GRAPHON CORPORATION
UNIT SUBSCRIPTION AGREEMENT
COMMON STOCK
AND WARRANTS
UNIT SUBSCRIPTION AGREEMENT (the "Agreement") dated as of February 2,
2005 among GRAPHON CORPORATION, a Delaware corporation (the "Company"), and the
persons who execute this Agreement as investors (the "Investors").
Background: The Company desires to sell to the Investors, and the Investors
desire to purchase, an aggregate of 148,148 shares of Series A Stock of the
Company (the "Shares") in Units with 5-year warrants, in substantially the form
attached hereto as Exhibit 1A, exercisable to purchase an aggregate of 74,074
shares of Series B Stock of the Company (the "Warrant Shares") at $40.00 per
share (the "Series B Warrants"), all for an aggregate price of $3,999,996. The
Shares are convertible into an aggregate of 14,814,800 shares of Common Stock.
The Warrant Shares will be convertible into an aggregate of 7,407,400 shares of
Common Stock. The Series B Warrants are convertible under certain circumstances
into 5-year warrants, in substantially the form attached hereto as Exhibit 1B,
exercisable to purchase an aggregate of 7,407,400 shares of Common Stock at
$0.40 per share (the "Exchange Warrants"). The proceeds are necessary for the
proposed acquisition by the Company of Network Engineering Software, Inc.
("NES") and the development and continuance of the business of the Company and
each of its Subsidiaries.
Certain Definitions:
"Acquisition" shall mean the acquisition by the Company of NES
substantially in accordance with the terms set forth in the Agreement and Plan
of Merger and Reorganization, dated December 3, 2004, (the "Reorganization
Agreement").
"Action" has the meaning set forth in Section 2.10.
"Agreement" has the meaning set forth in the Preamble.
"Blue Sky Laws" has the meaning set forth in Section 2.7(b).
"Certificate of Amendment" has the meaning set forth in Section 2.2(b)(i).
"Certificate of Incorporation" has the meaning set forth in Section
2.2(a).
"Closing" and "Closing Date" have the meanings set forth in Section 1.2.
"Common Stock" shall mean stock of the Company of any class (however
designated) whether now or hereafter authorized, which generally has the right
to participate in the voting and in the distribution of earnings and assets of
the Company without limit as to amount or percentage, including the Company's
Common Stock, $.0001 par value per share.
"Company" includes the Company and any corporation or other entity that
shall succeed to or assume, directly or indirectly, the obligations of the
Company hereunder. The term "corporation" shall include an association, joint
stock company, business trust, limited liability company or other similar
organization.
"Company Disclosure Letter" means the disclosure letter delivered to the
Investors prior to the execution of this Agreement, which letter is incorporated
in this Agreement.
"Contemplated Transactions" has the meaning set forth in Section 2.1(b).
"Exchange Act" has the meaning set forth in Section 2.7(b).
"Exchange Warrants" has the meaning set forth in Background.
"Existing Investor Rights Agreement" means the Investor Rights Agreement,
dated as of January 29, 2004, by and among the Company and the investors party
thereto.
"Existing Warrants" means 5-year warrants, dated January 29, 2004,
exercisable to purchase an aggregate of 2,500,000 shares of Common Stock at
$0.33 per share, issued pursuant to that certain Unit Subscription Agreement,
dated as of January 29, 2004, among the Company and the investors party thereto
and the warrants of similar tenor, currently exercisable to purchase 720,000
shares, held by the Xxxxxxx Holders.
"Financial Advisory Agreement" has the meaning set forth in Section
1.3(b).
"Financial Statements" has the meaning set forth in Section 2.9(g).
"Form 10-K Financial Statements" has the meaning set forth in Section
2.9(d).
"Governmental Body" has the meaning set forth in Section 2.7(b).
"Xxxxxxx" has the meaning set forth in Section 2.6.
"Xxxxxxx Holders" means Xxxxxxx and certain other persons to whom Xxxxxxx
transferred Existing Warrants, who are also parties to the Waiver.
"Xxxxxxx Agreement" means the agreement, dated January 8, 2005, between
Xxxxxxx and the Company, in form previously provided and acceptable to counsel
for the Investors governing compensation of Xxxxxxx.
"Xxxxxxxxx" has the meaning set forth in Section 1.3(b).
"Investor Rights Agreement" has the meaning set forth in Section 1.3(a).
"Investors" has the meaning set forth in the Preamble.
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"June 30 Form 10-Q Financial Statements" has the meaning set forth in
Section 2.9(e).
"Legal Fee" has the meaning set forth in Section 6.9.
"Legal Requirement" has the meaning set forth in Section 2.8.
"Loss" has the meaning set forth in Section 5.2(b).
"March 31 Form 10-Q Financial Statements" has the meaning set forth in
Section 2.9(f).
"Material Adverse Change" shall mean a material adverse change in the
business, financial condition, results of operation, properties or operations of
the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" has the meaning set forth in Section 2.1(a).
"Material Agreements" has the meaning set forth in Section 2.8.
"NES" has the meaning set forth in Background.
"Ordinary Course of Business" has the meaning set forth in Section 2.11.
"Own" means own beneficially, as that term is defined in the rules and
regulations of the SEC.
"Person" means any individual, sole proprietorship, partnership,
corporation, limited liability company, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity, any
university or similar institution, or any government or any agency or
instrumentality or political subdivision thereof.
"Proposal" has the meaning set forth in Section 2.2(b)(i).
"Proprietary Assets" has the meaning set forth in Section 2.12.
"Proxy Statement" has the meaning set forth in Section 2.2(b)(i).
"Purchased Shares" has the meaning set forth in Section 1.1(a).
"Purchased Warrants" has the meaning set forth in Section 1.1(a).
"Required Stockholder Approval" has the meaning set forth in Section
2.2(b)(i).
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 2.9(a).
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"Securities" has the meaning set forth in Section 1.1(a).
"Securities Act" has the meaning set forth in Section 2.5.
"September 30 Form 10-Q Financial Statements" has the meaning set forth in
Section 2.9(g).
"Series A Stock" means the Series A Participating Convertible Preferred
Stock, par value $.01 per share, of the Company, having the terms set forth in
Exhibit 1C hereto.
"Series B Stock" means the Series B Participating Convertible Preferred
Stock, par value $.01 per share, of the Company, having the terms set forth in
Exhibit 1C hereto.
"Series B Warrants" has the meaning set forth in Background.
"Shares" has the meaning set forth in Background.
"Stockholders Meeting" has the meaning set forth in Section 2.2(b)(i).
"Subsidiary" shall mean, immediately prior to the Closing, any corporation
of which stock or other interest having ordinary power to elect a majority of
the Board of Directors (or other governing body) of such entity (regardless of
whether or not at the time stock or interests of any other class or classes of
such corporation shall have or may have voting power by reason of the happening
of any contingency) is, immediately prior to the Closing, directly or indirectly
owned by the Company or by one or more Subsidiaries. For purposes of clarity,
the definition of Subsidiary shall not include NES for any purpose.
"Transaction Documents" means the Agreement, the Financial
Advisory Agreement, the Purchased Warrants and the Investor
Rights Agreement.
"Transfer Agent" has the meaning set forth in Section 1.2(b).
"Underlying Shares" shall mean the shares of Common Stock issued or from
time to time issuable upon (a) conversion of (i) the Shares or (ii) the Series B
Stock issuable upon exercise of the Series B Warrants, and (b) exercise of the
Exchange Warrants.
"Unit" shall mean (i) one (1) Share and (ii) one Series B Warrant to
purchase one half (0.5) of a Warrant Share.
In consideration of the mutual covenants contained herein, the
parties agree as follows:
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1. Purchase and Sale of Stock.
1.1. Sale and Issuance of Securities. (a) The Company shall sell
to the Investors and the Investors shall purchase from the Company,
148,148 Units (the "Units") at a price per Unit equal to $27.00, or an
aggregate of (x) 148,148 Shares (the "Purchased Shares") and (y) Series B
Warrants to purchase an aggregate of 74,074 Warrant Shares (the "Purchased
Warrants" and, collectively with the Purchased Shares, the "Securities"),
for an aggregate purchase price of $3,999,996.00.
(b) The number of Purchased Shares and Purchased Warrants to be
purchased by each Investor from the Company is set forth on Schedule
1.1(b) hereto, subject to acceptance, in whole or in part, by the Company.
1.2. Closing. The closing (the "Closing") of the purchase and
sale of the Securities hereunder shall take place within three (3) days of
the date of this Agreement or such other date within fifteen (15) business
days of this Agreement as agreed to by the Company and Xxxxxxxxx (the
"Closing Date"). The Closing shall take place at the offices of Xxxx &
Hessen LLP, the Investors' counsel, in New York, New York, or at such
other location as is mutually acceptable to the Investors and the Company,
subject to fulfillment of the conditions of closing set forth in the
Agreement. At the Closing:
(a) each Investor purchasing Securities at the Closing
shall deliver to the Company or its designees by wire transfer or
such other method of payment as the Company shall approve, an amount
equal to the purchase price of the Securities purchased by such
Investor hereunder, as set forth opposite such Investor's name on the
signature pages hereof;
(b) the Company shall authorize its transfer agent (the
"Transfer Agent") to arrange delivery to each Investor of one or more
stock certificates registered in the name of the Investor, or in such
nominee name(s) as designated by the Investor in writing,
representing the number of Purchased Shares set forth opposite such
Investors named on Schedule 1.1(b); and
(c) the Company shall issue and deliver to each Investor
the number of Purchased Warrants set forth opposite such Investors
named on Schedule 1.1(b).
1.3. Investors' Conditions of Closing. The obligation of the
Investors to complete the purchase of the Securities at the Closing is
subject to fulfillment of the following conditions:
(a) the Company shall execute and deliver an Investor
Rights Agreement, dated the Closing Date, in the form attached as
Exhibit 2, with respect to the Purchased Shares and the Underlying
Shares (the "Investor Rights Agreement");
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(b) the Company and Xxxx Xxxxxxxxx ("Xxxxxxxxx") shall
execute and deliver an amendment to the existing Financial Advisory
Agreement, dated January 29, 2004, in the form attached as Exhibit 3
(the "Financial Advisory Agreement Amendment");
(c) the Company shall cause to be delivered to the
Investors an Opinion of Counsel, dated the Closing Date and
reasonably satisfactory to counsel for the Investors, with respect to
the matters set forth on Exhibit 4;
(d) the representation and warranties of the Company set
forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (to the extent such
representations and warranties speak as of a later date) as of such
later date as though made on and as of the Closing Date, and the
Company shall have performed in all material respects all covenants
and other obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(e) the absence of a Material Adverse Change from the date
of this Agreement up to, and including, the Closing Date;
(f) the Company shall have executed and delivered all other
documents reasonably requested by counsel for the Investors that are
necessary to complete the contemplated transactions;
(g) All Securities delivered at the Closing shall have any
necessary stock transfer tax stamps (purchased at the expense of the
Company) affixed;
(h) the Company shall pay the Investors' expenses to the
extent set forth in Section 6.9 hereof;
(i) the Company shall deliver to the Investors a certified
copy of its Certificate of Incorporation, as amended, and by-laws and
a Certificate of Good Standing from the Secretary of State of the
State of Delaware;
(j) the Company, Xxxxxxxxx and Xxxxxxx (as defined in
Section 2.6) shall have entered into an agreement regarding the fees
owed by the Company to Xxxxxxx and Xxxxxxxxx.
(k) the Acquisition shall have been completed;
(l) the Company shall have received a waiver of preemptive
rights and antidilution rights and related acknowledgments from each
holder of Existing Warrants pursuant to the Existing Investor Rights
Agreement and the Existing Warrants with respect to all Securities
issued hereunder in the form attached hereto as Exhibit 6 (the
"Waiver");
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(m) the executive officers and members of the Board of
Directors of the Company shall have executed and delivered the Voting
Agreement in the form attached hereto as Exhibit 7 (the "Voting
Agreement"); and
(n) the Investors shall have received a certificate signed
on behalf of the Company by the President and Secretary of the
Company, in such capacities, to the effect that all covenants and
other obligations required to be performed by the Company at a prior
to the Closing Date under this Agreement shall have been performed in
all material respects (the "Closing Certificate").
