however, that only payments made before Nokia’s notice requesting commencement of an audit shall be included in aggregate amounts paid and taken into account in the audit. If, based on the results of such audit, additional payments are owed by Purchaser under this Agreement, Purchaser shall make such additional payments within thirty (30) days after the date on which such audit report is delivered to Purchaser. Nokia shall cause its accounting firm to retain all financial information subject to review under this Section 7.4 in strict confidence, and Purchaser shall have the right to require that such accounting firm, prior to conducting such audit, to enter into an appropriate non-disclosure agreement with Purchaser regarding such financial information. The accounting firm shall disclose to Nokia only whether the reports are correct or not and the amount of any discrepancy. No other information shall be shared, unless Purchaser agrees to comply with its additional payment obligations, if any, pursuant to an audit report.

 

For the avoidance of doubt, the audit and information rights set forth in this Section 7 do not confer on Nokia any rights to direct, control or influence Purchaser’s strategy or conduct.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

  

Confidential – Page 11
 

 

8.           Assignment Obligation of Purchaser

 

8.1          Covenant . If, at any time prior to the seventh (7th) anniversary of the Effective Date, Purchaser or any of its Affiliates files a lawsuit, including an action before the United States International Trade Commission, or otherwise commences legal proceedings in a court of law against Nokia and/or its Affiliate(s) accusing Nokia and/or its Affiliate(s) of the infringement of any Patent owned or controlled by Purchaser or its Affiliates by the Supply by Nokia or its Affiliates (as the case may be) of the Licensed Products of Nokia or its Affiliates (as applicable) (“ Enforcement Activities ”), Nokia shall have the right to require Purchaser to assign the Assigned Patents to Nokia or its designee, which right only may be exercised thirty (30) days after providing notice to Purchaser of Nokia’s intent if Purchaser or its Affiliate has not withdrawn its lawsuit or other action by the end of such thirty (30) day period. If Nokia timely exercises such right by giving Purchaser written instructions requiring such assignment in accordance with this Section 8.1 , then Purchaser shall assign the Assigned Patents to Nokia or its designee (in accordance with the instructions of Nokia) by executing and delivering to Nokia an assignment in substantially the form of Exhibit C within ten (10) business days following Purchaser’s receipt of such written instructions requiring such assignment from Nokia, in exchange for [***] US Dollars (USD [***]), without representation or warranty (express or implied) of any kind, other than representations and warranties substantially similar to those provided by Nokia in Section 12.1. Any such assignment of the Assigned Patents to Nokia or its designee in accordance with this Section 8 shall be subject to the Pre-Assignment Agreements. Upon any such assignment of the Assigned Patents to Nokia or its designee in accordance with this Section 8, neither the Pre-Assignment Agreements nor any consideration received by or owing to Purchaser or its Affiliates thereunder shall be assigned. For clarity, Purchaser shall continue to administer all such Pre-Assignment Agreements for the duration of their terms (including any renewal or extension thereof exercised solely by a third party pursuant to existing contractual provisions of a Pre-Assignment Agreement), and the rights of Purchaser and its Affiliates to continue to receive consideration thereunder, as well as Purchaser’s obligation to pay the Royalty associated with the Pre-Assignment Agreements, shall survive any such assignment.

 

8.2          Termination of Obligations . The provisions of Section 8 shall not apply in the event of any lawsuit, including an action before the United States International Trade Commission, or other legal proceedings in a court of law, by Purchaser or its Affiliate in response to any claim, demand, action or other proceeding against Purchaser or its Affiliate directly or indirectly challenging the title, validity, enforceability or claim construction of any Assigned Patent or seeking a judgment or other determination of non-infringement of any Assigned Patent. If an entity ceases to be an Affiliate of Nokia, the provisions of Section 8 automatically thereafter shall cease to apply to such entity. In the event of a Change of Control of Nokia, the provisions of Section 8 automatically thereafter shall cease to apply in their entirety.

 

9.           Compliance with Existing Encumbrances

 

[***].

