GRAPHON CORPORATION
UNIT SUBSCRIPTION AGREEMENT
COMMON STOCK
AND WARRANTS
UNIT SUBSCRIPTION AGREEMENT (the "Agreement") dated as of January __,
2004 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 5,000,000 shares of common stock, $.0001 par
value per share (the "Shares"), of the Company (the "Common Stock") in Units
with 5-year warrants, in substantially the form attached hereto as Exhibit 1,
exercisable to purchase an aggregate of 2,500,000 shares of Common Stock at
$0.33 per share (the "Warrants") for an aggregate price of $1,150,000. The
proceeds are necessary for the development and continuance of the business of
the Company and each of its Subsidiaries.
The Company expects that certain of its officers and directors or their
affiliates may purchase Shares and Warrants under this Agreement.
Certain Definitions:
"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 which
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.
"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.
"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.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" shall mean 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 at the time
directly or indirectly owned by the Company or by one or more Subsidiaries.
"Underlying Shares" shall mean the shares of Common Stock issued or from
time to time issuable upon exercise of the Warrants.
"Unit" shall mean (i) 20,000 Shares and (ii) Warrants to purchase 10,000
shares of Common Stock.
In consideration of the mutual covenants contained herein, the
parties agree as follows:
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, 250
units (the "Units") at a price per Unit equal to $4,600.00, or a total of
(x) 5,000,000 Shares (the "Purchased Shares") and (y) Warrants to purchase
an aggregate of 2,500,000 shares of Common Stock (the "Purchased Warrants"
and collectively with the Purchased Shares, the "Securities"), for an
aggregate purchase price of $1,150,000.00.
(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 business
days of the date of this Agreement or such other date within ten business
days of this Agreement as agreed to by the Company and Investors who
subscribe for at least 150 Units (the "Closing Date"). The Closing shall
take place at the offices of ▇▇▇▇ & 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 Shares equal to 20,000 multiplied by the
number of Units purchased by the Investor.
(c) the Company shall issue and deliver to each Investor
purchasing Securities at the Closing Warrants equal to 10,000
multiplied by the number of Units purchased.
1.3. 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 and the Investors 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");
(b) the Company and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇") shall
execute and deliver a Financial Advisory Agreement, dated the Closing
Date, in the form attached as Exhibit 3 (the "Financial Advisory
Agreement", and with the Agreement, the Warrants, and the Investor
Rights Agreement, the "Transaction Documents");
(c) the Company shall deliver 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 as of the date of
this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing 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, and 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 such effect (the
"Closing Certificate");
(e) 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;
(f) All Securities delivered at the Closing shall have all
necessary stock transfer tax stamps (purchased at the expense of the
Company) affixed; and
(g) the Company shall pay the Investors' expenses to the
extent set forth in Section 6.9 hereof.
(h) the Company shall deliver to the Investors a certified
copy of its Certificate of Incorporation and by-laws and a
Certificate of Good Standing from the Secretary of State of the State
of Delaware.
(i) the Company, ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ (as defined in
Section 2.6) shall have entered into an agreement regarding the fees
owed by the Company to ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to 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 now conducted and to carry on its business as now
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 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 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 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).
2.2. Capitalization. As of January 22, 2004, the authorized
capital stock of the Company consisted of (i) 50,000,000 shares of Common
Stock, $.0001 par value, of which 16,618,459 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, convertible securities or obligations. Except as disclosed in the
Company Disclosure Letter, the Company owns 100% of the outstanding equity
of each Subsidiary.
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 the Underlying Shares
upon exercise of the Purchased Warrants has been duly authorized, and the
Underlying Shares have been, and at all times prior to such exercise will
have been, duly reserved for issuance upon such exercise and, 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.