1.4. Company's Condition of Closing. The obligation of the
Company to complete the sale of the Securities at the Closing is subject
to fulfillment of the following conditions:
(a) The Investors shall execute and deliver the Investor
Rights Agreement.
(b) The Company shall have received the Waiver, executed by
each holder of Existing Warrants.
2. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, each of the
Investors as follows:
2.1. Corporate Organization; Authority; Due Authorization.
(a) The Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has the corporate power and
authority to own or lease its properties as and in the places where
such business is conducted and to carry on its business as conducted
and (iii) is duly qualified as a foreign corporation authorized to do
business in every jurisdiction where the failure to so qualify,
individually or in the aggregate, would have a material adverse
effect on the operations, assets, liabilities, financial condition or
business of the Company (a "Material Adverse Effect"). Set forth in
the Company Disclosure Letter is a complete and correct list of all
Subsidiaries. Each Subsidiary is duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of
incorporation and is qualified to do business as a foreign
corporation in each jurisdiction in which qualification is required,
except where failure to so qualify would not have a Material Adverse
Effect.
(b) The Company (i) has the requisite corporate power and
authority to execute, deliver and perform the Xxxxxxx Agreement, the
Waiver, this Agreement and the other Transaction Documents to which
it is a party and to incur the obligations herein and therein and
(ii) has been authorized by all necessary corporate action to
execute, deliver and perform the Xxxxxxx Agreement, the Waiver, this
Agreement and the other Transaction Documents to which it is a party
and to consummate the transactions contemplated hereby and thereby
(the "Contemplated Transactions"). Each of the Xxxxxxx Agreement, the
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Waiver, this Agreement and the other Transaction Documents is a valid
and binding obligation of the Company enforceable in accordance with
its terms except as limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting the enforcement of
creditors' rights and the availability of equitable remedies
(regardless of whether such enforceability is considered in a
proceeding at law or equity). Each of the Exchange Warrants, when
issued upon conversion of the Series B Warrants, will be a valid and
binding obligation of the Company enforceable in accordance with its
terms except as limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting the enforcement of
creditors' rights and the availability of equitable remedies
(regardless of whether such enforceability is considered in a
proceeding at law or equity).
2.2. Capitalization; Authorization of Additional Shares of
Common Stock.
(a) Current Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 45,000,000
shares of Common Stock, $.0001 par value, of which 21,716,765 shares
of Common Stock are outstanding and (ii) 5,000,000 shares of
Preferred Stock, $.01 par value, of which no shares are outstanding.
All outstanding shares were issued in compliance with all applicable
Federal and state securities laws, and the issuance of such shares
was duly authorized. Except as contemplated by this Agreement or as
set forth in the Company Disclosure Letter, there are (i) no
outstanding subscriptions, warrants, options, conversion privileges
or other rights or agreements obligating the Company to purchase or
otherwise acquire or issue any shares of capital stock of the Company
(or shares reserved for such purpose), (ii) no preemptive rights
contained in the Company's Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), By-Laws of the Company or
contracts to which the Company is a party or rights of first refusal
with respect to the issuance of additional shares of capital stock of
the Company (other than as set forth in the Investor Rights
Agreement, including without limitation the Securities and the
Underlying Shares, and (iii) no commitments or understandings (oral
or written) of the Company to issue any shares, warrants, options or
other rights. Except as set forth in the Company Disclosure Letter,
none of the shares of Common Stock are subject to any stockholders'
agreement, voting trust agreement or similar arrangement or
understanding. Except as set forth in the Company Disclosure Letter,
the Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to
vote) with the stockholders of the Company on any matter. With
respect to each Subsidiary, (i) all the issued and outstanding shares
of the Subsidiary's capital stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in
compliance with applicable federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and (ii) except
as disclosed in the Company Disclosure Letter, there are no
outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of the Subsidiary's capital stock or any such options, rights,
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convertible securities or obligations. Except as disclosed in the
Company Disclosure Letter, the Company owns 100% of the outstanding
equity of each Subsidiary.
(b) Amendment to Certificate of Incorporation; Proxy
Statement; Stockholders Meeting.
(i) The Board of Directors of the Company has approved an
amendment to the Certificate of Incorporation authorizing the
issuance of additional shares of Common Stock, which, if ratified by
the Company's stockholders, would enable the Company to be in
compliance with the covenant set forth in Section 5.1(c) below (the
"Certificate of Amendment"). In furtherance thereof, as promptly as
possible, but in no event later than 15 business days following the
date of this Agreement, the Company shall take all action necessary
to call a meeting of its stockholders (together with any adjournments
or postponements thereof, the "Stockholders Meeting"), other than
actions with respect to the preparation and filing of any Proxy
Statement (as defined below) for such meeting, for the purpose of
seeking the requisite stockholder approval (the "Required Stockholder
Approval") of the Certificate of Amendment and for all matters to be
voted upon incident thereto (collectively, the "Proposal"). In
connection therewith, the Company will promptly prepare and file with
the SEC proxy materials (including one or more proxy statements (as
amended or supplemented, the "Proxy Statement") and form of proxy)
for use at the Stockholders Meeting and, after receiving and promptly
responding to any comments of the SEC thereon, shall promptly mail
such proxy materials to the stockholders of the Company. The Company
will comply with Section 14(a) of the Exchange Act and the rules
promulgated thereunder in relation to any proxy statement and any
form of proxy to be sent to the stockholders of the Company in
connection with the Stockholders Meeting, and the Proxy Statement
shall not, on the date the Proxy Statement (or any amendment thereof
or supplement thereto) is first mailed to stockholders or at the time
of the Stockholders Meeting, contain any statement that, at the time
and in the light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a
proxy for the Stockholders Meeting or the subject matter thereof
which has become false or misleading. If the Company should discover
at any time prior to the Closing Date any event relating to the
Company or any of its Subsidiaries or any of their respective
affiliates, officers or directors that is required to be set forth in
a supplement or amendment to the Proxy Statement, in addition to the
Company's obligations under the Exchange Act, the Company will
promptly inform its stockholders thereof.
(ii) Subject to its fiduciary obligations under applicable
law (as determined in good faith by the Company's Board of Directors,
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after having taken into account the written advice of the Company's
outside counsel), the Company's Board of Directors shall recommend to
the Company's stockholders (and not revoke or amend such
recommendation) that the stockholders vote in favor of the Proposal
and shall cause the Company to take all commercially reasonable
action to solicit the Required Stockholder Approval. Whether or not
the Company's Board of Directors determines at any time after the
date hereof that, due to its fiduciary duties, it must revoke or
amend its recommendation to the Company's stockholders, the Company
is required to, and will take, in accordance with applicable law and
its Certificate of Incorporation and Bylaws, all action necessary to
convene the Stockholders Meeting as promptly as practicable to
consider and vote upon the approval of the Proposal.
(iii)In the event that (x) the Company does not file the
Proxy Statement within 15 business days following the date of this
Agreement, (y) the Company fails to use its best efforts to cause the
Stockholders Meeting to take place within 90 days following the date
of this Agreement, or (z) the Company's Board of Directors has
withdrawn or modified its recommendation to its stockholders pursuant
to the provisions of Section 2.2(b)(ii), the Company shall pay to
each Investor a cash penalty equal to 25% of the aggregate amount
invested by such Investor at the Closing; provided, however, that,
with respect to clause (y) above, no such penalty shall apply in the
event that a delay beyond the 90th day arises out of review by the
SEC as long as the Company continues to use its best efforts to cause
the Stockholders Meeting to take place as soon as practicable.
2.3. Validity of Securities. The issuance of the Securities has
been duly authorized by all necessary corporate action on the part of the
Company and, when issued to, delivered to, and paid for by the Investors
in accordance with this Agreement, the Purchased Shares will be validly
issued, fully paid and non-assessable.
2.4. Underlying Shares. The issuance of (a) the Underlying
Shares upon conversion of the Shares or the Series B Stock or exercise of
the Exchange Warrants and (ii) the Warrant Shares upon exercise of the
Purchased Warrants has been duly authorized. At all times prior to such
exercise, the Series B Stock and, to the extent authorized under the
Certificate of Incorporation, the Underlying Shares, will have been duly
reserved for issuance upon such exercise and, in each case, when so
issued, will be validly issued, fully paid and non-assessable.
2.5. Private Offering. Neither the Company nor anyone acting on
its behalf has within the last 12 months issued, sold or offered any
security of the Company (including, without limitation, any Common Stock
or warrants of similar tenor to the Purchased Warrants) to any Person
under circumstances that would cause the issuance and sale of the
Securities, as contemplated by this Agreement, to be subject to the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Company agrees that neither the Company nor anyone
acting on its behalf will offer the Securities or any part thereof or any
similar securities for issuance or sale to, or solicit any offer to
acquire any of the same from, anyone so as to make the issuance and sale
of the Securities subject to the registration requirements of Section 5 of
the Securities Act.
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2.6. Brokers and Finders. Except as set forth in the Company
Disclosure Letter or in this Section 2.6, neither the Company, nor any of
its officers, directors, employees or stockholders, has employed any
broker or finder. Pursuant to the Xxxxxxx Agreement, the Company shall pay
to Xxxxxxx Securities, Inc. ("Xxxxxxx") a fee consisting of $50,000 in
cash and warrants in substantially the same form as the Series B Warrants
(A) to purchase an aggregate of 14,815 shares of Series A Stock at $27.00
per share and (B) to purchase an aggregate of 7,407 shares of Series B
Stock at $40.00 per share; and Xxxxxxx shall be a party to the Investor
Rights Agreement.
2.7. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance of the Xxxxxxx
Agreement, the Waiver, this Agreement and the other Transaction
Documents by the Company do not, and the consummation by the Company
of the Contemplated Transactions will not, (i) conflict with or
violate the Certificate of Incorporation (as to be amended by the
Certificate of Amendment) or By-Laws of the Company or its
Subsidiaries, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or
its Subsidiaries or by which any property or asset of the Company or
its Subsidiaries is bound or affected or (iii) result in any breach
of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss of a
material benefit under, or give to others any right of purchase or
sale, or any right of termination, amendment, acceleration, increased
payments or cancellation of, or result in the creation of a lien or
other encumbrance on any property or asset of the Company or of any
of its Subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or of any of its
Subsidiaries or any property or asset of the Company or of any of its
Subsidiaries is bound or affected; except, in the case of clauses
(ii) and (iii) above, for any such conflicts, violations, breaches,
defaults or other occurrences that would not prevent or delay
consummation of any of the Contemplated Transactions in any material
respect or otherwise prevent the Company from performing its
obligations under the Xxxxxxx Agreement, the Waiver, this Agreement
or any of the other Transaction Documents in any material respect,
and would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) The execution and delivery of the Xxxxxxx Agreement,
the Waiver, this Agreement and the other Transaction Documents by the
Company do not, and the performance of the Xxxxxxx Agreement, the
Waiver, this Agreement and the other Transaction Documents and the
consummation by the Company of the Contemplated Transactions will
not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Body (as hereinafter
defined) except for the filing of a Form D with the Securities and
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Exchange Commission and the filing of the Proxy Statement and the
filing of a Form 8-K and other applicable requirements, if any, of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or any state securities or "blue sky" laws ("Blue Sky Laws"), any
approval required by applicable rules of the markets in which the
Company's securities are traded and any required filing of the Voting
Agreement with the appropriate Governmental Body. For purposes of
this Agreement, "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any
governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or entity and any
court or other tribunal). Without limitation on the foregoing, the
consummation of the Contemplated Transactions, with the exception of
the Acquisition, does not require the approval of The Nasdaq Stock
Market (or any related regulatory body) or, other than the Required
Stockholder Approval, the stockholders of the Company.
2.8. Compliance. Except as set forth in the Company Disclosure
Letter, neither the Company nor any Subsidiary is in conflict with, or in
default or violation of (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or such Subsidiary or by which any
property or asset of the Company or such Subsidiary is bound or affected
("Legal Requirement") or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which the Company or such Subsidiary is a party or by
which the Company or such Subsidiary or any property or asset of the
Company or such Subsidiary is bound or affected (the "Material
Agreements"), in each case except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a
Material Adverse Effect. Neither the Company nor any Subsidiary has
received any written notice or communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with,
any Legal Requirement.