 

10.         Delivery; Prosecution; Cooperation

 

10.1        Continued Prosecution . Nokia or its Affiliates shall pay, or cause to be paid, any maintenance fees, annuities and the like relating to the Assigned Patents for which the fee is due within sixty (60) days of the Effective Date.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 12
 

 

10.2        Cooperation After Effective Date . Nokia further covenants and agrees that after the Effective Date, it shall, upon request and without further consideration, without unnecessary delay execute and deliver to Purchaser any and all other documents and materials, and take any and all reasonable further actions (including taking reasonable action to obtain the cooperation of the named inventors), that are reasonably necessary for Purchaser to perfect its right, title and interest in the Assigned Patents. In addition, Nokia shall take, or cause to be taken, any and all reasonable actions to provide reasonable access to employee inventors of Nokia, still employed by Nokia at the time of such request, and relevant documents (including information about whether a particular third party does not have a license under the Assigned Patents) to assist Purchaser in the prosecution, maintenance or defense of the Assigned Patents.

 

10.3        Costs . Unless expressly specified herein or in the Related Agreements, each party shall bear its own costs in connection with and arising out of obligations set forth herein.

 

11.         Taxes

 

This Section 11 governs the treatment of all taxes arising as a result of or in connection with this Agreement, notwithstanding any other provision of this Agreement.

 

11.1        Responsibility for Own Taxes . Each party is responsible for all taxes (including, but not limited to, net income, gross receipts, franchise, or property taxes and taxes arising from transactions between such party and its customers) imposed on such party under applicable laws and arising as a result of or in connection with this Agreement or the transactions contemplated by this Agreement.

 

11.2        Payments by Purchaser .

 

(a)         If any taxes are required by applicable law to be withheld on payments made by Purchaser to Nokia, Purchaser may deduct such taxes from the amount owed to Nokia and pay such taxes to the appropriate taxing authority, provided that Purchaser will furnish receipts evidencing such paid taxes to Nokia in the form issued by the relevant jurisdiction. Notwithstanding the preceding sentence to the contrary, Purchaser will not withhold taxes (or will withhold taxes at a reduced rate) on payments to Nokia to the extent that Nokia timely provides Purchaser with reasonably sufficient evidence that an exemption is applicable.

 

(b)         The parties will use commercially reasonable efforts to mitigate, reduce, or eliminate any taxes collected from or withheld by either party pursuant to this Section 11.2.

 

12.         Representations and Warranties

 

12.1       Nokia hereby represents and warrants to Purchaser that:

 

(a)          Authority; Enforceability . Nokia has been duly organized, and is validly existing and in good standing under the laws of the jurisdiction of its incorporation. Nokia has the right and authority to enter into this Agreement and to carry out its obligations hereunder and requires no third party consent, approval, and/or other authorization to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Nokia and constitutes a valid and binding agreement of such party, enforceable against such party in accordance with its terms.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 13
 

 

 

(b)         [***] . After giving effect to the sale and assignment as set forth in Section 2, Purchaser shall be the sole and exclusive owner and assignee of, and shall have good and marketable title to, all right, title and interest in the Assigned Patents, including all rights to sue for past, present and future infringement thereof, [***] . A ll Assigned Patents have been duly filed or registered (as applicable) with the applicable Governmental Authorities, prosecuted and maintained, including the submission of all necessary filings and fees in accordance with all requirements of applicable laws, regulations and administrative requirements of the appropriate jurisdictions. [***].

 

(c)          Unlicensed Companies . Nokia is the assignee of the Assigned Patents. [***].

 

(d)         [***].

 

12.2          Purchaser . Purchaser hereby represents and warrants to Nokia that:

 

(a)         Purchaser has been duly organized, and is validly existing and in good standing under the laws of the jurisdiction of its incorporation.

 

(b)         Purchaser has the right and authority to enter into this Agreement and to carry out its obligations hereunder and requires no third party consent, approval, and/or other authorization to enter into this Agreement and to carry out its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Purchaser and constitutes a valid and binding agreement of such party, enforceable against such party in accordance with its terms.

 

(c)         Purchaser’s existing agreements and other undertakings shall not result in the imposition of any encumbrances on the Assigned Patents, and Purchaser covenants and agrees not to enter into any agreements or permit any arrangements that would result in Purchaser’s existing agreements and other undertakings so imposing any encumbrances on the Assigned Patents.

