EXHIBIT (a)(7)
GRAPHON CORPORATION
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the Board
of Directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of the Grant
Date, an option to purchase up to the number of Option Shares specified in the
Grant Notice. The Option Shares shall be purchasable from time to time during
the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years measured from
the Grant Date and shall accordingly expire at the close of business on the
Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.
3. Limited Transferability. During Optionee's lifetime, this option shall be
exercisable only by Optionee and shall not be assignable or transferable other
than by will or by the laws of descent and distribution following Optionee's
death.
4. Dates of Exercise. This option shall become exercisable for the Option Shares
in one or more installments as specified in the Grant Notice. As the option
becomes exercisable for such installments, those installments shall accumulate,
and the option shall remain exercisable for the accumulated installments until
the Expiration Date or sooner termination of the option term under Paragraph 5
or 6.
5. Cessation of Service. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other than
death, Disability or Misconduct) while this option is outstanding, then Optionee
shall have a period of three (3) months (commencing with the date of such
cessation of Service) during which to exercise this option, but in no event
shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then the personal
representative of Optionee's estate or the person or persons to whom the option
is transferred pursuant to Optionee's will or in accordance with the laws of
inheritance shall have the right to exercise this option. Such right shall
lapse, and this option shall cease to be outstanding, upon the earlier of (i)
the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while this option
is outstanding, then Optionee shall have a period of twelve (12) months
(commencing with the date of such cessation of Service) during which to exercise
this option. In no event shall this option be exercisable at any time after the
Expiration Date.
Note: Exercise of this option on a date later than three (3) months
following cessation of Service due to Disability will result in loss
of favorable Incentive Option treatment, unless such Disability
constitutes Permanent Disability. In the event that Incentive Option
treatment is not available, this option will be taxed as a
Non-Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability, this option
may not be exercised in the aggregate for more than the number of Option Shares
in which Optionee is, at the time of Optionee's cessation of Service, vested
pursuant to the Vesting Schedule specified in the Grant Notice or the special
vesting acceleration provisions of Paragraph 6. Upon the expiration of such
limited exercise period or (if earlier) upon the Expiration Date, this option
shall terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised. To the extent Optionee is not vested
in the Option Shares at the time of Optionee's cessation of Service, this option
shall immediately terminate and cease to be outstanding with respect to those
shares.
(e) Should Optionee's Service be terminated for Misconduct, then this option
shall terminate immediately and cease to remain outstanding.
6. Accelerated Vesting.
(a) In the event of any Corporate Transaction, the Option Shares at the time
subject to this option but not otherwise vested shall automatically vest in full
so that this option shall, immediately prior to the effective date of the
Corporate Transaction, become exercisable for all of the Option Shares as
fully-vested shares and may be exercised for any or all of those vested shares.
However, the Option Shares shall not vest on such an accelerated basis if and to
the extent: (i) this option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested Option Shares are assigned to such successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option Shares at the time of the Corporate Transaction
(the excess of the Fair Market Value of those Option Shares over the Exercise
Price payable for such shares) and provides for subsequent payout in accordance
with the same Vesting Schedule applicable to those unvested Option Shares as set
forth in the Grant Notice.
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(b) Immediately following the Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with
the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate Transaction,
then this option shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) The Option Shares may also vest upon an accelerated basis in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
(e) This Agreement shall not in any way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the total number and/or class of securities
subject to this option and (ii) the Exercise Price in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Shareholder Rights. The holder of this option shall not have any shareholder
rights with respect to the Option Shares until such person shall have exercised
the option, paid the Exercise Price and become the record holder of the
purchased shares.
9. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any part of the
Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:
(i) Execute and deliver to the Corporation a Purchase Agreement for the
Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares in one or
more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but only to the
extent authorized by the Plan Administrator in accordance with
Paragraph 14.
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Should the Common Stock be registered under Section 12 of the
1934 Act at the time the option is exercised, then the Exercise
Price may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or any other person or
persons exercising the option) for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is exercised for vested Option Shares,
through a special sale and remittance procedure pursuant to which
Optionee (or any other person or persons exercising the option)
shall concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (b)to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it
to comply with the applicable requirements of Federal and state
securities laws.