2.9. SEC Documents; Financial Statements.
(a) The information contained in the following documents
did not, as of the date of the applicable document, include any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they
were made, not misleading, as of their respective filing dates or, if
amended, as so amended (the following documents, together with any
other filings made by the Company with the SEC after the date of this
Agreement prior to the Closing Date, collectively, the "SEC
Documents"), provided that the representation in this sentence shall
not apply to any misstatement or omission in any SEC Document filed
prior to the date of this Agreement which was superseded by a
subsequent SEC Document filed prior to the Closing Date:
(i) the Company's Annual Report on Form 10-K for the
year ended December 31, 2003;
12
(ii) the Company's definitive Proxy Statement with
respect to its 2004 Annual Meeting of Stockholders, filed with
the Commission on November 24, 2004;
(iii) the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2004, June 30, 2004 and September
30, 2004; and
(iv) The Company's Current Reports on Form 8-K, filed
with the Commission on February 3, 2004, February 6, 2004, March
4, 2004, May 12, 2004, December 9, 2004 and December 16, 2004.
(b) In addition, as of the date of this Agreement and as of
the Closing Date, the Company Disclosure Letter, when read together
with the information, qualifications and exceptions contained in this
Agreement, does not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made
and the time period about which they were made, not misleading.
(c) The Company has filed all forms, reports and documents
required to be filed by it with the SEC since December 31, 2000,
including, without limitation, the SEC Documents. As of their
respective dates, the SEC Documents have complied, and will have
complied, as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and the rules
and regulations thereunder.
(d) The Company's Annual Report on Form 10-K for the year
ended December 31, 2003 includes consolidated balance sheets as of
December 31, 2002 and 2003 and consolidated statements of income for
the one year periods then ended (collectively, the "Form 10-K
Financial Statements").
(e) The Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004, includes consolidated balance sheets as
of June 30, 2004 and December 31, 2003 and consolidated statements of
operations and comprehensive loss for the quarters ended June 30,
2003 and 2004 and the six months ended June 30, 2003 and 2004 (the
"June 30 Form 10-Q Financial Statements").
(f) The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004, includes consolidated balance sheets as
of March 31, 2004 and December 31, 2003 and consolidated statements
of operations and comprehensive loss for the quarters ended March 31,
2003 and 2004, (the "March 31 Form 10-Q Financial Statements").
(g) The Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004, includes consolidated balance
sheets as of December 31, 2003 and September 30, 2004 and
consolidated statements of operations and comprehensive loss for the
13
quarters ended September 30, 2003 and September 30, 2004 and the nine
months ended September 30, 2004 and September 30, 2003 (the
"September 30 Form 10-Q Financial Statements" and together with the
Form 10-K Financial Statements, the March 31 Form 10-Q Financial
Statements and the June 30 Form 10-Q Financial Statements, the
"Financial Statements").
(h) The Financial Statements (including the related notes
and schedules thereto and all other financial information included in
the SEC Documents) fairly present in all material respects the
consolidated financial position, the results of operations, retained
earnings or cash flows, as the case may be, of the Company for the
periods set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments that would not be
material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during
the periods involved, except as may be noted therein.
(i) Any SEC Documents filed after the date of this
Agreement and prior to the Closing Date will not, as of the date of
the applicable document, include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading, as of their
respective filing dates or, if amended, as so amended.
2.10.Litigation. Except as set forth in the SEC Documents or the
Company Disclosure Letter, there are no claims, actions, suits,
investigations, inquiries or proceedings (each, an "Action") pending
against the Company or any of its Subsidiaries or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, at law
or in equity, or before or by any court, tribunal, arbitrator, mediator or
any federal or state commission, board, bureau, agency or instrumentality,
that, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality.
2.11.Absence of Certain Changes. Except (i) as specifically
contemplated by this Agreement or the Reorganization Agreement and related
agreements and the transactions contemplated thereby, or (ii) as set forth
in the Company Disclosure Letter, the SEC Documents, or the Financial
Statements, since September 30, 2004, there has not been (a) any Material
Adverse Change; (b) any return of any capital or other distribution of
assets to stockholders of Company (except to Company); (c) except for the
Acquisition, any acquisition (by merger, consolidation, acquisition of
stock and/or assets or otherwise) of any Person; or (d) any transactions,
other than in the ordinary course of business, consistent with past
practices and reasonable business operations ("Ordinary Course of
Business"), with any of its officers, directors, principal stockholders or
employees or any Person affiliated with any of such persons.
2.12.Proprietary Assets.
14
(a) For purposes of this Agreement, "Proprietary Assets"
shall mean all right, title and interest of the Company and the
Subsidiaries in and to the following items or types of property: (i)
every patent, patent application, trademark (whether registered or
unregistered), trademark application, trade name, fictitious business
name, service xxxx (whether registered or unregistered), service xxxx
application, copyright (whether registered or unregistered),
copyright application, maskwork, maskwork application, trade secret,
know-how, customer list, franchise, system, computer software,
computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other
intellectual property right or intangible asset other than goodwill;
and (ii) all licenses and other rights to use or exploit any of the
foregoing.
(b) Except as set forth in the Company Disclosure Letter,
the Company or its Subsidiaries have good, valid and marketable title
to each of the Proprietary Assets as owned by it, free and clear of
all liens and other encumbrances; has a valid right to use all
Proprietary Assets of third parties; and is not obligated to make any
payment to any Person for the use of any Proprietary Asset except as
set forth in the applicable license agreement. Except as set forth in
the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries has developed jointly with any other Person any material
Proprietary Asset with respect to which such other Person has any
rights.
(c) Each of the Company and its Subsidiaries has taken
commercially reasonable and customary measures and precautions to
protect and maintain the confidentiality and secrecy of all
Proprietary Assets of the Company and its Subsidiaries (except
Proprietary Assets whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the value of all
Proprietary Assets of the Company and its Subsidiaries. Except as set
forth in the Company Disclosure Letter, neither the Company nor any
of its Subsidiaries has (other than pursuant to license agreements
identified in the Company Disclosure Letter) disclosed or delivered
to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code,
of any Proprietary Asset, (ii) the object code, or any portion or
aspect of the object code, of any Proprietary Asset of the Company
and its Subsidiaries, except in the ordinary course of its business
or (iii) any patent applications (except as required by law).
(d) To the knowledge of the Company, (i) none of the
Proprietary Assets of the Company and its Subsidiaries infringes or
conflicts with any Proprietary Asset owned or used by any other
Person; (ii) neither the Company nor any Subsidiary is infringing,
misappropriating or making any unlawful use of any Proprietary Asset
owned or used by any other Person; and (iii) no other Person is
infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Proprietary Asset of the Company or any of its
Subsidiaries.
(e) Except as set forth in the Company Disclosure Letter,
excluding warranty claims received by Company or any of its
15
Subsidiaries in the ordinary course of business, there has not been
any claim by any customer or other Person alleging that any
Proprietary Asset of the Company or any of its Subsidiaries
(including each version thereof that has ever been licensed or
otherwise made available by the Company to any Person) does not
conform in all material respects with any specification,
documentation, performance standard, representation or statement made
or provided by or on behalf of the Company.
(f) To the knowledge of the Company, the Proprietary Assets
of the Company and its Subsidiaries constitute all the Proprietary
Assets necessary to enable the Company and its Subsidiaries to
conduct their respective businesses in the manner in which such
businesses have been and are being conducted. Except as set forth in
the Company Disclosure Letter, (i) neither the Company nor any
Subsidiary has licensed any of its Proprietary Assets to any Person
on an exclusive, semi-exclusive or royalty-free basis and (ii)
neither the Company nor any Subsidiary has entered into any covenant
not to compete or contract limiting such entity's ability to exploit
fully any of such entity's material Proprietary Assets or to transact
business in any material market or geographical area or with any
Person.
(g) Except as set forth in the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries has at any time
received any notice or other communication (in writing or otherwise)
of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or
used by any other Person.
0.00.Xx Adverse Actions. Except as set forth in the Company
Disclosure Letter, there is no existing, pending or, to the knowledge of
the Company, threatened termination, cancellation, limitation,
modification or change in the business relationship of the Company or any
of its Subsidiaries, with any supplier, customer or other Person except
such as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
2.14 Registration Rights. Except as set forth in the Investor
Rights Agreement, the SEC Documents, or in the Company Disclosure Letter,
the Company is not under any obligation to register under the Securities
Act any of its currently outstanding securities or any securities issuable
upon exercise or conversion of its currently outstanding securities nor is
the Company obligated to register or qualify any such securities under any
state securities or blue sky laws.
2.15.Corporate Documents. The Company's Certificate of
Incorporation and Bylaws, each as amended to date and prior to the Closing
Date, which have been requested and previously provided to the Investors
are true, correct and complete and contain all amendments thereto.
2.16.Disclosure. No representation or warranty of the Company
herein, no exhibit or schedule hereto, and no information contained or
referenced in the SEC Documents, when read together, contains or will
16
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were
made, not misleading. On or before 9:00 a.m., New York City Time, on the
third business day after the Closing Date, the Company shall file a
Current Report on Form 8-K describing the material terms of the
transactions contemplated by this Agreement, and disclosing such portions
of the Xxxxxxx Agreement, the Waiver and the other Transaction Documents
as contain material nonpublic information with respect to the Company that
has not previously been publicly disclosed by the Company, and attaching
as an exhibit to such Form 8-K a form of this Agreement. Except for
information that may be provided to the Investors pursuant to this
Agreement, the Company shall not, and shall use commercially reasonable
efforts to cause each of its officers, directors, employees and agents not
to, provide any Investor with any material nonpublic information regarding
the Company from and after the filing of such Form 8-K without the express
prior consent of such Investor. Notwithstanding the foregoing, this
prohibition shall not extend to information received by Xxxxxxxxx in the
normal course of the performance of Xxxxxxxxx'x financial advisory and
other services to the Company.
2.17.Use of Proceeds. The net proceeds received by the Company
from the sale of the Securities shall be used by the Company for working
capital and general corporate purposes, including without limitation to
support the operations, if any, of each of the Subsidiaries.
3. Representations and Warranties of the Investors. Each Investor
represents and warrants to the Company as follows:
3.1. Authorization. Such Investor (a) has full power and
authority to execute, deliver and perform this Agreement and the other
Transaction Documents to which it is a party and to incur the obligations
herein and therein and (b) if applicable has been authorized by all
necessary corporate or equivalent action to execute, deliver and perform
this Agreement and the other Transaction Documents and to consummate the
Contemplated Transactions. Each of this Agreement and the other
Transaction Documents is a valid and binding obligation of such Investor
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights and the availability of
equitable remedies (regardless of whether such enforceability is
considered in a proceeding at law or equity).
3.2. Brokers and Finders. Such Investor has not retained any
investment banker, broker or finder in connection with the Contemplated
Transactions.
4. Securities Laws.
4.1. Securities Laws Representations and Covenants of Investors.
(a) This Agreement is made with each Investor in reliance
upon such Investor's representation to the Company, which by such
Investor's execution of this Agreement such Investor hereby confirms,
17
that the Securities to be received by such Investor will be acquired
for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part
thereof such that such Investors would constitute an "underwriter"
under the Securities Act; provided that this representation and
warranty shall not limit the Investor's right to sell the Underlying
Shares pursuant to the Investor Rights Agreement or in compliance
with an exemption from registration under the Securities Act or the
Investor's right to indemnification under this Agreement or the
Investor Rights Agreement.
(b) Each Investor understands and acknowledges that the
offering of the Securities pursuant to this Agreement will not be
registered under the Securities Act or qualified under any Blue Sky
Laws, on the grounds that the offering and sale of the Securities are
exempt from registration and qualification, respectively, under the
Securities Act and the Blue Sky Laws.
(c) Each Investor covenants that, unless the Purchased
Shares, the Purchased Warrants, the Exchange Warrants, the Underlying
Shares or any other shares of capital stock of the Company received
in respect of the foregoing have been registered pursuant to the
Investor Rights Agreement being entered into among the Company and
the Investors, such Investor will not dispose of such securities
unless and until such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with an
opinion of counsel reasonably satisfactory in form and substance to
the Company to the effect that (i) such disposition will not require
registration under the Securities Act and (ii) appropriate action
necessary for compliance with the Securities Act and any applicable
state, local or foreign law has been taken; provided, however, that
an investor may dispose of such securities without providing the
opinion referred to above if the Company has been provided with
adequate assurance that such disposition has been made in compliance
with Rule 144 under the Securities Act (or any similar rule).