 

13.         Miscellaneous

 

13.1        Applicable Law, Jurisdiction, Venue and Waiver of Jury Trial . The validity, construction, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of New York, U.S.A., exclusive of its choice of law rules. Any legal suit, action or proceeding arising out of or related to or arising out of this Agreement or any transaction contemplated hereby shall be commenced solely in the United States District Court for the Southern District of New York, U.S.A., and each party (a) irrevocably submits to the personal and exclusive jurisdiction and venue of such court in any such suit, action or proceeding, and (b) waives any right to trial by jury with respect to any action related to or arising out of this Agreement or any transaction contemplated hereby.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 14
 

 

13.2        LIMITATION ON CONSEQUENTIAL DAMAGES . EXCEPT IN THE CASE OF INTENTIONAL MISUSE OR GROSS NEGLIGENCE, NO PARTY SHALL BE LIABLE TO ANY OTHER FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES ACKNOWLEDGE THAT THESE LIMITATIONS ON POTENTIAL DAMAGES WERE AN ESSENTIAL ELEMENT IN SETTING CONSIDERATION UNDER THIS AGREEMENT.

 

13.3       [***].

 

13.4        DISCLAIMER OF REPRESENTATIONS AND WARRANTIES . NO PARTY MAKES ANY REPRESENTATION OR WARRANTY EXCEPT FOR THEIR RESPECTIVE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS 8 AND 12, AND EACH PARTY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 8 AND 12 HEREOF, NEITHER PARTY GIVES THE OTHER PARTY ANY ASSURANCE (A) REGARDING THE PATENTABILITY OF ANY CLAIMED INVENTION IN, OR THE VALIDITY, OF ANY PATENT OR (B) THAT MANUFACTURE, USE, SALE, OFFERING FOR SALE, IMPORTATION, EXPORTATION OR OTHER DISTRIBUTION OF ANY PRODUCT OR METHOD DISCLOSED AND CLAIMED IN ANY PATENT SHALL NOT CONSTITUTE AN INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHER PERSONS. EXCEPT AS SPECIFICALLY PROVIDED IN SECTIONS 8 AND 12 HEREOF, THE ASSIGNED PATENTS ARE ASSIGNED “AS IS” WITHOUT ANY FURTHER REPRESENTATION OR WARRANTY.

 

13.5        Compliance with Laws . Notwithstanding anything contained in this Agreement to the contrary, the obligations of the parties shall be subject to all laws, present and future, of any government having jurisdiction over the parties and this transaction, and to orders, regulations, directions or requests of any such government.

 

13.6        Confidentiality of Terms; Announcements .

 

(a)         Other than the existence of this Agreement and the identity of its parties all other provisions of this Agreement shall be kept in strict confidence by the parties.

 

(b)         Neither party shall issue any press release or otherwise make any public statement, announcement or advertisement (each, an “ Announcement ”) related to this Agreement without the prior consent of the other party. Notwithstanding the parties agree to prepare a public statement regarding the assignment of the Assigned Patents to be published by Purchaser and Nokia agrees to cooperate in preparing and reviewing such public statement and Nokia shall not unreasonably withhold, delay or condition its consent for the public statement. To the extent commercially practicable, a party shall submit each Announcement to the other party, and the receiving party shall have five (5) days to review and approve any such Announcement or to propose reasonable modifications thereto. Prior to issuing or otherwise making such Announcement, the submitting party shall implement any reasonable modifications to such Announcement that are provided in writing by the receiving party within the applicable five (5) days period. If the receiving party does not respond or proposes no reasonable modifications within the applicable five (5) days period, the submitting party shall have the right to issue or otherwise make such Announcement in the form so submitted.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 15
 

 

 

(c)         The confidentiality obligations of the parties set forth in this Section 13.6 shall not apply to any disclosure (i) with the prior consent of the other party; (ii) to any governmental body having jurisdiction to require disclosure or to any arbitral body, to the extent required by same; (iii) as otherwise may be required by applicable law, regulation, rule of a stock exchange or automated quotation system, order of a governmental agency or a court of competent jurisdiction or legal process, including tax authorities (“ Applicable Law ”), and to legal and financial advisors in their capacity of advising a party in such matters; (iv) during the course of litigation, so long as the disclosure of such terms and conditions are restricted in the same manner as is the confidential information of other litigating parties; (v) to legal and financial advisors in their capacity of advising a party in such matters as needed in the normal course of business; (vi) to a bona fide potential acquiror; or (vii) to bona fide potential assignee of Royalty; provided that, in (ii) through (vii) above, (A) the parties shall use reasonable means available to minimize the disclosure to third parties, including seeking a confidential treatment request or protective order whenever appropriate or available; and (B) except for permitted disclosures to legal and financial advisors and accountants or potential acquirers and assignees, the parties provide the other party, when reasonable, with at least ten (10) days’ prior notice of such disclosure to afford the other party reasonable opportunity to object thereto or to seek confidential treatment or a protective order. Nokia acknowledges that, without limiting the foregoing, Purchaser will be required under applicable United States federal and state securities laws and regulations to make certain disclosures regarding this Agreement, and to file a copy of this Agreement with the United States Securities and Exchange Commission.

