EXHIBIT (a)(8)
GRAPHON CORPORATION
STOCK PURCHASE AGREEMENT
AGREEMENT made this ______ day of ____________, 200__, by and
between GraphOn Corporation, a Delaware corporation, and
_____________________, Optionee under the Corporation's ____________ Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. Exercise. Optionee hereby purchases shares of Common Stock (the "Purchased
Shares") pursuant to that certain option (the "Option") granted Optionee
on ____________________, 200__ (the "Grant Date") to purchase up to
_______________ shares of Common Stock (the "Option Shares") under the
Plan at the exercise price of $___________ per share (the "Exercise
Price").
2. Payment. Concurrently with the delivery of this Agreement to the
Corporation, Optionee shall pay the Exercise Price for the Purchased
Shares in accordance with the provisions of the Option Agreement and shall
deliver whatever additional documents may be required by the Option
Agreement as a condition for exercise, together with a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
3. Shareholder Rights. Until such time as the Corporation exercises the
Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a shareholder (including voting,
dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. Restricted Securities. The Purchased Shares have not been registered under
the 1933 Act and are being issued to Optionee in reliance upon the
exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee
hereby confirms that Optionee has been informed that the Purchased Shares
are restricted securities under the 1933 Act and may not be resold or
transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is
prepared to hold the Purchased Shares for an indefinite period and that
Optionee is aware that SEC Rule 144 issued under the 1933 Act, which
exempts certain resales of unrestricted securities is not presently
available to exempt the resale of the Purchased Shares from the
registration requirements of the 1933 Act.
2. Restrictions on Disposition of Purchased Shares. Optionee shall make no
disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with a written summary of the
terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of this Agreement
applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with written assurances, in
form and substance satisfactory to the Corporation, that (a) the proposed
disposition does not require registration of the Purchased Shares under
the 1933 Act or (b) all appropriate action necessary for compliance with
the registration requirements of the 1933 Act or any exemption from
registration available under the 1933 Act (including Rule 144) has been
taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the Purchased Shares shall be
endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective
registration statement for the shares under such Act, (b) a "no
action" letter of the Securities and Exchange Commission with
respect to such sale or offer or (c) satisfactory assurances to the
Corporation that registration under such Act is not required with
respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with
the terms of a written agreement dated , 199 between the Corporation
and the registered holder of the shares (or the predecessor in
interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
1. Restriction on Transfer. Except for any Permitted Transfer, Optionee shall
not transfer, assign, encumber or otherwise dispose of any of the Purchased
Shares, which are subject to the Repurchase Right. In addition, Purchased
Shares, which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise disposed of in contravention of the First
Refusal Right or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the Corporation) to whom the
Purchased Shares are transferred by means of a Permitted Transfer must, as a
2
condition precedent to the validity of such transfer, acknowledge in writing to
the Corporation that such person is bound by the provisions of this Agreement
and that the transferred shares are subject to (i) the Repurchase Right, (ii)
the First Refusal Right and (iii) the Market Stand-Off, to the same extent such
shares would be so subject if retained by Optionee.
3. Market Stand-Off.
(a) In connection with any underwritten public offering by the Corporation of
its equity securities pursuant to an effective registration statement filed
under the 1933 Act, including the Corporation's initial public offering, Owner
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the Corporation or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time from and after the effective date of the final prospectus
for the offering as may be requested by the Corporation or such underwriters. In
no event, however, shall such period exceed one hundred eighty (180) days and
the Market Stand-Off shall in all events terminate two (2) years after the
effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and only if the
officers and directors of the Corporation are also subject to similar
restrictions.
(c) Any new, substituted or additional securities which are by reason of any
Recapitalization or Reorganization distributed with respect to the Purchased
Shares shall be immediately subject to the Market Stand-Off, to the same extent
the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may impose
stop-transfer instructions with respect to the Purchased Shares until the end of
the applicable stand-off period.
D. REPURCHASE RIGHT
1. Grant. The Corporation is hereby granted the right (the "Repurchase Right"),
exercisable at any time during the sixty (60)-day period following the date
Optionee ceases for any reason to remain in Service or (if later) during the
sixty (60)-day period following the execution date of this Agreement, to
repurchase at the Exercise Price any or all of the Purchased Shares in which
Optionee is not, at the time of his or her cessation of Service, vested in
accordance with the Vesting Schedule applicable to those shares or the special
vesting acceleration provisions of Paragraph D.6 of this Agreement (such shares
to be hereinafter referred to as the "Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall be exercisable
by written notice delivered to each Owner of the Unvested Shares prior to the
expiration of the sixty (60)-day exercise period. The notice shall indicate the
number of Unvested Shares to be repurchased and the date on which the repurchase
is to be effected, such date to be not more than thirty (30) days after the date
of such notice. The certificates representing the Unvested Shares to be
repurchased shall be delivered to the Corporation on or before the close of
business on the date specified for the repurchase. Concurrently with the receipt
3
of such stock certificates, the Corporation shall pay to Owner, in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Exercise Price previously paid for the Unvested Shares which
are to be repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase Right shall terminate
with respect to any Unvested Shares for which it is not timely exercised under
Paragraph D.2. In addition, the Repurchase Right shall terminate and cease to be
exercisable with respect to any and all Purchased Shares in which Optionee vests
in accordance with the Vesting Schedule. All Purchased Shares as to which the
Repurchase Right lapses shall, however, remain subject to (i) the First Refusal
Right and (ii) the Market Stand-Off.