(d) Each Investor represents that: (i) such Investor has
such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of such Investor's
prospective investment in the Securities; (ii) such Investor has the
ability to bear the economic risks of such Investor's prospective
investment and can afford the complete loss of such investment; (iii)
such Investor has been furnished with and has had access to such
information as is in the Company Disclosure Letter together with the
opportunity to obtain such additional information as it requested to
verify the accuracy of the information supplied; and (iv) such
Investor has had access to officers of the Company and an opportunity
to ask questions of and receive answers from such officers and has
had all questions that have been asked by such Investor
satisfactorily answered by the Company.
(e) Each Investor further represents by execution of this
Agreement that such Investor qualifies as an "accredited investor" as
18
such term is defined under Rule 501 promulgated under the Securities
Act. Any Investor that is a corporation, a partnership, a limited
liability company, a trust or other business entity further
represents by execution of this Agreement that it has not been
organized for the purpose of purchasing the Securities.
(f) By acceptance hereof, each Investor agrees that the
Purchased Shares, the Purchased Warrants, the Exchange Warrants, the
Underlying Shares and any shares of capital stock of the Company
received in respect of the foregoing held by it may not be sold by
such Investor without registration under the Securities Act or an
exemption therefrom, and therefore such Investor may be required to
hold such securities for an indeterminate period.
4.2. Legends. All certificates for the Purchased Shares,
Purchased Warrants, Exchange Warrants and the Underlying Shares, and each
certificate representing any shares of capital stock of the Company
received in respect of the foregoing, whether by reason of a stock split
or share reclassification thereof, a stock dividend thereon or otherwise
and each certificate for any such securities issued to subsequent
transferees of any such certificate (unless otherwise permitted herein)
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT."
5. Additional Covenants of the Company.
5.1. Reports, Information, Authorization of Sufficient Shares.
(a) The Company shall cooperate with each Investor in
supplying such information as may be reasonably requested by such
Investor to complete and file any information reporting forms
presently or hereafter required by the SEC as a condition to the
availability of an exemption, presently existing or hereafter
adopted, from the Securities Act for the sale of any of the Purchased
Shares, the Purchased Warrants, the Exchange Warrants, the Underlying
Shares and shares of capital stock of the Company received in respect
of the foregoing.
(b) For so long as an Investor (or the successor or assign
of such Investor) holds either Securities or Underlying Shares, the
Company shall deliver to such Investor (or the successor or assign of
such Investor), contemporaneously with delivery to other holders of
Common Stock, a copy of each report of the Company delivered to
holders of Common Stock.
(c) Upon receiving the Required Stockholder Approval and at
every time thereafter, the Company shall keep reserved for issuance a
19
sufficient number of authorized but unissued shares of Series B Stock
and Common Stock (or other securities into which the Series A Stock
or Series B Stock are convertible or for which the Purchased Warrants
and Exchange Warrants, respectively, are then exercisable) so that
the Shares, the Series B Stock, the Purchased Warrants and the
Exchange Warrants may be converted or exercised to purchase Series B
Stock or Common Stock, as applicable (or such other securities).
5.2. Expenses; Indemnification.
(a) The Company agrees to pay on each Closing Date and hold
the Investors harmless against liability for the payment of, any
stamp or similar taxes (including interest and penalties, if any)
that may be determined to be payable in respect of the execution and
delivery of this Agreement, the issue and sale of any Securities,
Series B Stock and Underlying Shares, the expense of preparing and
issuing the Securities, Series B Stock and Underlying Shares, the
cost of delivering the Securities, Series B Stock and Underlying
Shares of each Investor to such Investor's address, insured in
accordance with customary practice, and the costs and expenses
incurred in the preparation of all certificates and letters on behalf
of the Company and of the Company's performance and compliance with
all agreements and conditions contained herein on its part to be
performed or complied with. Each Investor shall be responsible for
its out-of-pocket expenses arising in connection with the
Contemplated Transactions, except that, at the Closing, the Company
shall pay fees and disbursements of counsel to the Investors as set
forth in Section 6.9.
(b) The Company hereby agrees and acknowledges that the
Investors have been induced to enter into this Agreement and to
purchase the Securities hereunder, in part, based upon the
representations, warranties and covenants of the Company contained
herein. The Company hereby agrees to pay, indemnify and hold harmless
the Investors and any director, officer, partner, member, employee or
other affiliate of any Investor against all claims, losses and
damages resulting from any and all legal or administrative
proceedings, including without limitation, reasonable attorneys' fees
and expenses incurred in connection therewith (collectively, "Loss"),
resulting from a breach by the Company of any representation or
warranty of the Company contained herein or the failure of the
Company to perform any covenant made herein; provided that the
Company's liability under this Section 5.2(b) shall be limited to the
aggregate purchase price of the Securities.
(c) As soon as reasonably practicable after receipt by an
Investor of notice of any Loss in respect of which the Company may be
liable under this Section 5.2, the Investor shall give notice thereof
to the Company. Each Investor may, at its option, claim indemnity
under this Section 5.2 as soon as a claim has been threatened by a
third party, regardless of whether an actual Loss has been suffered,
so long as counsel for such Investor shall in good faith determine
that such claim is not frivolous and that such Investor may be liable
or otherwise incur a Loss as a result thereof and shall give notice
of such determination to the Company. Each Investor shall permit the
Company, at the Company's option and expense, to assume the defense
20
of any such claim by counsel mutually and reasonably satisfactory to
the Company and the Investors who are subject to such claim, and to
settle or otherwise dispose of the same; provided, however, that each
Investor may at all times participate in such defense at such
Investor's expense; and provided, further, that the Company shall
not, in defense of any such claim, except with the prior written
consent of each Investor subject to such claim, (i) consent to the
entry of any judgment that does not include as an unconditional term
thereof the giving by the claimant or plaintiff in question to each
Investor and its affiliates of a release of all liabilities in
respect of such claims or (ii) consent to any settlement of such
claim. If the Company does not promptly assume the defense of such
claim irrespective of whether such inability is due to the inability
of the afore-described Investors and the Company to mutually agree as
to the choice of counsel, or if any such counsel is unable to
represent one or more of the Investors due to a conflict or potential
conflict of interest, then an Investor may assume such defense and be
entitled to indemnification and prompt reimbursement from the Company
for such Investor's costs and expenses incurred in connection
therewith, including without limitation, reasonable attorneys' fees
and expenses. Such fees and expenses shall be reimbursed to the
Investors as soon as practicable after submission of invoices to the
Company.
(d) The Company shall maintain the effectiveness of the
Registration Statement (as defined in the Investor Rights Agreement)
under the Securities Act for as long as is required under the
Investor Rights Agreement.
6. Miscellaneous.
6.1. Entire Agreement; Successors and Assigns. This Agreement
and the other Transaction Documents constitute the entire contract between
the parties relative to the subject matter hereof and thereof, and no
party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein or therein. This Agreement and the other Transaction Documents
supersede any previous agreement among the parties with respect to the
Securities. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators,
heirs, successors and assigns of the parties. Except as expressly provided
herein, nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
6.2. Survival of Representations and Warranties. Notwithstanding
any right of the Investors fully to investigate the affairs of the Company
and notwithstanding any knowledge of facts determined or determinable by
any Investor pursuant to such right of investigation, each Investor has
the right to rely fully upon the representations, warranties, covenants
and agreements of the Company contained in this Agreement or in any
documents delivered pursuant to this Agreement. All such representations
and warranties of the Company shall survive the execution and delivery of
this Agreement and the Closing hereunder and shall continue in full force
and effect for one year after the Closing. The covenants of the Company
set forth in Section 5 shall remain in effect as set forth therein.
21
6.3. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of law. Each party hereby
irrevocably consents and submits to the jurisdiction of any New York State
or United States Federal Court sitting in the State of New York, County of
New York, over any action or proceeding arising out of or relating to this
Agreement and irrevocably consents to the service of any and all process
in any such action or proceeding by registered mail addressed to such
party at its address specified in Section 6.6 (or as otherwise noticed to
the other party). Each party further waives any objection to venue in New
York and any objection to an action or proceeding in such state and county
on the basis of forum non conveniens. Each party also waives any right to
trial by jury.
6.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5. Headings. The headings of the sections of this Agreement
are for convenience and shall not by themselves determine the
interpretation of this Agreement.
6.6. Notices. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery, delivery by fax (with answer back confirmed), addressed to a
party at its address or sent to the fax number shown below or at such
other address or fax number as such party may designate by three days
advance notice to the other party.
Any notice to the Investors shall be sent to the addresses set forth on
the signature pages hereof, with a copy to:
Xxxx & Hessen LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx
Fax Number: (000) 000-0000
Any notice to the Company shall be sent to:
GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Fax Number: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
22
Xxx Xxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxxxx
Fax: 000-000-0000
6.7. Rights of Transferees. Any and all rights and obligations
of each of the Investors herein incident to the ownership of Securities or
the Underlying Shares shall pass successively to all subsequent
transferees of such securities until extinguished pursuant to the terms
hereof.
6.8. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall
be deemed prohibited or invalid under such applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, and
such prohibition or invalidity shall not invalidate the remainder of such
provision or any other provision of this Agreement.
6.9. Expenses. Irrespective of whether any Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect
to the negotiation, execution, delivery and performance of this Agreement.
Each Investor shall be responsible for all costs incurred by such Investor
in connection with the negotiation, execution, delivery and performance of
this Agreement including, but not limited to, legal fees and expenses,
except that the Company shall pay at the Closing the reasonable legal fees
and expenses of Xxxx & Hessen LLP (the "Legal Fee"), as counsel to the
Investors, and shall pay additional legal expenses of the Investors
relating to this Offering as incurred. Xxxxxxxxx may, at his option,
deduct the Legal Fee from the purchase price paid to the Company for his
Securities for payment to Xxxx & Hessen LLP.
6.10.Amendments and Waivers. Unless a particular provision or
section of this Agreement requires otherwise explicitly in a particular
instance, any provision of this Agreement may be amended and the
observance of any provision of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
holders of 75% of the Purchased Shares (not including for this purpose any
Purchased Shares that have been sold to the public pursuant to a
registration statement under the Securities Act or an exemption
therefrom). Any amendment or waiver effected in accordance with this
Section 6.10 shall be binding upon each holder of any Securities at the
time outstanding (including securities into which such Securities are
convertible), each future holder of all such Securities, and the Company.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
23
SIGNATURE PAGE
TO
GRAPHON CORPORATION
SUBSCRIPTION AGREEMENT
Dated February 2, 2005
IF the PURCHASER is an INDIVIDUAL, please complete the following:
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 2nd
day of February, 2005.
Amount of Subscription:
$ ___________________________________
-----------
Print Name
Number of Units to be Purchased:
, including ___[SIGNATURES ON FILE]__________
------------ ---------------------------------
__________ Purchased Shares and Signature of Investor
related Purchased Warrants
-----------------------------------
Social Security Number
-----------------------------------
Address and Fax Number
-----------------------------------
E-mail Address
ACCEPTED AND AGREED:
GRAPHON CORPORATION
By: /S/ XXXXXXX XXXXX
----------------------------
Dated: February 2, 2005
24
SIGNATURE PAGE
TO
GRAPHON CORPORATION
SUBSCRIPTION AGREEMENT
Dated February 2, 2005
IF the INTERESTS will be held as JOINT TENANTS, as TENANTS IN COMMON, or
as COMMUNITY PROPERTY, please complete the following:
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 2nd
day of February, 2005.
Amount of Subscription: ___________________________________
$ Print Name of Purchaser
-----------
Number of Units to be Purchased: ___[SIGNATURES ON FILE]__________
---------------------------------
, including Signature of a Purchaser
_____________ Purchased Shares and
related Purchased Warrants
-----------------------------------
Social Security Number
-----------------------------------
Print Name of Spouse or Other
Purchaser
-----------------------------------
Signature of Spouse or Other
Purchaser
-----------------------------------
Social Security Number
-----------------------------------
Address
-----------------------------------
Fax Number
------------------------------------
E-mail Address
ACCEPTED AND AGREED:
GRAPHON CORPORATION
By: /S/ XXXXXXX XXXXX
----------------------------
Dated: February 2, 2005
25
SIGNATURE PAGE
TO
GRAPHON CORPORATION
SUBSCRIPTION AGREEMENT
Dated February 2, 2005
IF the PURCHASER is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY,
TRUST or OTHER ENTITY, please complete the following:
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 2nd
day of February, 2005.