 

13.7          Entire Agreement; Headings . This Agreement reflects the complete understanding of the parties regarding the subject of the Agreement, and supersedes all prior related negotiations. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

13.8          Notices . Any notice, consent, waiver or other communication required or permitted to be given by one party to the other party pursuant to this Agreement shall be in writing, shall conspicuously reference (including in the subject line) this Agreement and the provision to which it relates, shall be delivered by any lawful means to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor, and shall be effective upon actual receipt by the addressee:

 

If to Nokia:   If to Purchaser:
     

Nokia Corporation

Keilalahdentie 4

02150 Espoo, Finland

Attn: VP, Intellectual Property

Facsimile: +358.718.038842 

 

Vringo, Inc.

780 Third Avenue, 15 th Floor

New York, New York 10017, U.S.A.

Attn: Chief Operating Officer

Fascimile: (646) 532-6775 

 

13.9          Relationship of Parties . The parties hereto are independent contractors. Neither party has any express or implied right or authority to assume or create any obligations on behalf of the other or to bind the other to any contract, agreement or undertaking with any third party. Nothing in this Agreement shall be construed to create a partnership, joint venture, employment or agency relationship between Purchaser and Nokia.

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 16
 

 

 

13.10       Severability . To the extent any terms or conditions of this Agreement are held invalid or unenforceable in a jurisdiction, those terms or conditions shall be enforced to the maximum extent possible in that jurisdiction and the remaining terms and conditions shall retain full force and effect in that jurisdiction, so long as the remaining Agreement continues to express the intent of the parties.

 

13.11       Waiver . Failure by either party to enforce any term of this Agreement shall not be deemed a waiver of future enforcement of that or any other term in this Agreement.

 

13.12       Assignment; Successors; Assigns .

 

(a)         This Agreement is personal to the parties, and except as provided in Section 4.6 or 13.12(b), neither this Agreement nor any right or obligation hereunder is Assignable by either party (whether directly or indirectly, expressly or impliedly, voluntarily or involuntarily, in one or a series of transactions, by contract, operation of law or otherwise (including without limitation by means of any merger, consolidation, recapitalization, liquidation, dissolution, Change of Control, transfer or sale of all or substantially all of a business, or similar transaction)), and shall not be Assigned by a party, without the prior express consent of the other party, which consent may be withheld at the sole discretion of said other Party.

 

(b)         Notwithstanding anything to the contrary in this Agreement, Purchaser shall have the right to Assign this Agreement or any of its rights or obligations hereunder (i) to an Affiliate of Purchaser, or (ii) in connection with the transfer or sale of all or substantially all of its business or assets to which this Agreement relates, or in the event of its merger, consolidation, recapitalization, liquidation, dissolution, Change of Control or similar transaction, without the prior express consent of Nokia. Any such assignee shall assume all applicable obligations of Purchaser under this Agreement.

 

(c)         Any purported Assignment in violation of this Section 13.12 shall be null and void. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the parties and their permitted successors and assigns.

 

13.13       Modifications . This Agreement may not be modified after the Effective Date except by a written amendment that expressly references this Agreement and that is signed by an authorized officer of each party.

 

13.14       Construction . As used in this Agreement, (a) the words “include” and “including” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation,” and (b) unless the context otherwise requires, the word “or” shall be deemed to be an inclusive “or” and shall have the meaning equivalent to “and/or.”

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 17
 

 

13.15       Signatures . This Agreement may be executed in counterparts, each of which shall be deemed an original, but each together shall constitute one and the same instrument. For purposes hereof, an email or facsimile copy of this Agreement, including the executed signature pages hereto, shall be deemed to be an original. Notwithstanding the foregoing, the parties shall deliver original signature copies of this Agreement to the other party as soon as practicable following execution thereof.

