Execution Copy
REIMBURSEMENT AGREEMENT
This REIMBURSEMENT AGREEMENT (this "Agreement") is made as of December 10,
2004 by and between AIGH Investment Partners, LLC, a Delaware limited liability
company having a mailing address at 0000 Xxxxxxxx Xxx., Xxxxxxxxx, XX 00000
("AIGH"), and GraphOn Corporation, a Delaware corporation ("GraphOn").
RECITALS
WHEREAS, in connection with the proposed acquisition of Network
Engineering Software, Inc., a California corporation ("NES") by GraphOn (the
"Acquisition"), NES has requested assistance, and GraphOn has agreed to assist,
in the settlement (the "Settlement") of claims (the "Xxxxxxxx Claims") against
NES and certain of its affiliates by Xxxxxxxx Xxxxxxxx and Crystal Bay Capital,
LLC (together, "Xxxxxxxx");
WHEREAS, to assist GraphOn with the Settlement, Xxxx Xxxxxxxxx
("Xxxxxxxxx"), an affiliate of AIGH, has agreed to make available the necessary
funds, in an amount equal to $665,000 (such amount, or such lesser amount as is
actually paid by Xxxxxxxxx or AIGH with respect to the Settlement, the "Payment
Amount"), to ensure payment of the Xxxxxxxx Claims, and has transferred his
rights in respect to the Payment Amount to AIGH;
WHEREAS, pursuant to each of (i) the Agreement and Plan of Merger and
Reorganization of equivalent date hereof by and among GraphOn, NES and the other
parties thereto governing the Acquisition (the "Acquisition Agreement") and (ii)
the Settlement Agreement and Release of equivalent date hereof by and among
Xxxxxxxx, NES, GraphOn, and Xxxxx Xxxxxxxx (the "Settlement Agreement"),
Xxxxxxxx is entitled to obtain satisfaction in full of the Xxxxxxxx Claims on
the earlier to occur of the closing date under the Acquisition Agreement and
December 10, 2004 (the "Payment Date") regardless of whether the Acquisition
proceeds (unless prior to the Payment Date the Acquisition Agreement has been
terminated);
WHEREAS, the parties hereto wish to enter into this Agreement in
order to set forth GraphOn's obligations to reimburse AIGH with respect to the
Payment Amount in the limited circumstances, and on the terms, set out in this
Agreement;
WHEREAS, GraphOn has determined that it is in its and its
shareholders' best interest to undertake the Reimbursement Obligation (as
defined below) in order to facilitate the Acquisition in a timely manner by
permitting AIGH to provide the Payment Amount and thus facilitate the
Settlement, and
WHEREAS, AIGH has determined that the Acquisition is in its best
interest because of its indirect interest through affiliates as a significant
shareholder of GraphOn.
AGREEMENT
In consideration of AIGH's providing the Payment Amount to facilitate the
Settlement, AIGH and GraphOn hereby agree as follows:
1. Reimbursement. GraphOn will incur an obligation to AIGH equal to the sum of
(i) the Payment Amount, as delivered in accordance with the terms of the
Settlement Agreement, plus (ii) all expenses, commissions and other fees of any
sort relating to this Agreement that have been previously paid or are to become
payable thereafter by AIGH (computed from the date hereof at the same rate paid
or payable by AIGH) to Xxxxxxxx in connection with the Settlement (collectively,
the "Reimbursement Obligation"), and will satisfy such Reimbursement Obligation
in full within five (5) business days of receipt by GraphOn of written notice
thereof from AIGH; provided, however, GraphOn shall only be required to pay the
Reimbursement Obligation to AIGH at such time that all of the following shall
have occurred: (1) the Acquisition has been consummated in accordance with the
terms of the Acquisition Agreement, (2) the PIPE Financing (as defined below)
shall have closed and provided GraphOn with gross proceeds to GraphOn of not
less than $3,240,000; and (3) AIGH shall have duly and validly assigned to
GraphOn all of its rights under (i) that certain Reimbursement and Intellectual
Property Collateral Security Agreement, dated as of December 3, 2004, by and
between Xxxxxxxxx and NES (the "NES IP Security Agreement") and (ii) that
certain Stock Pledge Agreement, dated as of December 3, 2004, by and between
Xxxxxxxxx and Xxxxx Xxxxxxxx (the "Xxxxxxxx Stock Pledge Agreement").
2. Conversion. In satisfaction of any Reimbursement Obligation, GraphOn, at its
option (or at AIGH's option in the event the non-recourse provisions of Section
6 hereof apply), shall deliver, in lieu of cash, such number of Units
(collectively, the "Reimbursement Units"), each Unit consisting of (a) one share
of GraphOn's Series A Preferred Stock and (b) one five-year warrant exercisable
to purchase 1/2 share of GraphOn's Series B Preferred Stock, that is equal to:
(x) the aggregate amount of the Reimbursement Obligation in U.S. dollars,
divided by (b) $27.00 on the terms set forth in a Unit Subscription Agreement to
be entered into by and between GraphOn, AIGH and certain other investors (or
such other price per Unit as is mutually agreed to between GraphOn and AIGH and
such other investors in connection with that certain Private Placement of Common
Stock and Warrants by GraphOn to AIGH and other investors pursuant to the
Acquisition (such transaction, the "PIPE Financing")).