4. Aggregate Vesting Limitation. If the Option is exercised in more than one
increment so that Optionee is a party to one or more other Stock Purchase
Agreements (the "Prior Purchase Agreements") which are executed prior to the
date of this Agreement, then the total number of Purchased Shares as to which
Optionee shall be deemed to have a fully-vested interest under this Agreement
and all Prior Purchase Agreements shall not exceed in the aggregate the number
of Purchased Shares in which Optionee would otherwise at the time be vested, in
accordance with the Vesting Schedule, had all the Purchased Shares (including
those acquired under the Prior Purchase Agreements) been acquired exclusively
under this Agreement.
5. Recapitalization. Any new, substituted or additional securities or other
property (including cash paid other than as a regular cash dividend) which is by
reason of any Recapitalization distributed with respect to the Purchased Shares
shall be immediately subject to the Repurchase Right and any escrow requirements
hereunder, but only to the extent the Purchased Shares are at the time covered
by such right or escrow requirements. Appropriate adjustments to reflect such
distribution shall be made to the number and/or class of Purchased Shares
subject to this Agreement and to the price per share to be paid upon the
exercise of the Repurchase Right in order to reflect the effect of any such
Recapitalization upon the Corporation's capital structure; provided, however,
that the aggregate purchase price shall remain the same.
6. Corporate Transaction.
(a) The Repurchase Right shall automatically terminate in its entirety, and all
the Purchased Shares shall vest in full, immediately prior to the consummation
of any Corporate Transaction, except to the extent the Repurchase Right is to be
assigned to the successor entity in such Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect following a Corporate
Transaction, such right shall apply to any new securities or other property
(including any cash payments) received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right. Appropriate adjustments shall be
made to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same. The new securities or other property (including any cash payments) issued
4
or distributed with respect to the Purchased Shares in consummation of the
Corporate Transaction shall be immediately deposited in escrow with the
Corporation (or the successor entity) and shall not be released from escrow
until Optionee vests in such securities or other property in accordance with the
same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated basis, and the
Purchased Shares shall immediately vest in full, in accordance with the terms
and conditions of any special addendum attached to this Agreement.
E. RIGHT OF FIRST REFUSAL
1. Grant. The Corporation is hereby granted the right of first refusal (the
"First Refusal Right"), exercisable in connection with any proposed transfer of
the Purchased Shares in which Optionee has vested in accordance with the
provisions of Article D. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of Purchased Shares in
which Optionee has vested desires to accept a bona fide third-party offer for
the transfer of any or all of such shares (the Purchased Shares subject to such
offer to be hereinafter referred to as the "Target Shares"), Owner shall
promptly (i) deliver to the Corporation written notice (the "Disposition
Notice") of the terms of the offer, including the purchase price and the
identity of the third-party offeror, and (ii) provide satisfactory proof that
the disposition of the Target Shares to such third-party offeror would not be in
contravention of the provisions set forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall, for a period of
twenty-five (25) days following receipt of the Disposition Notice, have the
right to repurchase any or all of the Target Shares subject to the Disposition
Notice upon the same terms as those specified therein or upon such other terms
(not materially different from those specified in the Disposition Notice) to
which Owner consents. Such right shall be exercisable by delivery of written
notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
5
4. Non-Exercise of the First Refusal Right. In the event the Exercise Notice
is not given to Owner prior to the expiration of the twenty-five (25)-day
exercise period, Owner shall have a period of thirty (30) days thereafter
in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms
(including the purchase price) no more favorable to such third-party
offeror than those specified in the Disposition Notice; provided, however,
that any such sale or disposition must not be effected in contravention of
the provisions of Articles B and C. The third-party offeror shall acquire
the Target Shares free and clear of the First Refusal Right, but the
acquired shares shall remain subject to the provisions of Article B and
Paragraph C.3. In the event Owner does not effect such sale or disposition
of the Target Shares within the specified thirty (30)-day period, the
First Refusal Right shall continue to be applicable to any subsequent
disposition of the Target Shares by Owner until such right lapses.