Number of Units to be Purchased:
, including
_____________ Purchased Shares and
related Purchased Warrants
----------------------------------
Print Full Legal Name of Partnership,
Company, Limited Liability
Company, Trust or Other Entity
By: ___[SIGNATURES ON FILE]________
(Authorized Signatory)
Name:
--------------------------------
Title:
---------------------------------
Address and Fax Number:
-----------------------------------
Taxpayer Identification Number: ----------
Date and State of Incorporation or Organization:
------------------
Date on which Taxable Year Ends:
------------------------------
E-mail Address: ------------------------
ACCEPTED AND AGREED:
GRAPHON CORPORATION
By: /S/ XXXXXXX XXXXX
---------------------
Dated: February 2, 2005
26
Schedule 1.1(b)
INVESTORS
Name Purchased Purchased Total
Shares Warrants Purchase
Price
---------------------------------------------------------------------
Xxxxxxx Xxxxxxxxx
6,667 3,333 $180,009
---------------------------------------------------------------------
Xxxx Xxxxxx 3,704 1,852 $100,008
---------------------------------------------------------------------
Globis Capital Partners 11,111 5,555 $299,997
---------------------------------------------------------------------
Globis Overseas Fund Ltd. 3,704 1,852 $100,008
---------------------------------------------------------------------
Xxxxxxx Xxxxxxxx 1,852 926 $50,004
---------------------------------------------------------------------
Xxxxxx Xxxxxx 1,852 926 $50,004
---------------------------------------------------------------------
Xxxxx Xxxxxx 589 294 $15,903
---------------------------------------------------------------------
AIGH Investment Partners,
LLC 30,368 15,184 $819,936
---------------------------------------------------------------------
IDT Capital, Inc. 37,037 18,518 $999,999
---------------------------------------------------------------------
The Hewlett Fund 2,777 1,388 $ 74,979
---------------------------------------------------------------------
Xx. Xxxx Xxxxxx 5,897 2,948 $159,219
---------------------------------------------------------------------
Spira Family Investment
Partnership 2,778 1,389 $ 75,006
---------------------------------------------------------------------
Fame Associates 2,778 1,389 $ 75,006
---------------------------------------------------------------------
Cam Co 9,259 4,629 $249,993
---------------------------------------------------------------------
Anfel Trading Limited 12,962 6,481 $349,974
---------------------------------------------------------------------
Ganot Corporation 5,556 2,778 $150,012
---------------------------------------------------------------------
Mazel D&K, Inc. 7,407 3,703 $199,989
---------------------------------------------------------------------
X. Xxxx Xxxx III 740 370 $19,980
---------------------------------------------------------------------
Xxxx Xxxxxxxxxx 740 370 $19,980
---------------------------------------------------------------------
SLAM Partners 370 185 $9,990
---------------------------------------------------------------------
148,148 74,070 $3,999,996
---------------------------------------------------------------------
27
EXHIBITS AND SCHEDULES TO THE UNIT SUBSCRIPTION AGREEMENT
Schedule 1.1(b) Investors
Exhibit 1A: Form of Purchased Warrants
Exhibit 1B: Form of Exchange Warrants
Exhibit 1C Form of Certificate of Designations for Series A Stock and
Series B Stock
Exhibit 2: Form of Investor Rights Agreement
Exhibit 3: Form of Amendment to Financial Advisory Agreement
Exhibit 4: Legal Opinion
Exhibit 5: [Reserved]
Exhibit 6: Waiver
Exhibit 7: Voting Agreement
28
Exhibit 1A: Form of Purchased Warrants
[See Exhibit 4.1 to the Current Report on Form 8-K to which this Unit
Subscription Agreement is attached]
29
Exhibit 1B: Form of Exchange Warrants
Void after January xx, 2010 Warrant No. ________
This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933.
This Warrant and such shares may not be sold or transferred in the
absence of such registration or an exemption therefrom under said Act.
This Warrant and such shares may not be transferred except upon the
conditions specified in this Warrant, and no transfer of this Warrant
or such shares shall be valid or effective unless and until such
conditions shall have been complied with.
GRAPHON CORPORATION
COMMON STOCK PURCHASE WARRANT
GraphOn Corporation (the "Company"), having its principal office at
0000 Xxxxxx Xxxxxx, Xxxxx Xxxx, Xxxxxxxxxx 00000, hereby certifies that, for
value received, _____________, or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company at any time on or from time to time
after _________ __, 2005 and before 5:00 P.M., New York City time, on January__,
2010, or as extended in accordance with the terms hereof (the "Expiration
Date"), ______________ fully paid and non-assessable shares of Common Stock of
the Company, at the initial Purchase Price per share (as defined below) of
$0.40. The number and character of such shares of Common Stock and the Purchase
Price per share are subject to adjustment as provided herein.
Background. The Company agreed to issue warrants to purchase an aggregate
of 8,148,100 shares of Common Stock (subject to adjustment as provided herein)
(the "Warrants"), each Warrant entitling the Holder thereof to purchase one
share of Common Stock in exchange for the Series B Participating Convertible
Preferred Stock Purchase Warrants issued January __, 2010 in connection with a
private placement of the Company's Units (the "January Offering").
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
The term "Company" includes the Company and any corporation which
shall succeed to or assume the obligations of the Company hereunder. The term
"corporation" shall include an association, joint stock company, business trust,
30
limited liability company or other similar organization.
The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized upon the Original Issue Date or
thereafter, the Holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been suspended by
the happening of such a contingency).
The term "Convertible Securities" means (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by their terms convertible
into or exchangeable for Common Stock or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities.
The term "Exchange Act" means the Securities Exchange Act of 1934 as
the same shall be in effect at the time.
"Excluded Stock" shall mean (i) all shares of Common Stock issued or
issuable to employees, directors or consultants pursuant to any equity
compensation plan that is in effect on the date of this Agreement, (ii) all
shares of Common Stock issued or issuable to employees or directors pursuant to
any equity compensation approved by the stockholders of the Company after the
date of this Agreement, (iii) all shares of Common Stock issued or issuable to
employees, directors or consultants in the form of a hiring bonus, (iv) the
warrants issued to Xxxxxxx Securities Inc. ("Xxxxxxx") on the date hereof, (iv)
all shares of Common Stock issued or issuable to bona fide leasing companies,
strategic partners, or major lenders, (v) all shares of Common Stock issued or
issuable as the purchase price in a bona fide acquisition or merger (including
reasonable fees paid in connection therewith), or (vi) all shares of Common
Stock issued upon conversion or exercise of the Purchased Warrants or other
Convertible Securities outstanding on the date hereof.
"Fair Market Value" of assets or securities (other than Common Stock)
shall mean the fair market value as reasonably determined by the Board of
Directors of the Company in good faith in accordance with generally accepted
accounting principles.
The term "Holder" means any record owner of Warrants or Underlying
Securities.
The "Original Issue Date" means __________ __, 2005.
The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
31
The term "Purchase Price per share" means $0.40 per share, as
adjusted from time to time in accordance with the terms hereof.
The terms "registered" and "registration" refer to a registration
effected by filing a registration statement in compliance with the Securities
Act, to permit the disposition of Common Stock (or Other Securities) issued or
issuable upon the exercise of Warrants, and any post-effective amendments and
supplements filed or required to be filed to permit any such disposition.
The term "Securities Act" means the Securities Act of 1933 as the
same shall be in effect at the time.
The term "Underlying Securities" means any Common Stock or Other
Securities issued or issuable upon exercise of Warrants.
The term "Warrant" means, as applicable, this Warrant or each right
as set forth in this Warrant to purchase one share of Common Stock, as adjusted.
1. Registration, etc. The Holder shall have the rights to
registration of Underlying Securities issuable upon exercise of the Warrants
that are set forth in the Investor Rights Agreement, dated January __, 2005,
between the Company and the Holder (the "Investor Rights Agreement").
2. Sale or Exercise Without Registration. If, at the time of any
exercise, transfer or surrender for exchange of a Warrant or of Underlying
Securities previously issued upon the exercise of Warrants, such Warrant or
Underlying Securities shall not be registered under the Securities Act, the
Company may require, as a condition of allowing such exercise, transfer or
exchange, that the Holder or transferee of such Warrant or Underlying
Securities, as the case may be, furnish to the Company an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such exercise,
transfer or exchange may be made without registration under the Securities Act,
provided that the disposition thereof shall at all times be within the control
of such Holder or transferee, as the case may be, and provided further that
nothing contained in this Section 2 shall relieve the Company from complying
with any request for registration pursuant to the Investor Rights Agreement.
3. Exercise of Warrant.
3.1.Exercise in Full. Subject to the provisions hereof, this
Warrant may be exercised in full by the Holder hereof by surrender of this
Warrant, with the form of subscription at the end hereof duly executed by
such Holder, to the Company at its principal office accompanied by
payment, in cash or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock issuable upon exercise of this Warrant by the
Purchase Price per share, after giving effect to all adjustments through
the date of exercise.
32
3.2. Partial Exercise. Subject to the provisions hereof, this
Warrant may be exercised in part by surrender of this Warrant in the
manner and at the place provided in Section 3.1 except that the amount
payable by the Holder upon any partial exercise shall be the amount
obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment therein) designated by the Holder in the
subscription at the end hereof by (b) the Purchase Price per share. Upon
any such partial exercise, the Company at its expense will forthwith issue
and deliver to or upon the order of the Holder hereof a new Warrant or
Warrants of like tenor, in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of
this Warrant minus the number of such shares designated by the Holder in
the subscription at the end hereof.
3.3. Exercise by Surrender of Warrant or Shares of Common Stock.
In addition to the method of payment set forth in Sections 3.1 and 3.2 and
in lieu of any cash payment required thereunder, the Holder(s) of the
Warrants shall have the right at any time and from time to time to
exercise the Warrants in full or in part by surrendering shares of Common
Stock, this Warrant or other securities issued by the Company in the
manner and at the place specified in Section 3.1 as payment of the
aggregate Purchase Price per share for the Warrants to be exercised. The
number of Warrants or shares of Common Stock to be surrendered in payment
of the aggregate Purchase Price for the Warrants to be exercised shall be
determined by multiplying the number of Warrants to be exercised by the
Purchase Price per share, and then dividing the product thereof by an
amount equal to the Market Price (as defined below) . The number of shares
of Common Stock or such other securities to be surrendered in payment of
the aggregate Purchase Price for the Warrants to be exercised shall be
determined in accordance with the preceding sentence as if the other
securities had been converted into Common Stock immediately prior to
exercise or, in the case the Company has issued other securities which are
not convertible into Common Stock, at the Market Price thereof.
3.4. Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be (i) if the principal
trading market for such securities is an exchange, the average of the high
reported sale prices per share of Common Stock for the last five previous
trading days in which a sale was reported, as officially reported on any
consolidated tape, (ii) if the principal market for the Common Stock is
the over-the-counter market, the average of the high reported sale prices
per share on such trading days as set forth by such market or, (iii) if
the Common Stock is not quoted by such over-the-counter market, the
average of the average of the mean of the bid and asking prices per share
on such trading days as set forth in the National Quotation Bureau sheet
listing such securities for such days. Notwithstanding the foregoing, if
there is no reported high sale price, as the case may be, reported on any
of the ten trading days preceding the event requiring a determination of
Market Price hereunder, then the Market Price shall be the average of the
33
high bid and asked prices for such days; and if there is no reported high
bid and asked prices, as the case may be, reported on any of the ten
trading days preceding the event requiring a determination of Market Price
hereunder, then the Market Price shall be determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it or in the event of a dispute of the
determination of the Board of Directors of the Company provided in clause
(b) above, by arbitration in accordance with the rules then standing of
the American Arbitration Association, before a single arbitrator to be
chosen by the Company and reasonably acceptable to a majority in interest
of the holders of Warrants from a panel of persons qualified by education
and training to pass on the matter to be decided.
3.5. Company to Reaffirm Obligations. The Company will, at the
time of any exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to such
Holder any rights (including, without limitation, any right to
registration of the Underlying Securities) to which such Holder shall
continue to be entitled after such exercise in accordance with the
provisions of this Warrant, provided that if the Holder of this Warrant
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such Holder any such
rights.