2.6. Brokers and Finders. The Company has retained ▇▇▇▇▇▇▇
Securities, Inc. ("▇▇▇▇▇▇▇"), ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
as a broker in connection with the Contemplated Transactions. The Company
shall pay to ▇▇▇▇▇▇▇ a fee consisting of (i) $115,000 in cash and (ii)
warrants in substantially the same form as the Purchased Warrants (A) to
purchase an aggregate of 500,000 shares of Common Stock at $.23 per share
and (B) 250,000 shares of Common Stock at $.33 per share; and ▇▇▇▇▇▇▇
shall be a party to the Investor Rights Agreement.
2.7. No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance of 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 or By-Laws of the Company or such 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 which 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 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 this Agreement and the
other Transaction Documents by the Company do not, and the
performance of 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
Exchange Commission and 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"), and any
approval required by applicable rules of the markets in which the
Company's securities are traded. 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 does not require the
approval of The Nasdaq Stock Market (or any related regulatory body)
or 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, 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 date of this Agreement:
(i) the Company's Annual Report on Form 10-K for the year ended
December 31, 2002;
(ii) the Company's definitive Proxy Statement with respect to its
2003 Annual Meeting of Stockholders, filed with the Commission
on November 25, 2003;
(iii) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2003, June 30, 2003, and September 30, 2003;
and
(iv) The Company's Current Reports on Form 8-K, filed
with the Commission on March 31, 2003, May 15, 2003, May 16,
2003, and August 20, 2003.
(b) In addition, as of the date of this Agreement, 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, 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 filed prior to the date hereof
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, 2002, includes consolidated balance sheets as of
December 31, 2001 and 2002 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 March 31, 2003, includes consolidated balance sheets as
of December 31, 2002 and March 31, 2003 and consolidated statements
of income for the quarters ended March 31, 2002 and 2003 (the "March
31 Form 10-Q Financial Statements."
(f) The Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003, includes consolidated balance sheets as
of December 31, 2002 and June 30, 2003 and consolidated statements of
income for the quarters ended June 30, 2002 and 2003 and the six
months ended June 30, 2002 and 2003 (the "June 30 Form 10-Q Financial
Statements").
(g) The Company's Quarterly Report of Form 10-Q for the
quarter ended September 30, 2003, includes consolidated balance
sheets as of December 31, 2002 and September 30, 2003 and
consolidated statements of income for the quarters ended September
30, 2002 and September 30, 2003 and the nine months ended September
30, 2002 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.
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 as specifically
contemplated by this Agreement or set forth in the Company Disclosure
Letter, the SEC Documents, or the Financial Statements, since September
30, 2003, there has not been (i) any Material Adverse Change; (ii) any
return of any capital or other distribution of assets to stockholders of
Company (except to Company); (iii) any acquisition (by merger,
consolidation, acquisition of stock and/or assets or otherwise) of any
Person; or (iv) 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.
(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 ▇▇▇▇ (whether registered or unregistered), service ▇▇▇▇
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
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.
▇.▇▇.▇▇ 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, 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
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, 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
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 written consent of such Investor.
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 (i) 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 (ii) 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,
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 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 (x) such disposition will not require registration
under the Securities Act and (y) 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 is able
to fend for itself in the Contemplated Transactions; (ii) 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; (iii) 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; (iv) 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 (v) 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
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 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 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, 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 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) The Company shall keep reserved for issuance a
sufficient number of authorized but unissued shares of Common Stock
(or other securities into which the Purchased Warrants are then
exercisable) so that the Purchased Warrants may be converted or
exercised to purchase Common Stock (or such other securities) at any
time.
5.2. Expenses; Indemnification.
(a) The Company agrees to pay on each Closing Date and save
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 and the
Underlying Shares, the expense of preparing and issuing the
Securities and the Underlying Shares, the cost of delivering the
Securities and the 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
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.
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 or e-mail address 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:
▇▇▇▇ & Hessen LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice to the Company shall be sent to:
GraphOn Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
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 legal fees and expenses
of ▇▇▇▇ & 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. ▇▇▇▇▇▇▇▇▇ may deduct the Legal Fee from the purchase
price paid to the Company for his Securities for payment to ▇▇▇▇ & 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 which 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]
SIGNATURE PAGE
TO
GRAPHON CORPORATION
SUBSCRIPTION AGREEMENT
Dated January __, 2004
IF the PURCHASER is an INDIVIDUAL, please complete the following:
IN WITNESS WHEREOF, the undersigned has executed this Agreement this ___
day of January __ , 2004.