 

13.16       Specific Performance . The parties agree that they would be irreparably damaged if any provision of this Agreement was not performed in accordance with its specific terms or was otherwise breached and that any non-performance or breach of this Agreement by any party could not be adequately compensated by monetary damages alone and that the parties would not have any adequate remedy at law. Accordingly, the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the performance of the terms of this Agreement to prevent breaches or threatened breaches of any of the provisions of this Agreement without posting any bond or other undertaking, in addition to any other remedy at law or in equity.

 

13.17       Mutual Drafting . Each of the parties has participated in the drafting of this Agreement, which each of the parties acknowledges is the result of extensive negotiations among the parties.

 

13.18       Third Party Beneficiary . Notwithstanding the license and/or provisions granting rights to potential acquirer and/or assignee of Royalty nothing in this Agreement, express or implied, is intended to, or shall confer upon, any third party, any legal or equitable right, benefit or remedy of any nature whatsoever.

 

*                *                *

 

[ Signature Page Follows ]

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 18
 

   

In witness whereof , the parties have executed this Confidential Patent Purchase Agreement as of the Effective Date:

 

NOKIA CORPORATION   VRINGO, INC.
     
/s/ Paul Melin   /s/ Andrew Perlman
Signature   Signature
     
Paul Melin   /s/ Andrew Perlman
Printed Name   Printed Name
     
Vice President    
Intellectual Property   CEO
Title   Title
     
Espoo, August 9, 2012   August 8, 2012
Date   Date
     
/s/ Jukka Nihtilä    
Signature    
     
Jukka Nihtilä    
Printed Name    
     
Head, Business Development    
Legal & IP    
Title    
     
Espoo, August 9, 2012    
Date    

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 19
 

 

 

Exhibit A

 

ASSIGNED PATENTS

 

Patent/
Publication
  Title   Status   Family   County   Filing Date   Filing No.
DE69330097.3   MENETELMÄ SMS-SANOMIEN LÄHETTÄMISEKSI ALERTIA VIIVÄSTÄMÄLLÄ   Grant   2089   DE   17.09.1993   93919376.9
EP660992   MENETELMÄ SMS-SANOMIEN LÄHETTÄMISEKSI ALERTIA VIIVÄSTÄMÄLLÄ   Grant   2089   EP   17.09.1993   93919376.9
FI109064   MENETELMÄ SMS-SANOMIEN LÄHETTÄMISEKSI ALERTIA VIIVÄSTÄMÄLLÄ   Grant   2089   FI   18.09.1992   924198
FR660992   MENETELMÄ SMS-SANOMIEN LÄHETTÄMISEKSI ALERTIA VIIVÄSTÄMÄLLÄ   Grant   2089   FR   17.09.1993   93919376.9
GB660992   MENETELMÄ SMS-SANOMIEN LÄHETTÄMISEKSI ALERTIA VIIVÄSTÄMÄLLÄ   Grant   2089   GB   17.09.1993   93919376.9
US5682600   A METHOD FOR STARTING A SHORT MESSAGE TRANSMISSION   Grant   2089   US   17.09.1993   08/403901
DE69331152.5   METHOD AND APPARATUS FOR SYNCHRONIZING SPEECH FRAMES BETWEENBASE STATIONS   Grant   2314   DE   24.09.1993   93920866.6
EP720805   METHOD AND APPARATUS FOR SYNCHRONIZING SPEECH FRAMES BETWEENBASE STATIONS   Grant   2314   EP   24.09.1993   93920866.6
US5722074   SOFT HANDOFF IN A CELLULAR TELECOMMUNICATIONS SYSTEM   Grant   2314   US   24.09.1993   08/619701
US5600705   METHOD FOR CALL ESTABLISHMENT   Grant   2336   US   20.09.1993   08/387926
CNZL96190165.9   A METHOD FOR SPLITTING AND COMBINING FAX GROUP 3 DATA IN TRANSPARENT HSCSD   Grant   2390   CN   06.03.1996   96190165.9
US5805301   FACSIMILE TRANSMISSION IN A MOBILE COMMUNICATION SYSTEM   Grant   2390   US   06.03.1996   08/732467
CN97192428.7   FAST MOVING MOBILE STATION HANDLING IN A MACRO CELL   Grant   2398   CN   18.02.1997   97192428.7
EP885540   FAST MOVING MOBILE STATION HANDLING IN A MACRO CELL   Abandoned   2398   EP   18.02.1997   97903403
IN200572   FAST MOVING MOBILE STATION HANDLING IN A MACRO CELL   Grant   2398   IN   14.02.1997   304/MAS/97
PH1-1997-55589   FAST MOVING MOBILE STATION HANDLING IN A MACRO CELL   Grant   2398   PH   17.02.1997   I-55589
SG55627   FAST MOVING MOBILE STATION HANDLING IN A MACRO CELL   Grant   2398   SG   18.02.1997   9804369.8
US6285884   FAST MOVING MOBILE STATION HANDLING IN A MACRO CELL   Grant   2398   US   30.11.2000   09/117486

