EXHIBIT 99.3
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:
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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.
D. 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.
e. 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
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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.
f. 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.
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.
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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.
(c) 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:
(d) 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
(e) 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.
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(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.
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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.
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.
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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.
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 California
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.
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.
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(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.
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 1998 Stock Option/Stock Issuance
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.
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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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