Amount of Subscription:
$ ___________________________________
-----------
Print Name
Number of Units to be Purchased:
, including ___________________________________
------------
__________ Purchased Shares and Signature of Investor
related Purchased Warrants,
subject to reduction pursuant to
the proviso in Section 1.1(b)
hereof
-----------------------------------
Social Security Number
-----------------------------------
Address and Fax Number
-----------------------------------
E-mail Address
ACCEPTED AND AGREED:
GRAPHON CORPORATION
By:
----------------------------
Dated:
--------------------
20
SIGNATURE PAGE
TO
GRAPHON CORPORATION
SUBSCRIPTION AGREEMENT
Dated January __ , 2004
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 ___
day of January __ , 2004.
Amount of Subscription: ___________________________________
$ Print Name of Purchaser
-----------
Number of Units to be Purchased: ___________________________________
, 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:
----------------------------
Dated:
--------------------
SIGNATURE PAGE
TO
GRAPHON CORPORATION
SUBSCRIPTION AGREEMENT
Dated June __ , 2004
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 ___
day of January, 2004.
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:
----------------------------------
(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:
----------------------------
Name:_______________________________
Title:
-------------------------
Dated:
------------------------
Schedule 1.1(b)
INVESTORS
EXHIBITS AND SCHEDULES TO THE UNIT SUBSCRIPTION AGREEMENT
Schedule 1.1(b) Investors
Exhibit 1: Form of Warrants
Exhibit 2: Form of Investor Rights Agreement
Exhibit 3: Form of Financial Advisory Agreement
Exhibit 4: Legal Opinion
Exhibit 5: Company Disclosure Letter
Exhibit 4
Form of Legal Opinion
The opinion will be subject to standard qualifications and exceptions,
reasonably acceptable to counsel for the Investors.
1. Each of the Company and its Subsidiaries is a corporation incorporated
and validly existing under, and by virtue of, the laws of the State of Delaware
and is in good standing under such laws.
2. Each of the Company and its Subsidiaries has requisite corporate power
to own and operate its properties and assets, and to carry on its business as
presently conducted.
3. The Company has all requisite legal and corporate power to execute and
deliver the Transaction Documents, to sell and issue the Units under the
Agreement, to issue the Underlying Shares upon exercise of the 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 50,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock.
5. The Shares issued under the Agreement are validly issued, fully paid
and nonassessable and free of any liens, encumbrances and preemptive or similar
rights contained in the Certificate of Incorporation or Bylaws of the Company,
or, to our knowledge, in any written agreement to which the Company is a party,
except as specifically provided in the Agreement or in the Company Disclosure
Letter; provided, however, that the Shares may be subject to restrictions on
transfer under applicable state and federal securities laws. The Underlying
Shares issuable upon exercise of the Warrants have been duly and validly
reserved and, when issued in accordance with the Warrants, will be validly
issued, fully paid and nonassessable; provided, however, that the Underlying
Shares may be subject to restrictions on transfer under applicable state and
federal securities laws.
6. All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution and delivery of the
Transaction Documents by the Company, the authorization, sale and issuance of
the Units, the issuance of the Underlying Shares upon exercise of the Warrants
and the performance by the Company of its obligations under the Transaction
Documents 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.
7. 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 Units 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 Units 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 Units in accordance with the Transaction Documents and
the application of the proceeds as described in Section 2.17 of the 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 Units in conformity with the terms
of the Agreement and the issuance of the Underlying Shares upon exercise of the
Warrants in conformity with the terms of the Warrant constitute transactions
exempt from the registration requirements of Section 5 of the Securities Act of
1933, as amended.
Very truly yours,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
LLP