3.6. Certain Exercises. If an exercise of a Warrant or Warrants
is to be made in connection with a registered public offering or sale of
the Company, such exercise may, at the election of the Holder, be
conditioned on the consummation of the public offering or sale of the
Company, in which case such exercise shall not be deemed effective until
the consummation of such transaction.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three business days thereafter, the Company at its own expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder hereof, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and non-assessable
shares of Common Stock or Other Securities to which such Holder shall be
entitled upon such exercise, plus, in lieu of any fractional share to which such
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the then current Market Price of one full share, together with any other stock
or other securities and property (including cash, where applicable) to which
such Holder is entitled upon such exercise pursuant to Section 5 or otherwise.
5. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or, if applicable, Other
Securities) shall have received, or (on or after the record date fixed for the
determination of stockholders eligible to receive) shall have become entitled to
receive, without payment therefor
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
34
(b) any cash paid or payable (including, without limitation, by
way of dividend), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
then, and in each such case the Holder of this Warrant, upon the exercise hereof
as provided in Section 3, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 5 which such Holder would hold on the
date of such exercise if on the Original Issue Date such Holder had been the
Holder of record of the number of shares of Common Stock called for on the face
of this Warrant and had thereafter, during the period from the Original Issue
Date to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this Section 5
receivable by such Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Sections 6 and 7 hereof. If the
number of shares of Common Stock outstanding at any time after the date hereof
is decreased by a combination or reverse stock split of the outstanding shares
of Common Stock, the Purchase Price per share shall be increased, and the number
of shares of Common Stock purchasable under this Warrant shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
6. Reorganization, Consolidation, Merger, etc. In case the Company
after the Original Issue Date shall (a) effect a reorganization, (b) consolidate
with or merge into any other person or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
Holder of this Warrant, upon the exercise hereof as provided in Section 3 at any
time after the consummation of such reorganization, consolidation or merger or
the effective date of such dissolution, as the case may be, shall be entitled to
receive (and the Company shall be entitled to deliver), in lieu of the
Underlying Securities issuable upon such exercise prior to such consummation or
such effective date, the stock and other securities and property (including
cash) to which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in Sections 5 and 7 hereof. The Company shall
not effect any such reorganization, consolidation, merger or sale, unless prior
to or simultaneously with the consummation thereof, the successor corporation
resulting from such consolidation or merger or the corporation purchasing such
assets or the appropriate corporation or entity shall assume, by written
instrument, the obligation to deliver to each Holder the shares of stock, cash,
other securities or assets to which, in accordance with the foregoing
provisions, each Holder may be entitled to and all other obligations of the
Company under this Warrant. In any such case, if necessary, the provisions set
forth in this Section 6 with respect to the rights thereafter of the Holders
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any Other Securities or assets thereafter deliverable on the
exercise of the Warrants.
35
7. Other Adjustments.
7.1. General. Other than as set forth in Sections 5 and 6, if
the Company shall issue any Common Stock other than Excluded Stock for a
consideration per share (determined as set forth below) less than the
Purchase Price per share in effect immediately prior to the issuance of
such Common Stock (the "New Issuance"), the Purchase Price per share in
effect immediately prior to each issuance shall forthwith be reduced to a
new Purchase Price per share determined by dividing (x) the sum of (I) the
consideration received by the Company in such issue less (II) the Fair
Market Value of any securities or other assets transferred by the Company
in units or otherwise together with such Common Stock ("Additional
Assets"), by (y) the number of shares of Common Stock (not including
shares issuable upon conversion or exercise of Additional Assets) issued
in the New Issuance (the "New Purchase Price"). The number of shares of
Common Stock for which this Warrant is exercisable shall be increased to a
new number of shares determined by multiplying the number of shares of
Common Stock for which this Warrant is exercisable prior to the New
Issuance by a fraction, the numerator of which is the Purchase Price per
share in effect prior to the New Issuance and the denominator is the New
Purchase Price per share.
7.2. Convertible Securities. (a) In case the Company shall issue
or sell any Convertible Securities (including without limitation
Additional Assets), other than Excluded Stock, after the date hereof,
there shall be determined the price per share for which Common Stock is
issuable upon the conversion or exchange thereof, such determination to be
made by dividing (i) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible
Securities, plus the then current aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (ii) the maximum number of shares of Common Stock of
the Company issuable upon the conversion or exchange of all of such
Convertible Securities.
(b) If the price per share so determined shall be less than the
applicable Purchase Price per share, then such issue or sale shall be
deemed to be an issue or sale for cash (as of the date of issue or sale of
such Convertible Securities) of such maximum number of shares of Common
Stock at the price per share so determined, provided that, if such
Convertible Securities shall by their terms provide for an increase or
increases or decrease or decreases, with the passage of time, in the
amount of additional consideration, if any, to the Company, or in the rate
of exchange, upon the conversion or exchange thereof, the adjusted
Purchase Price per share shall, forthwith upon any such increase or
decrease becoming effective, be readjusted to reflect the same, and
provided further, that upon the expiration of such rights of conversion or
exchange of such Convertible Securities, if any thereof shall not have
been exercised, the adjusted Purchase Price per share shall forthwith be
readjusted and thereafter be the price which it would have been had an
adjustment been made on the basis that the only shares of Common Stock so
issued or sold were issued or sold upon the conversion or exchange of such
Convertible Securities, and that they were issued or sold for the
consideration actually received by the Company upon such conversion or
exchange, plus the consideration, if any, actually received by the Company
36
for the issue or sale of all of such Convertible Securities which shall
have been converted or exchanged.
7.3. Rights and Options. (a) In case the Company shall grant any
rights or options to subscribe for, purchase or otherwise acquire Common
Stock, other than Excluded Stock, there shall be determined the price per
share for which Common Stock is issuable upon the exercise of such rights
or options, such determination to be made by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such rights or options, plus the then current amount of
additional consideration payable to the Company upon the exercise of such
rights or options, by (ii) the maximum number of shares of Common Stock of
the Company issuable upon the exercise of such rights or options.
(b) If the price per share so determined shall be less than the
applicable Purchase Price per share, then the granting of such rights or
options shall be deemed to be an issue or sale for cash (as of the date of
the granting of such rights or options) of such maximum number of shares
of Common Stock at the price per share so determined, provided that, if
such rights or options shall by their terms provide for an increase or
increases or decrease or decreases, with the passage of time, in the
amount of additional consideration payable to the Company upon the
exercise thereof, the adjusted Purchase Price per share shall, forthwith
upon any such increase or decrease becoming effective, be readjusted to
reflect the same, and provided, further, that upon the expiration of such
rights or options, if any thereof shall not have been exercised, the
adjusted Purchase Price per share shall forthwith be readjusted and
thereafter be the price which it would have been had an adjustment been
made on the basis that the only shares of Common Stock so issued or sold
were those issued or sold upon the exercise of such rights or options and
that they were issued or sold for the consideration actually received by
the Company upon such exercise, plus the consideration, if any, actually
received by the Company for the granting of all such rights or options,
whether or not exercised.
7.4. Other Securities. If any event occurs as to which the
provisions of this Warrant are strictly applicable and the application
thereof would not fairly protect the rights of the Holders in accordance
with the essential intent and principles of such provisions, then the
Company shall make such adjustments in the application of such provisions,
in accordance with such essential intent and principles, as the Board of
Directors, in good faith, determines to be reasonably necessary to protect
such rights as aforesaid. In case at any time or from time to time the
Company shall take any action in respect of its Common Stock, other than
any action described in Sections 5, 6 and 7, then, unless such action will
not have a materially adverse effect upon the rights of the Holders, the
number of shares of Common Stock or other stock for which this Warrant is
exercisable and the Purchase Price per share shall be adjusted in such
manner as the Board of Directors, in good faith, determines to be
equitable in the circumstances. In furtherance and not in limitation of
the foregoing, if any event occurs of the type contemplated by Section 7
but not expressly provided for by such Section (including, without
limitation, the granting of stock appreciation rights, phantom stock
rights or other rights or arrangements with equity features), then the
Company's Board of Directors shall make an appropriate adjustment in the
37
Purchase Price per share and the number of shares of Common Stock or Other
Securities issuable upon the exercise of a Warrant so as to protect the
rights of the Holders of such Warrants. No adjustment made pursuant to
this Section 7 shall increase the Purchase Price per share or decrease the
number of shares of Common Stock or Other Securities issuable upon
exercise of the Warrants.
8. Further Assurances. The Company will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock upon the exercise of all
Warrants from time to time outstanding.
9. Officer's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of the Warrants, the Company at its expense will
promptly cause its Chief Financial Officer to compute such adjustment or
readjustment in accordance with the terms of the Warrants and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, and the number of
shares of Common Stock outstanding or deemed to be outstanding, including a
statement of: (a) the consideration received or receivable by the Company for
any additional shares of Common Stock (or Other Securities) issued or sold or
deemed to have been issued or sold; (b) the number of shares of Common Stock (or
Other Securities) outstanding or deemed to be outstanding; and (c) the Purchase
Price and the number of shares of Common Stock to be received upon exercise of
this Warrant, in effect immediately prior to such adjustment or readjustment and
as adjusted or readjusted as provided in this Warrant. The Company will
forthwith mail a copy of each such certificate to each Holder.
10. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of its stockholders
for the purpose of determining the stockholders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or for the
purpose of determining stockholders who are entitled to vote in connection
with any proposed capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any transfer of all or substantially all the assets of the Company to
or consolidation or merger of the Company with or into any other person,
or
(b) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(c) any proposed issue or grant by the Company of any Common
Stock, Convertible Securities or any other securities, or any right or
option to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities (other than the issue of Common Stock
on the exercise of the Warrants),
then and in each such event the Company will mail or cause to be mailed to each
38
Holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any, as of which the Holders of record of Underlying Securities
shall be entitled to exchange their shares of Underlying Securities for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up and (iii) the amount and character of any
stock or other securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant and the persons
or class of persons to whom such proposed issue or grant is to be offered or
made. Such notice shall be mailed at least 20 days prior to the date therein
specified.
11. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of the Warrants.
12. Listing on Securities Exchanges; Registration; Issuance of
Certain Securities.
00.0.Xx furtherance and not in limitation of any other provision of
this Warrant, if the Company at any time shall list any Common Stock on any
national securities exchange or Nasdaq, the Company will, at its expense,
simultaneously list on such exchange or Nasdaq, upon official notice of issuance
upon the exercise of the Warrants, and maintain such listing of all shares of
Common Stock from time to time issuable upon the exercise of the Warrants; and
the Company will so list on any national securities exchange or Nasdaq, will so
register and will maintain such listing of, any Other Securities if and at the
time that any securities of like class or similar type shall be listed on such
national securities exchange or Nasdaq by the Company.
12.2.The Company shall not issue any (a) Convertible Securities or
similar securities that contain a provision that provides for any change or
determination of the applicable conversion price, conversion rate, or exercise
price (or a similar provision which might have a similar effect) based on the
Market Price or any other determination of the market price or value of the
Company's securities or any other market based or contingent standard, such as
so-called "toxic" or "death spiral" convertible securities; provided, however,
that this prohibition shall not include Convertible Securities or similar
securities the conversion or exercise price or conversion rate of which is fixed
on the date of issuance or subject to adjustment based upon the issuance by the
Company of additional securities, including without limitation, standard
anti-dilution adjustment provisions which are not based on calculations of the
Market Price or other variable valuations; and provided, further, that in no
event shall this provision be deemed to prohibit the transactions contemplated
in the January Offering; or (b) any preferred stock, debt instruments or similar
securities or investment instruments providing for (i) preferences or other
payments substantially in excess of the original investment by purchasers
thereof or (ii) dividends, interest or similar payments other than dividends,
interest or similar payments computed on an annual basis and not in excess,
directly or indirectly, of the lesser of a rate equal to (A) twice the interest
39
rate on 10 year US Treasury Notes and (B) 20%.