5. Partial Exercise of the First Refusal Right. In the event the Corporation
makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within five (5) business days after Owner's receipt
of the Exercise Notice, to effect the sale of the Target Shares pursuant
to either of the following alternatives:
(i) sale or other disposition of all the Target Shares to the third-party
offeror identified in the Disposition Notice, but in full compliance with
the requirements of Paragraph E.4, as if the Corporation did not exercise
the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares which the
Corporation has elected to purchase, such sale to be effected in
substantial conformity with the provisions of Paragraph E.3. The First
Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
(a) Any new, substituted or additional securities or other property which is by
reason of any Recapitalization distributed with respect to the Purchased Shares
shall be immediately subject to the First Refusal Right, but only to the extent
the Purchased Shares are at the time covered by such right.
(b) In the event of a Reorganization, the First Refusal Right shall remain in
full force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the
Reorganization, but only to the extent the Purchased Shares are at the time
covered by such right.
7. Lapse. The First Refusal Right shall lapse upon the earliest to occur of (i)
the first date on which shares of the Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the Board that
6
a public market exists for the outstanding shares of Common Stock or (iii) a
firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences, which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. Assignment. The Corporation may assign the Repurchase Right and/or the First
Refusal Right to any person or entity selected by the Board, including (without
limitation) one or more shareholders of the Corporation. If the assignee of the
Repurchase Right is other than (i) a wholly owned subsidiary of the Corporation
or (ii) the parent corporation owning one hundred percent (100%) of the
Corporation's outstanding capital stock, then such assignee must make a cash
payment to the Corporation, upon the assignment of the Repurchase Right, in an
amount equal to the excess (if any) of (i) the Fair Market Value of the
Purchased Shares at the time subject to the assigned Repurchase Right over (ii)
the aggregate repurchase price payable for the Purchased Shares.
2. No Employment or Service Contract. Nothing in this Agreement or in the Plan
shall confer upon Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Corporation (or any Parent or Subsidiary employing or retaining Optionee)
or of Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason, with or without cause.
3. Notices. Any notice required to be given under this Agreement shall be in
writing and shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, registered or certified, postage prepaid and properly addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
7
designate by ten (10) days advance written notice under this paragraph to all
other parties to this Agreement. 4. No Waiver. The failure of the Corporation in
any instance to exercise the Repurchase Right or the First Refusal Right shall
not constitute a waiver of any other repurchase rights and/or rights of first
refusal that may subsequently arise under the provisions of this Agreement or
any other agreement between the Corporation and Optionee. No waiver of any
breach or condition of this Agreement shall be deemed to be a waiver of any
other or subsequent breach or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make available, at the time
and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. Optionee Undertaking. Optionee hereby agrees to take whatever additional
action and execute whatever additional documents the Corporation may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. Agreement is Entire Contract. This Agreement constitutes the entire contract
between the parties hereto with regard to the subject matter hereof. This
Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the terms of the Plan.
3. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
4. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and upon Optionee, Optionee's permitted assigns and the legal representatives,
heirs and legatees of Optionee's estate, whether or not any such person shall
have become a party to this Agreement and have agreed in writing to join herein
and be bound by the terms hereof.
8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
GRAPHON CORPORATION
By:
--------------------------------------
Title:
-----------------------------------------
Address:
---------------------------------
OPTIONEE
By:
--------------------------------------
Title
-------------------------------------
Address:
----------------------------------
9
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
OPTIONEE'S SPOUSE
Name:
------------------------------------
Address:
----------------------------------
10
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _______________ hereby sell(s), assign(s) and
transfer(s) unto Graphon Corporation (the "Corporation"), _______________
(______) shares of the Common Stock of the Corporation standing in his or her
name on the books of the Corporation represented by Certificate No.:
_______________ herewith and do(es) hereby irrevocably constitute and appoint
___________________ Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated: ___________
Signature
--------------------------------
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
I-1
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. Federal Income Tax Consequences and Section 83(b) Election For Exercise of
Non-Statutory Option. If the Purchased Shares are acquired pursuant to the
exercise of a Non-Statutory Option, as specified in the Grant Notice, then
under Code Section 83, the excess of the Fair Market Value of the
Purchased Shares on the date any forfeiture restrictions applicable to
such shares lapse over the Exercise Price paid for such shares will be
reportable as ordinary income on the lapse date. For this purpose, the
term "forfeiture restrictions" includes the right of the Corporation to
repurchase the Purchased Shares pursuant to the Repurchase Right. However,
Optionee may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased
Shares cease to be subject to such forfeiture restrictions. Such election
must be filed with the Internal Revenue Service within thirty (30) days
after the date of the Agreement. Even if the Fair Market Value of the
Purchased Shares on the date of the Agreement equals the Exercise Price
paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election
is attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN
THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. Federal Income Tax Consequences and Conditional Section 83(b) Election For
Exercise of Incentive Option. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the
Purchased Shares:
(i) For regular tax purposes, no taxable income will be recognized at the time
the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased Shares on the
date the Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Purchased Shares lapse over (b) the
Exercise Price paid for the Purchased Shares will be includible in
Optionee's taxable income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the Purchased Shares,
then Optionee will recognize ordinary income in the year of such
disposition equal in amount to the excess of (a) the Fair Market Value of
the Purchased Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the Purchased Shares
lapse over (b) the Exercise Price paid for the Purchased Shares. Any
additional gain recognized upon the disqualifying disposition will be
either short-term or long-term capital gain depending upon the period for
which the Purchased Shares are held prior to the disposition.