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 20
 

 

Patent/
Publication
  Title   Status   Family   County   Filing Date   Filing No.
DE69326903   Method for congestion management in a frame relay network and a node in a frame relay network   Grant   2651   DE   14.12.1993   94901974.9
EP788698   Method for congestion management in a frame relay network and a node in a frame relay network   Grant   2651   EP   14.12.1993   94901974.9
GB788698   Method for congestion management in a frame relay network and a node in a frame relay network   Grant   2651   GB   14.12.1993   94901974.9
US5638359   Method for congestion management in a frame relay network and a node in a frame relay network   Grant   2651   US   14.12.1993   08/454233
DE69328565.6   A METHOD FOR CONGESTION MANAGEMENT IN A FRAME RELAY NETWORK AND A NODE IN A FRAME RELAY NETWORK   Grant   2652   DE   14.12.1993   94901973.1
EP673573   A METHOD FOR CONGESTION MANAGEMENT IN A FRAME RELAY NETWORK AND A NODE IN A FRAME RELAY NETWORK   Grant   2652   EP   14.12.1993   94901973.1
FR673573   A METHOD FOR CONGESTION MANAGEMENT IN A FRAME RELAY NETWORK AND A NODE IN A FRAME RELAY NETWORK   Grant   2652   FR   14.12.1993   94901973
GB673573   A METHOD FOR CONGESTION MANAGEMENT IN A FRAME RELAY NETWORK AND A NODE IN A FRAME RELAY NETWORK   Grant   2652   GB   14.12.1993   94901973
JP3273790   A METHOD FOR CONGESTION MANAGEMENT IN A FRAME RELAY NETWORK AND A NODE IN A FRAME RELAY NETWORK   Grant   2652   JP   14.12.1993   6513838
US6064648   METHOD FOR NOTIFYING A FRAME RELAY NETWORK OF TRAFFIC CONGESTION IN AN ATM   Grant   2702   US   21.12.1995   08/875582
AU696034   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   AU   13.1.1995   14180/95
CA2181333   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   CA   13.1.1995   2181333
CNZL95191251.8   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   CN   13.1.1995   95191251.8
DE69528819.9   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   DE   13.1.1995   95905653.2
EP740875   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   EP   13.1.1995   95905653.2
ES2186710   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   ES   13.1.1995   95905653.2
FI94816   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   FI   17.1.1994   940220

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 21
 

 