13. Exchange of Warrants. Subject to the provisions of Section 2
hereof, upon surrender for exchange of any Warrant, properly endorsed, to the
Company, as soon as practicable (and in any event within three business days)
the Company at its own expense will issue and deliver to or upon the order of
the Holder thereof a new Warrant or Warrants of like tenor, in the name of such
Holder or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
14. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
15. Warrant Agent. The Company may, by written notice to each Holder
of a Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of the
Warrants pursuant to Section 3, exchanging Warrants pursuant to Section 13, and
replacing Warrants pursuant to Section 14, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
16. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Negotiability, etc. Subject to Section 2 above, this Warrant is
issued upon the following terms, to all of which each Holder or owner hereof by
the taking hereof consents and agrees:
(a) subject to the provisions hereof, title to this Warrant may
be transferred by endorsement (by the Holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement and delivery;
(b) subject to the foregoing, any person in possession of this
Warrant properly endorsed is authorized to represent himself as absolute
owner hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof for value;
each prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bona fide purchaser and each
40
such bona fide purchaser shall acquire absolute title hereto and to all
rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
18. Notices, etc. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such Holder, or, until an address is so furnished,
to and at the address of the last Holder of this Warrant who has so furnished an
address to the Company.
19. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
Company and the Holders of outstanding Warrants to purchase a majority of the
shares of common Stock underlying all the outstanding Warrants. This Warrant is
being delivered in the State of New York and shall be construed and enforced in
accordance with and governed by the laws of such State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof.
20. Assignability. Subject to Section 2 hereof, this Warrant is fully
assignable at any time.
Dated: __________ __, 2005
GRAPHON CORPORATION
By:________________________________
Name:
Title:
Attest:___________________________
41
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: GRAPHON CORPORATION
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock of GraphOn Corporation, and herewith
makes payment therefor:
(i) of $ * or
(ii) by surrender of the number of Warrants included in the within
Warrant required for full exercise pursuant to Section 3.3 of the Warrant, and
requests that the certificates for such shares be issued in the name of, and
delivered to, ___________________, whose address is _______________________.
Dated:
----------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the Warrant)
________________________________________
(Address)
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
42
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _________________________ the right represented by the within Warrant to
purchase _________ of Common Stock of GraphOn Corporation to which the within
Warrant relates, and appoints ______________________________ Attorney to
transfer such right on the books of GraphOn Corporation with full power of
substitution in the premises. The Warrant being transferred hereby is one of the
Warrants issued by GraphOn Corporation as of __________ __, 2005 to purchase an
aggregate of 600,000 shares of Common Stock.
Dated:_______________
----------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the Warrant)
-----------------------------------
(Address)
------------------------------------
Signature guaranteed by a Bank or Trust
Company having its principal office in
New York City or by a Member Firm of the
New York or American Stock Exchange
43
Exhibit 1C Form of Certificate of Designations for Series A
Stock and Series B Stock
[See Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 3, 2005
44
Exhibit 2: Form of Investor Rights Agreement
[See Exhibit 4.2 to the Current Report on Form 8-K to which this Unit
Subscription Agreement is attached]
45
Exhibit 3: Form of Amendment to Financial Advisory Agreement
[See Exhibit 10.2 to the Current Report on Form 8-K to which this Unit
Subscription Agreement is attached]
46
Exhibit 4: Legal Opinion
1. The Company is a corporation incorporated and validly existing
and in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently
conducted.
3. The Company has the corporate power to execute and deliver
the Transaction Documents, to sell and issue the Securities
under the Subscription Agreement, to issue the Series B
Stock upon exercise of the Purchased Warrants, to issue the
Underlying Shares upon conversion of the Shares or Series B
Stock or upon exercise of the Exchange Warrants, and to
carry out and perform its obligations under the terms of the
Transaction Documents.
4. The authorized capital stock of the Company consists of 45,000,000 shares
of Common Stock and 5,000,000 shares of Preferred Stock.
5. The Shares issued under the Subscription Agreement are
validly issued, fully paid and nonassessable and free of any
preemptive or similar rights contained in the Certificate of
Incorporation or Bylaws of the Company, or, to our
knowledge, in any Material Agreement, except as specifically
provided in the Subscription Agreement or in the Company
Disclosure Letter. The shares of Series B Stock issuable
upon exercise of the Purchased Warrants have been duly and
validly reserved and, when issued in accordance with the
Purchased Warrants, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights
contained in the Certificate of Incorporation or Bylaws of
the Company, or, to our knowledge, in any Material
Agreement, except as specifically provided in the Agreement
or in the Company Disclosure Letter. Assuming the Required
Stockholder Approval is obtained and the Certificate of
Amendment is accepted for filing with the Secretary of State
of the State of Delaware, the Underlying Shares, when issued
upon conversion of the Shares or the Series B Shares or upon
exercise of the Exchange Warrants, will be validly issued,
fully paid and nonassessable.
6. All corporate action on the part of the Company, its board
of directors and its stockholders necessary for the
authorization, execution and delivery of the Transaction
Documents by the Company, the authorization, sale and
issuance of the Securities, the issuance of the Series B
Stock upon exercise of the Purchased Warrants, the
performance by the Company of its obligations under the
Transaction Documents and, assuming the Required Stockholder
Approval is obtained and the Certificate of Amendment is
accepted for filing with the Secretary of State of the State
of Delaware, the authorization of the Underlying Shares, has
been taken. Each of the Transaction Documents has been duly
and validly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms
except as rights to indemnity and contribution under the
Transaction Documents may be limited by applicable laws and
except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors'
rights, and subject to general equity principles, and to
limitations on the enforceability of waivers of rights to
jury trials and limitations on availability of equitable
relief, including specific performance.
47
7. The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations
under the Transaction Documents to be performed on or prior
to the Closing, and the issuance of the Securities do not
violate any provision of the Certificate of Incorporation or
Bylaws or any provision of any applicable federal or state
law, rule or regulation known to us to be customarily
applicable to transactions of this nature. The execution
and delivery by the Company of the Transaction Documents,
the performance by the Company of its obligations under the
Transaction Documents, and the issuance of the Securities do
not violate, or constitute a default under, any Material
Agreement.
8. With your consent based solely on a certificate of an
officer of the Company as to factual matters, the Company is
not, and immediately after giving effect to the sale of the
Securities in accordance with the Transaction Documents and
the application of the proceeds as described in Section 2.17
of the Subscription Agreement will not be required, to be
registered as an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
9. Subject to the accuracy of the Investors' representations in
Sections 3 and 4 of the Agreement, the issuance of the
Securities in conformity with the terms of the Agreement
and, if issued to the Investors at the Closing, the issuance
of the Series B Stock upon exercise of the Purchased
Warrants in conformity with the terms thereof, and the
issuance of the Underlying Shares upon conversion of the
Shares or Series B Stock or upon exercise of the Exchange
Warrants in conformity with the terms thereof, constitute
transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended.
48
Exhibit 5: [Reserved]
49
Exhibit 6: Waiver
WAIVER, CONSENT AND AMENDMENT
GRAPHON WARRANT HOLDERS
This WAIVER, CONSENT AND AMENDMENT (this "Waiver") is being executed and
delivered as of the 2nd day of February, 2005, by and among GraphOn Corporation,
a Delaware corporation ("GraphOn") and the investors listed on Exhibit A hereto
(collectively, the "Investors"), who hold 5-year warrants, dated January 29,
2004, exercisable to purchase an aggregate of 2,500,000 shares of common stock,
$.0001 par value per share of GraphOn (the "Common Stock"), at $0.33 per share
(the "Warrants") that were issued pursuant to that certain Unit Subscription
Agreement, dated as of January 29, 2004, among GraphOn and the Investors (or
their legal predecessors in interest) party thereto (the "Unit Subscription
Agreement"). All capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Warrants.
WHEREAS, as contemplated by Section 1.3(a) of the Unit Subscription
Agreement, the Investors (or their legal predecessors in interest) and GraphOn
entered into the Investor Rights Agreement, dated as of January 29, 2004 (the
"Investor Rights Agreement");
WHEREAS, pursuant to Sections 7.1, 7.2 and 7.3 of the Warrants,
respectively, an adjustment to the Purchase Price is required in the event of
the issuance by GraphOn of (i) Common Stock for a price per share (as calculated
in accordance with the provisions of Section 7.1 of the Warrants) that is less
than the Purchase Price of $.33 (the "Purchase Price") payable by the Investors,
(ii) Convertible Securities at a price per share of Common Stock issuable upon
the conversion thereof (as calculated in accordance with the provisions of
Section 7.2 of the Warrants) less than the Purchase Price and (iii) rights to
purchase Common Stock for total consideration at a price per share of Common
Stock issuable upon the conversion thereof (as calculated in accordance with the
provisions of Section 7.3 of the Warrants) less than the Purchase Price, (such
adjustment, the "Antidilution Protection");
WHEREAS, pursuant to Section 10 of the Investor Rights Agreement, the
proposed issuance by GraphOn of Common Stock, Convertible Securities or certain
rights to purchase Convertible Securities on any occasion subsequent thereto
entitles the Investors to purchase a number of shares of Common Stock or
Convertible Securities in proportion to their respective Proportionate
Percentages (as defined therein), to be issued on the terms set forth for the
proposed issuance thereof (such entitlement of the Investors, the "Preemptive
Rights");
WHEREAS, Xxxxxxx Securities, Inc. ("Xxxxxxx") and certain affiliates of
Xxxxxxx listed on Exhibit B hereto (collectively with Xxxxxxx, the "Xxxxxxx
Holders"), hold warrants in substantially the same form as the Warrants,
exercisable to purchase an aggregate of 250,000 shares of Common Stock at $.33
per share and 470,000 at $.23 per share, (the "Xxxxxxx Warrants");
WHEREAS, GraphOn presently anticipates entering into an additional Unit
50
Subscription Agreement (the "Subsequent Unit Subscription Agreement") providing
for the sale by GraphOn of an aggregate of 148,148 shares of Series A
Participating Convertible Preferred Stock of GraphOn (the "Series A Shares") in
units with 5-year warrants, exercisable to purchase an aggregate of up to 74,074
shares of Series B Participating Convertible Preferred Stock of GraphOn at
$40.00 per share (the "Series B Warrants"), all for an aggregate price of
$3,999,996 pursuant to agreements in the form provided herewith to the Investors
(the "Subsequent Offering");
WHEREAS, among the transactions contemplated as part of the Subsequent
Offering (as described in Section 2.6 of the Subsequent Unit Subscription
Agreement), GraphOn plans to issue to Xxxxxxx warrants to purchase an aggregate
of up to 14,814 shares of Series A Participating Convertible Preferred Stock of
GraphOn and up to 7,407 shares of Series B Participating Convertible Preferred
Stock of GraphOn (the "Xxxxxxx Warrants", and such issuance of the Xxxxxxx
Warrants, the "Xxxxxxx Issuance");
WHEREAS, the Convertible Securities to be purchased pursuant to the
Subsequent Offering and to be issued pursuant to the Xxxxxxx Issuance are
potentially convertible into shares of Common Stock at prices per share (as
calculated in accordance with the provisions of Sections 7.1, 7.2 and 7.3 of the
Warrants) that are or may be lower than the Purchase Price paid by the
Investors, thereby triggering the Antidilution Protection;
WHEREAS, GraphOn anticipates that it may issue up to 500,000 additional
shares of Common Stock in payment of certain fees and expenses of NES incurred
prior to or in connection with the Acquisition and in settlement of disputes
related to NES, which securities may be deemed sold at prices lower than the
Purchase Price, thereby triggering the Antidilution Protection (the "Expense
Shares" and such issuances of Expense Shares, the "Expense Issuances");
WHEREAS, the transactions that comprise the Subsequent Offering, the
Xxxxxxx Issuance and the Expense Issuances also trigger the Preemptive Rights of
the Investors;
WHEREAS, the Subsequent Offering will benefit the Investors by attracting
additional investors to invest in securities of GraphOn, thereby aiding the
overall financial condition of GraphOn, in which the Investors have a
significant interest as shareholders thereof;
WHEREAS, GraphOn will, simultaneously with the Subsequent Offering, issue
10,000,000 shares of its Common Stock (the "Acquisition Shares") in connection
with the Acquisition (as defined in the Subsequent Unit Subscription Agreement),
including 1,750,000 shares to be issued to affiliates of Sierra Patent Group
("Sierra") in payment of fees owed by NES to Sierra, and such shares constitute
Excluded Stock, as defined in the Warrants and the Investor Rights Agreement,
and do not trigger the Preemptive Rights or the Antidilution Protection; and
WHEREAS, GraphOn seeks, and the Investors are willing to provide, a waiver
of the Preemptive Rights and the Antidilution Protection, and GraphOn and the
Investors wish to waive the Preemptive Rights for the Subsequent Offering and
51
the Xxxxxxx Issuance, on the terms set forth in this Waiver.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Waiver and Consent Concerning Preemptive Rights. Each of the Investors
hereby irrevocably waives, pursuant to Section 14(a) of the Investor Rights
Agreement, such Investor's Preemptive Rights with respect to the issuance of (i)
Series A Shares and Series B Warrants in connection with the Subsequent
Offering, (ii) the Xxxxxxx Warrants, (iii) the Acquisition Shares, (iv) the
Expense Issuances (provided that in the case of each Expense Issuance, such
waiver in respect of such Expense Issuance is separately approved in writing by
Investors owning an aggregate of at least 1,250,000 Warrants) and (v) any other
Convertible Securities and any Common Stock issued or issuable upon exercise,
conversion or exchange of the Series A Shares, the Series B Warrants and the
Xxxxxxx Warrants. Each of the Investors hereby irrevocably consents, pursuant to
Section 14(a) of the Investor Rights Agreement, to the waiver by each of the
Investors that is provided for by this Section 1.