3. Obligations Absolute. The Reimbursement Obligation shall be unqualified,
irrevocable and payable in the manner and method provided for under this
Agreement irrespective of any one or more of the following circumstances: (i)
any lack of validity or enforceability of this Agreement, the Acquisition
Agreement, the Settlement Agreement or any amendment relating thereto, (ii) any
change in the time, manner or place of payment of or in any other term of all or
any of the Reimbursement Obligation of GraphOn, and (iii) the existence of any
claim by AIGH against Xxxxxxxx.
4. Indemnification. GraphOn will indemnify and hold AIGH and Xxxxxxxxx, and
their respective employees, attorneys and agents, (each, "an Indemnified Party")
harmless from and against any and all claims, liabilities, losses, damages,
costs and expenses including without limitation, reasonable attorneys' fees and
1
disbursements, other dispute resolution expenses (including fees and expenses in
preparation for a defense of, any investigation, litigation or proceeding) and
costs of collection that arise out of or in connection with or by reason of
AIGH's enforcement of its rights under this Agreement, except to the extent such
claim, liability, loss, damage, cost or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from any Indemnified Party's gross negligence, willful default or willful
misconduct. GraphOn will pay on demand from time to time all amounts owing under
this section.
5. Events of Default. Each of the following shall be an "Event of Default" under
this Agreement: (a) GraphOn's failure to pay the Reimbursement Obligation within
ten (10) days of the due date therefor, (b) GraphOn's failure to perform or
observe any other term or covenant of this Agreement in any material respect,
(c) GraphOn's dissolution or termination, (d) any voluntary action by GraphOn
for the institution of any proceeding under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors or seeking the appointment of
a receiver, trustee, or other similar official for GraphOn or for any
substantial part of its property, or the same actions being taken against
GraphOn involuntarily to the extent not dismissed or stayed within 30 days, (e)
attachment or restraint of all or substantially all of GraphOn's assets, or the
issuance of any order of any court or other legal process against the same,
which is not dismissed or stayed within 30 days.
6. Enforcement on Non-Recourse Basis. If any Event of Default shall have
occurred, any Reimbursement Obligation, to the extent then owing to AIGH, shall
become immediately due and payable, provided, notwithstanding any other
provision of this Agreement, AIGH's only recourse against GraphOn in the event
any Reimbursement Obligation is accelerated as a result of an Event of Default
shall be to require GraphOn to deliver the Reimbursement Units pursuant to
Section 2 hereof, and GraphOn shall not be personally liable therefor, nor shall
any of GraphOn's property or assets, other than the Reimbursement Units, be
subject to garnishment, attachment or other process for the enforcement of
judgments or the collection of debts.
7. Entire Agreement. This Agreement constitutes the entire understanding between
GraphOn and AIGH related to AIGH's payment of Settlement amounts and the
Reimbursement Obligation. This Agreement may be amended only by a writing signed
by each of the parties hereto. Xxxxxxxxx shall be a third party beneficiary of
this Agreement.
8. WAIVER OF JURY TRIAL. BOTH GRAPHON AND AIGH, AFTER CONSULTING OR HAVING HAD
THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EITHER GRAPHON OR AIGH MAY HAVE TO A TRIAL BY JURY
IN ANY LITIGATION BASED ON OR ARISING OUT OF THIS AGREEMENT, THE PAYMENT OF THE
PAYMENT AMOUNT BY AIGH, ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT,
OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTIONS OF EITHER GRAPHON OR AIGH. NEITHER GRAPHON NOR AIGH SHALL SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY
2
RESPECT OR RELINQUISHED BY ANY EITHER GRAPHON OR AIGH EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY BOTH.
9. Governing Law and Jurisdiction. This Agreement shall be governed by and
construed under the laws of the state of California, to the jurisdiction of
which the parties hereto submit. Any litigation shall be brought exclusively in
Santa Xxxxx County, California and the parties hereby submit and consent to the
personal jurisdiction and venue of courts located there. The invalidity or
unenforceability of one provision under a particular circumstance shall not
affect the validity or enforceability of that provision under other
circumstances or of other provisions under any circumstance and such provision
shall automatically be reformed so as to give the maximum effect possible to its
intent under such circumstance. This Agreement shall be binding upon the
successors and assigns of the parties provided that GraphOn may not assign its
rights or obligations under this Agreement, whether by operation of law or
otherwise, without the prior written consent of AIGH.
10. Termination; Surviving Provisions. This Agreement shall be terminated only
upon payment in full to AIGH of all of the Reimbursement Obligation. Restrictive
provisions in this Agreement, such as indemnity, tax, and jurisdiction
provisions shall survive termination of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
GRAPHON CORPORATION
0000 Xxxxxx Xxx.
Xxxxx Xxxx, Xx. 00000
By: /s/ Xxxxxx Xxxxxxxx
---------------------------
Name:
Xxxxxx Xxxxxxxx
Title:
Chairman and CEO
AIGH INVESTMENT PARTNERS, LLC
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
By: /s/ Xxxx Xxxxxxxxx
---------------------------
Name:
Xxxx Xxxxxxxxx
Title:
Authorized signatory