(v) Make appropriate arrangements with the Corporation (or Parent or
Subsidiary employing or retaining Optionee) for the satisfaction of
all Federal, state and local income and employment tax withholding
requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the appropriate
legends affixed thereto.
(c) In no event may this option be exercised for any fractional shares.
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10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS
OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS ASSIGNS TO
REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE
AGREEMENT.
11. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of the Option Shares upon
such exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange (or the Nasdaq National Market, if applicable)
on which the Common Stock may be listed for trading at the time of such exercise
and issuance.
(b) The inability of the Corporation to obtain approval from any regulatory
body having authority deemed by the Corporation to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option shall relieve the
Corporation of any liability with respect to the non-issuance or sale of the
Common Stock as to which such approval shall not have been obtained. The
Corporation, however, shall use its best efforts to obtain all such approvals.
12. Successors and Assigns. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
13. Notices. Any notice required to be given or delivered to the Corporation
under the terms of this Agreement shall be in writing and addressed to the
Corporation at its principal corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. Financing. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse, interest-bearing
promissory note secured by those Option Shares. The payment schedule in effect
for any such promissory note shall be established by the Plan Administrator in
its sole discretion.
15. Construction. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the terms of the Plan. All decisions of the Plan Administrator with respect to
any question or issue arising under the Plan or this Agreement shall be
conclusive and binding on all persons having an interest in this option.
16. Governing Law. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
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17. Shareholder Approval. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which
may be issued under the Plan as last approved by the shareholders, then
this option shall be void with respect to such excess shares, unless
shareholder approval of an amendment sufficiently increasing the number of
shares of Common Stock issuable under the Plan is obtained in accordance
with the provisions of the Plan.
18. Additional Terms Applicable to an Incentive Option. In the event this option
is designated an Incentive Option in the Grant Notice, the following terms and
conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment as an
Incentive Option if (and to the extent) this option is exercised for one or more
Option Shares: (i) more than three (3) months after the date Optionee ceases to
be an Employee for any reason other than death or Permanent Disability or (ii)
more than twelve (12) months after the date Optionee ceases to be an Employee by
reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar year in which
granted if (and to the extent) the aggregate Fair Market Value (determined at
the Grant Date) of the Common Stock for which this option would otherwise first
become exercisable in such calendar year would, when added to the aggregate
value (determined as of the respective date or dates of grant) of the Common
Stock and any other securities for which one or more other Incentive Options
granted to Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. To the extent the exercisability of this option is
deferred by reason of the foregoing limitation, the deferred portion shall
become exercisable in the first calendar year or years thereafter in which the
One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b) would
not be contravened, but such deferral shall in all events end immediately prior
to the effective date of a Corporate Transaction in which this option is not to
be assumed, whereupon the option shall become immediately exercisable as a
Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or more other
options to purchase Common Stock which become exercisable for the first time in
the same calendar year as this option, then the foregoing limitations on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
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APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
B. Board shall mean the Corporation's Board of Directors.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. Corporation shall mean GraphOn Corporation, a Delaware corporation, and
any successor corporation to all or substantially all of the assets or
voting stock of GraphOn Corporation which shall by appropriate action
adopt the Plan.
G. Disability shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan
Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances. Disability shall be
deemed to constitute Permanent Disability in the event that such
Disability is expected to result in death or has lasted or can be expected
to last for a continuous period of twelve (12) months or more.
H. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
I. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
J. Exercise Price shall mean the exercise price payable per Option Share as
specified in the Grant Notice.
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K. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
X. Xxxxx Date shall mean the date of grant of the option as specified in the
Grant Notice.
X. Xxxxx Notice shall mean the Notice of Grant of Stock Option accompanying
the Agreement, pursuant to which Optionee has been informed of the basic
terms of the option evidenced hereby.
O. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.
P. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall
not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of Optionee or any other individual in the Service
of the Corporation (or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
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R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Option Shares shall mean the number of shares of Common Stock subject to
the option.
T. Optionee shall mean the person to whom the option is granted as specified
in the Grant Notice.
U. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
V. Plan shall mean the Corporation's ______ Plan.
W. Plan Administrator shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. Purchase Agreement shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. Service shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee,
a non-employee member of the board of directors or an independent
consultant.
Z. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
AA. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
BB. Vesting Schedule shall mean the vesting schedule specified in the Grant
Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
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