Patent/
Publication
  Title   Status   Family   County   Filing Date   Filing No.
FR740875   METHOD AND SYSTEM FOR CONTROLLING
STATISTICALLY MULTIPLEXEDATM BUS
  Grant   2704   FR   13.1.1995   95905653.2
GB740875   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   GB   13.1.1995   95905653.2
IT740875   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   IT   13.1.1995   95905653.2
JP2927553   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   JP   13.1.1995   7-518860
NZ278086   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   NZ   13.1.1995   278086
US5841774   METHOD AND SYSTEM FOR CONTROLLING STATISTICALLY MULTIPLEXEDATM BUS   Grant   2704   US   13.1.1995   08/676202
US20050240981   SPLIT ADVERTISEMENT   Pending   4561   US   24.06.2005   11/165994
US6961953   SPLIT ADVERTISEMENT   Grant   4561   US   29.12.2000   09/752127
US6577721   CONFERENCE CALL MACRO   Grant   6390   US   30.04.1999   09/302811
US6029065   REMOTE FEATURE CODE PROGRAMMING FOR MOBILE STATIONS   Grant   6815   US   05.05.1997   08/841850
CNZL95197341.X   A METHOD FOR INDICATING A MULTI-SLOT CHANNEL IN A TDMA RADIOSYSTEM   Grant   7158   CN   24.11.1995   95197341.X
NL1001744   A METHOD FOR INDICATING A MULTI-SLOT CHANNEL IN A TDMA RADIOSYSTEM   Grant   7158   NL   24.11.1995   1001744
US6295286   A METHOD FOR INDICATING A MULTI-SLOT CHANNEL IN A TDMA RADIOSYSTEM   Grant   7158   US   24.11.1995   08/836969
CNZL96195981.9   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   CN   29.05.1996   96195981.9
DE69633315.5   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   DE   05.06.1996   96304138.9
EP748136   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   EP   05.06.1996   96304138.9
JP3842335   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   JP   30.05.1996   8-136887
NL748136   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   NL   05.06.1996   96304138.9
RU2153238   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   RU   29.05.1996   97119934
US6081534   IMPLEMENTATION OF MUTUAL RATE ADAPTATIONS IN DATA SERVICES BETWEEN GSM AND   Grant   7164   US   06.06.1996   08/659590
AU716158   NEW 14.4 KBIT/S SERVICE FOR GSM   Grant   7272   AU   31.10.1996   73003/96
US7420948   NEW 14.4 KBIT/S SERVICE FOR GSM   Grant   7272   US   09.09.2005   11/221797

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 22
 

 

Patent/
Publication
  Title   Status   Family   County   Filing Date   Filing No.
US6173187   ADAPTIIVINEN MENETELMÄ OPTIMAALISEN SIR-TAVOITTEEN ASETTAMISEKSI   Grant   7300   US   25.11.1997   09/117274
US6366602   BCCH-CARRIER CHANGE FOR GSM   Grant   7485   US   03.12.1997   09/117700
US6349099   Connection identification in transmission system of wireless telecommunication network over ATM protocol stack   Grant   7776   US   11.6.1998   09/460158
US6859447   A BASESTATION CONTROLLER (BSC) BASED ON AN ATM SWITCH   Grant   7794   US   30.12.1997   09/607065
AT1068762   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   AT   30.03.1999   99945702.1
AU755890   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   AU   30.03.1999   59468/99
CH1068762   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   CH   30.03.1999   99945702.1
CNZL99804679.5   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   CN   30.03.1999   99804679.5
DE69927492.3   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   DE   30.03.1999   99945702.1
EP1068762   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   EP   30.03.1999   99945702.1
JP4059626   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   JP   30.03.1999   2000-544146
NL1068762   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   NL   30.03.1999   99945702.1
NO325596   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   NO   30.03.1999   20004893
US6456237   TRACKING OF REAL TIME AND OBSERVED TIME DIFFERENCE VALUES INTIME   Grant   7882   US   30.03.1999   09/677114
GB2370183   NBR POOL FOR SIMA NETWORK   Grant   7959   GB   20.7.1999   30514.4
US6249816   NBR POOL FOR SIMA NETWORK   Grant   7959   US   22.7.1998   09/120607
DE69935006.9   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   DE   9.12.1999   99966074.9
EP1135962   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   EP   9.12.1999   99966074.9
FR1135962   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   FR   9.12.1999   99966074.9

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 23
 

 