II-1
(iv) For purposes of the foregoing, the term "forfeiture restrictions" will
include the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. The term "disqualifying disposition"
means any sale or other disposition1 of the Purchased Shares within two
(2) years after the Grant Date or within one (1) year after the exercise
date of the Option.
(v) In the absence of final Treasury Regulations relating to Incentive
Options, it is not certain whether Optionee may, in connection
with the exercise of the Option for any Purchased Shares at the
time subject to forfeiture restrictions, file a protective
election under Code Section 83(b) which would limit (a)
Optionee's alternative minimum taxable income upon exercise and
(b) Optionee's ordinary income upon a disqualifying disposition
to the excess of the Fair Market Value of the Purchased Shares on
the date the Option is exercised over the Exercise Price paid for
the Purchased Shares. Accordingly, such election if properly
filed will only be allowed to the extent the final Treasury
Regulations permit such a protective election. Page 2 of the
attached form for making the election should be filed with any
election made in connection with the exercise of an Incentive
Option.
--------
1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
II-2
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is _____
shares of the common stock of GraphOn Corporation.
(3) The property was issued on _________, 200__ .
(4) The taxable year in which the election is being made is the calendar year
200__.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of installments over a _________-year
period ending on ___________ , 200__.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $__________ per share.
(7) The amount paid for such property is $_________ per share.
(8) A copy of this statement was furnished to GraphOn Corporation for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _____________, 200__.
--------------------- -------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election. The election shall be effective to the full extent
permitted under the Code.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Purchase 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:
(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. Disposition Notice shall have the meaning assigned to such term in
Paragraph E.2.
H. Exercise Notice shall have the meaning assigned to such term in Paragraph
E.3.
I. Exercise Price shall have the meaning assigned to such term in Paragraph
A.1.
J. Fair Market Value of a share of Common Stock on any relevant date, prior
to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall
deem appropriate.
K. First Refusal Right shall mean the right granted to the Corporation in
accordance with Article E.
L. Grant Date shall have the meaning assigned to such term in Paragraph A.1.
▇. ▇▇▇▇▇ Notice shall mean the Notice of Grant of Stock Option pursuant to
which Optionee has been informed of the basic terms of the Option.
N. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.
A-1
O. Market Stand-Off shall mean the market stand-off restriction specified in
Paragraph C.3.
P. 1933 Act shall mean the Securities Act of 1933, as amended.
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 shall have the meaning assigned to such term in Paragraph A.1.
T. Option Agreement shall mean all agreements and other documents evidencing
the Option.
U. Optionee shall mean the person to whom the Option is granted under the
Plan.
V. Owner shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer
from Optionee.
W. 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.
X. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased
Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Optionee's will or the laws of
intestate succession following Optionee's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness
incurred by Optionee in connection with the acquisition of the Purchased
Shares.
Y. Plan shall mean the Corporation's _________________________ Plan.
Z. Plan Administrator shall mean either the Board or a committee of the Board
acting in its capacity as administrator of the Plan.
AA. Prior Purchase Agreement shall have the meaning assigned to such term in
Paragraph D.4.
BB. Purchased Shares shall have the meaning assigned to such term in Paragraph
A.1.
CC. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other
change affecting the Corporation's outstanding Common Stock as a class
without the Corporation's receipt of consideration.
DD. Reorganization shall mean any of the following transactions:
A-2
(i) a merger or consolidation in which the Corporation is not the surviving
entity,
(ii) a sale, transfer or other disposition of all or substantially all of the
Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving entity but in
which the Corporation's outstanding voting securities are transferred in
whole or in part to a person or persons different from the persons holding
those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in which the
Corporation is incorporated or to create a holding company structure.
EE. Repurchase Right shall mean the right granted to the Corporation in
accordance with Article D.
FF. SEC shall mean the Securities and Exchange Commission.
GG. Service shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
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, a
non-employee member of the board of directors or an independent
consultant.
HH. 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.
II. Target Shares shall have the meaning assigned to such term in Paragraph
E.2.
JJ. 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.
KK. Unvested Shares shall have the meaning assigned to such term in Paragraph
D.1.
A-3