2. Waiver of Antidilution Protection. Each of the Investors hereby
irrevocably waives, pursuant to Section 19 of the Warrant, such Investor's
Antidilution Protection with respect to the issuance of (i) Series A Shares and
Series B Warrants in connection with the Subsequent Offering, (ii) the Xxxxxxx
Warrants, (iii) the Acquisition Shares, (iv) the Expense Issuances (provided
that in the case of each Expense Issuance, such waiver in respect of such
Expense Issuance is separately approved in writing by Investors owning an
aggregate of at least 1,250,000 Warrants) and (v) any other Convertible
Securities and any Common Stock issued or issuable upon exercise, conversion or
exchange of the Series A Shares, the Series B Warrants and the Xxxxxxx Warrants
at the prices specified in the Subsequent Unit Subscription Agreement and the
Xxxxxxx Warrants, respectively, and agrees that the Purchase Price shall not be
adjusted as a result of the Subsequent Offering or the Xxxxxxx Issuance.
3. Acknowledgement by Investors. Each of the Investors hereby acknowledges
that the restrictions contained in Section 12.2 of the Warrants and Section 11
of the Investor Rights Agreement, prohibiting GraphOn's issuance of certain
Convertible Securities and other specific types of securities as described
further therein (the "Prohibition"), are not violated or invoked in any manner
by the Subsequent Offering or the Xxxxxxx Issuance. Each of the Investors and
GraphOn hereby agrees that the Prohibition, as set forth in each of the Warrants
and the Investor Rights Agreement, shall be amended to read in full as follows:
"Issuance of Certain Securities. The Company shall not issue any (a)
Convertible Securities or similar securities that contain a provision that
provides for any change or determination of the applicable conversion
price, conversion rate, or exercise price (or a similar provision which
might have a similar effect) based on any determination of the market
price or other value of the Company's securities or any other market based
or contingent standard, such as so-called "toxic" or "death spiral"
convertible securities; provided, however, that this prohibition shall not
include Convertible Securities or similar securities the conversion or
exercise price or conversion rate of which is (i) fixed on the date of
issuance, (ii) subject to adjustment as a result of or in connection with
52
a business combination or similar transaction or (iii) subject to
adjustment based upon the issuance by the Company of additional
securities, including without limitation, standard anti-dilution
adjustment provisions which are not based on calculations of market price
or other variable valuations; and provided, further, that in no event
shall this provision be deemed to prohibit the transactions contemplated
in the Unit Subscription Agreement; (b) any preferred stock, debt
instruments or similar securities or investment instruments providing for
(i) preferences or other payments substantially in excess of the original
investment by purchasers thereof or (ii) dividends, interest or similar
payments other than dividends, interest or similar payments computed on an
annual basis and not in excess, directly or indirectly, of the lesser of a
rate equal to (A) twice the interest rate on 10 year US Treasury Notes and
(B) 20%."
4. Xxxxxxx Holders. Each of the Xxxxxxx Holders agrees to be bound, as if
such Xxxxxxx Holder were an Investor, to each of the waivers, acknowledgements,
consents, agreements and covenants of the Investors set forth in this Waiver.
5. Reservation of Rights. Except as specifically provided herein, the
Warrants, the Investor Rights Agreement, the Unit Subscription Agreement and all
other agreements, instruments and documents executed and/or delivered in
connection therewith, shall remain in full force and effect and are hereby
ratified and confirmed. Except as specifically provided herein, the execution,
delivery and effectiveness of this Waiver shall not constitute a waiver of any
provision of the Warrants, the Investor Rights Agreement, the Unit Subscription
Agreement or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
6. Governing Law. This Waiver shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
7. Successors and Assigns. This Waiver shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors or assigns. This Waiver shall also be binding upon
and inure to the benefit of any transferee of any of the Warrants or the
Registrable Shares (as defined in the Investor Rights Agreement).
8. Counterparts. This Waiver may be executed in a number of counterparts,
any of which together shall for all purposes constitute one Waiver, binding on
all the parties hereto notwithstanding that all such parties have not signed the
same counterpart.
53
IN WITNESS WHEREOF, the parties hereto have executed this Waiver as of the
date first above written.
GRAPHON CORPORATION
By:
-----------------------------
Name:
Title:
INVESTORS:
----------------------------------
Xxxxxxx Xxxxxxxxx
----------------------------------
Xxxx Xxxxxx
GLOBIS CAPITAL PARTNERS
By:
-----------------------------
Name:
Title:
----------------------------------
Xxxxxxx Xxxxxxxx
----------------------------------
Xxxxxx Xxxxxx
----------------------------------
Xxxxx Xxxxxx
54
----------------------------------
Xxxx Xxxxxxxxx
----------------------------------
Xxxxxxx Xxxxxxxx
THE HEWLETT FUND
By:
-----------------------------
Name:
Title:
XXXXXXX HOLDERS:
XXXXXXX SECURITIES, INC.
By:
-----------------------------
Name:
Title:
----------------------------------
Xxxxxx X. Xxxxxxxx
----------------------------------
Xxxx X. Xxxxxxxx
----------------------------------
Xxxxxx X. Xxxxxxxxx
55
----------------------------------
Xxxxxxxxx X. Xxxxxxxx
56
Exhibit A
SCHEDULE OF INVESTORS
Xxxxxxx Xxxxxxxxx
Xxxx Xxxxxx
Globis Capital Partners
Xxxxxxx Xxxxxxxx
Xxxxxx Xxxxxx
Xxxxx Xxxxxx
Xxxx Xxxxxxxxx
Xxxxxxx Xxxxxxxx
The Hewlett Fund
Xxxxxxx Securities, Inc.
57
Exhibit B
SCHEDULE OF XXXXXXX HOLDERS
Xxxxxxx Securities, Inc.
Xxxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxxx
Xxxxxxxxx X. Xxxxxxxx
58
Exhibit 7: Voting Agreement
VOTING AGREEMENT
This Voting Agreement (this "Agreement") is made as of the 2nd day of
February, 2005, by and among certain holders, as set forth in Schedule I hereto
(the "Management Holders"), of the Common Stock, $.0001 par value per share,
(the "Common Stock") of GraphOn Corporation, a Delaware corporation ("GraphOn"
or the "Company").
RECITALS
WHEREAS, it is contemplated that certain investors (collectively the
"Investors") are purchasing securities of GraphOn pursuant to a Unit
Subscription Agreement dated as of January __, 2005 (the "Unit Subscription
Agreement"), which provides, among other matters, for a Stockholders Meeting and
approval of the Certificate of Amendment, each as defined in the Unit
Subscription Agreement; and
WHEREAS, the Management Holders have entered into this Agreement regarding
the voting of the Common Stock acquired or beneficially owned by any Management
Holder, including without limitation any shares of capital stock of the Company
that may be issued upon exercise of any rights, warrants or options to purchase,
or other securities convertible into, capital stock of GraphOn and any rights,
warrants or options to purchase, or other securities convertible into such
capital stock (collectively, with the Common Stock, the "GraphOn Securities");
NOW, THEREFORE, in consideration of the Investors' consummating the
transactions contemplated by the Unit Subscription Agreement and other good and
valuable consideration, the adequacy of which is hereby affirmed, the parties
hereby agree as follows:
1. EFFECTIVENESS. This Agreement shall be effective as of the date hereof
(the "Effective Date").
2. AGREEMENT TO VOTE. (a) In connection with the Stockholders Meeting,
each Management Holder shall vote all of such Management Holder's GraphOn
Securities (or grant or withhold approval or consent) in favor of the
Certificate of Amendment.
(b) Each Management Holder shall be present, in person or by proxy,
at the Stockholders Meeting and any adjournments thereof so that all GraphOn
Securities owned of record or beneficially owned by such Management Holder may
be counted for the purpose of determining the presence of a quorum.
3. AFFILIATES. In the event any Affiliate of a Management Holder acquires
any Common Stock during the term of this Agreement, such Management Holder
agrees to use its best efforts to cause such Affiliate to become a party to this
Agreement. For purposes of this Agreement, an "Affiliate" of a Management Holder
shall be a person that controls, is controlled by or is under common control
59
with such Management Holder.
4. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
earlier to occur of (a) the sale or transfer to third parties not affiliated
with the Investors of more than 50% of the Common Stock beneficially owned by
the Investors as of the date hereof, and (b) the approval of the Certificate of
Amendment.
5. REPRESENTATIONS OF THE MANAGEMENT HOLDERS. Each Management Holder
hereby represents and warrants that such Management Holder (a) owns beneficially
and has the right to vote the Common Stock set forth opposite such Management
Holder's name on Schedule I, (b) such Management Holder has full power to enter
into this Agreement, and (c) such Management Holder will not take any action
inconsistent with the purposes and provisions of this Agreement.
6. ENFORCEABILITY; REMEDIES; EXPENSES. Each Management Holder, in such
person's capacity as a stockholder, shall take any and all actions necessary for
the enforceability of this Agreement under Delaware law, including without
limitation making or causing the Company to make all necessary filings or
actions, if any, required by applicable Delaware corporate law. Each Management
Holder expressly agrees that this Agreement shall be specifically enforceable in
any court of competent jurisdiction in accordance with its terms including,
without limitation, the right to entry of restraining orders and injunctions,
whether preliminary, mandatory, temporary, or permanent, against a violation,
threatened or actual, and whether or not continuing, of such obligation, without
the necessity of showing any particular injury or damage, and without the
posting of any bond or other security, it being acknowledged and agreed that any
such breach or threatened breach would cause immediate and irreparable injury
and that money damages alone would not provide an adequate remedy. The Investors
shall be third party beneficiaries of this Agreement with the right to enforce
it in accordance with its terms. Without limitation on the other remedies of the
Investors, the Management Holders shall bear all of the Investors' expenses,
including reasonable legal fees and expenses, incurred in connection with the
enforcement of this Agreement.
7. GENERAL PROVISIONS.
(a) All of the covenants and agreements contained in this Agreement
shall be binding upon, and inure to the benefit of, the respective parties and
their successors, assigns, heirs, executors, administrators and other legal
representatives, as the case may be.
(b) This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of Delaware
applicable to a contract made and to be performed in Delaware.
(c) This Agreement may be executed in one or more counterparts, each
of which will be deemed an original but all of which together shall constitute
one and the same instrument.
(d) If any provision of this Agreement shall be declared void or
60
unenforceable by any court or administrative board of competent jurisdiction,
such provision shall be deemed to have been severed from the remainder of the
Agreement, and this Agreement shall continue in all respects to be valid and
enforceable.
(e) Whenever the context of this Agreement shall so require, the use
of the singular number shall include the plural and the use of any gender shall
include all genders.
[Signature page follows]
61
IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement
as of the date first above written.
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Xxxxxx Xxxxxxxx
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August Xxxxx
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Xxxxxxx Xxxxxx
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Xxxxxx X. Xxxxxx
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Xxxxxxx Xxxxx
62
SCHEDULE I
Management Holders
Name and Address Shares of Common Stock Common Stock
Underlying Options
Xxxxxx Xxxxxxxx 53,820 440,000
c/o GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
August Xxxxx 150,760 135,000
c/o GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Xxxxxxx Xxxxxx 106,200 100,000
c/o GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Xxxxxx X. Xxxxxx 0 120,000
c/o GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
Xxxxxxx Xxxxx 15,000 420,000
c/o GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, XX 00000