Patent/
Publication
  Title   Status   Family   County   Filing Date   Filing No.
GB1135962   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   GB   9.12.1999   99966074.9
IT1135962   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   IT   9.12.1999   99966074.9
SE1135962   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   SE   9.12.1999   99966074.9
US6549938   System and method for prioritizing multicast packets in a network service class utilizing a priority-based quality of service   Grant   7960   US   10.12.1998   09/209182
US6466794   CHANNEL ALLOCATION   Grant   10215   US   21.01.1998   09/357180
CNZL97192088.5   MT SMS QUEUING AT THE VISITED MSC   Grant   10609   CN   04.02.1997   97192088.5
FI102346   MT SMS QUEUING AT THE VISITED MSC   Grant   10609   FI   05.02.1996   FI 960523
US6463291   MT SMS QUEUING AT THE VISITED MSC   Grant   10609   US   04.02.1997   09/117701
CA2250037   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   CA   27.3.1997   2250037
CNZL97194117.3   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   CN   27.3.1997   97194117.3
DE69738106.4   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   DE   27.3.1997   97908301.1
EP894383   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   EP   27.3.1997   97908301.1
ES894383   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   ES   27.3.1997   97908301.1
FI103456   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   FI   29.3.1996   961442
FR894383   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   FR   27.3.1997   97908301.1
GB894383   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   GB   27.3.1997   97908301.1
HK1017189   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   HK   27.4.1999   99101866.1
IN206503   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   IN   20.3.1997   IN 588/MAS/97
IT894383   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   IT   27.3.1997   97908301.1
PH1-1997-55861   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   PH   17.3.1997   I-55861
US6738374   SPEECH TRANSMISSION IN A PACKET NETWORK   Grant   10732   US   27.3.1997   09/155426
US6085100   METHOD OF ROUTING REPLY SHORT MESSAGES   Grant   10762   US   02.01.1998   09/125752
CNZL98807025.1   ROUTING SHORT MESSAGES   Grant   10765   CN   02.06.1998   98807025.1
DE69834402.2   ROUTING SHORT MESSAGES   Grant   10765   DE   02.06.1998   98924342.3
EP992164   ROUTING SHORT MESSAGES   Grant   10765   EP   02.06.1998   98924342.3
ES992164   ROUTING SHORT MESSAGES   Grant   10765   ES   02.06.1998   98924342.3
FI109511   ROUTING OF MOBILE ORIGINATED SHORT MESSAGES (MO-SM) FORM SMSC TO THE RIGHT   Grant   10765   FI   03.06.1997   FI 972357
FR992164   ROUTING SHORT MESSAGES   Grant   10765   FR   02.06.1998   98924342.3
GB992164   ROUTING SHORT MESSAGES   Grant   10765   GB   02.06.1998   98924342.3
IT992164   ROUTING SHORT MESSAGES   Grant   10765   IT   02.06.1998   98924342.3
JP3988836   ROUTING SHORT MESSAGES   Grant   10765   JP   02.06.1998   11-501673

 

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Exchange Act of 1934, as amended.

 

Confidential – Page 24
 

 

Patent/
Publication
  Title   Status   Family   County   Filing Date   Filing No.
NL992164   ROUTING SHORT MESSAGES   Grant   10765   NL   02.06.1998   98924342.3
SE992164   ROUTING SHORT MESSAGES   Grant   10765   SE   02.06.1998   98924342.3
US6292669   ROUTING SHORT MESSAGES   Grant   10765   US   02.06.1998   09/454946
US6571284   RADIOTOISTINTEN AUTOMAATTINEN VIRITYS   Grant   10780   US   02.01.1998   09/331764
CNZL00816538.6   CALL ROUTING IN A TELECOMMUNICATION SYSTEM   Grant   10906   CN   29.11.2000   816538.6
EP1234418   CALL ROUTING IN A TELECOMMUNICATION SYSTEM   Grant   10906   EP   29.11.2000   985284.9
GB1234418   CALL ROUTING IN A TELECOMMUNICATION SYSTEM   Grant   10906   GB   29.11.2000   985284.9
US7606261   CALL ROUTING IN A TELECOMMUNICATION SYSTEM   Grant   10906   US   29.11.2000   10/153180
CNZL01810732.X   MANAGEMENT OF SUBSCRIBER DATA IN MOBILE SYSTEM   Grant   10919   CN   04.06.2001   01810732.X
DE60115454.1   MANAGEMENT OF SUBSCRIBER DATA IN MOBILE SYSTEM   Grant   10919   DE   04.06.2001   1938289.4
EP1303942   MANAGEMENT OF SUBSCRIBER DATA IN MOBILE SYSTEM   Grant   10919   EP   04.06.2001   1938289.4
ES1303942   MANAGEMENT OF SUBSCRIBER DATA IN MOBILE SYSTEM   Grant   10919   ES   04.06.2001   1938289.4
FI111594   IP-TEKNIIKAN JA WEB-SIVUJEN HYÖDYNTÄMINEN MATKAPUHELINVERKONTILAAJATIETOJEN   Grant