INVESTOR RIGHTS AGREEMENT
This INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of February
2, 2005 by and among GraphOn Corporation, a Delaware corporation (the "Company")
and the investors listed on Exhibit A hereto (collectively the "Investors").
WHEREAS, the Company desires to sell to the Investors, and the Investors
desire to purchase an aggregate of 148,148 shares of Series A Stock of the
Company (the "Shares") and 5-year warrants, exercisable to purchase an aggregate
of 74,074 shares of Series B Stock of the Company (the "Warrant Shares") at
$40.00 per share (the "Series B Warrants"), upon the terms and conditions set
forth in that certain Unit Subscription Agreement, dated of even date herewith,
between the Company and the Investors (the "Unit Subscription Agreement");
WHEREAS, the terms of the Unit Subscription Agreement provide that it
shall be a condition precedent to the closing of the transactions thereunder for
the Company and the Investors to execute and deliver this Agreement; and
WHEREAS, at the Closing, Xxxxxxx Securities, Inc. ("Xxxxxxx") is receiving
warrants in substantially the same form as the Warrants, exercisable to purchase
an aggregate of 14,815 shares of Series A Stock and 7,407 shares of Series B
Stock, (the "Xxxxxxx Warrants"), and Xxxxxxx is entitled to share the Investors'
rights under this Agreement;
WHEREAS, capitalized terms used herein and not otherwise defined are
defined in the Unit Subscription Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the meanings provided
below:
"Additional Shares" shall mean any additional shares of Common Stock
which may be issued or become issuable from time to time upon conversion of the
Shares or Series B Stock or the exercise of a Purchased Warrant or a Xxxxxxx
Warrant, or a distribution with respect to, or in exchange for, or in
replacement of a Purchased Warrant, a Xxxxxxx Warrant, Shares or Warrant Shares,
as a result of anti-dilution provisions of a Purchased Warrant, a Xxxxxxx
Warrant, Shares or otherwise.
"Board of Directors" shall mean the board of directors of the
Company.
"Convertible Securities" means (i) options to purchase or rights to
subscribe for Common Stock, (ii) securities by their terms convertible into or
exchangeable for Common Stock or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities.
"Demand Registrable Shares" shall mean the Shares, the Warrant Shares
and all Other Securities and Additional Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all of the rules and regulations promulgated thereunder.
"Exchange Warrants" shall mean 5-year warrants, exercisable as of the
date hereof to purchase an aggregate of 7,407,400 shares of Common Stock at
$0.40 per share, subject to adjustment.
"Exchange Shares" shall mean shares of Common Stock from time to time
issuable upon exercise of Exchange Warrants.
"Excluded Stock" shall mean (i) all shares of Common Stock issued or
issuable to employees, directors or consultants pursuant to any equity
compensation plan that is in effect on the date of this Agreement, (ii) all
shares of Common Stock issued or issuable to employees or directors pursuant to
any equity compensation approved by the stockholders of the Company after the
date of this Agreement, (iii) all shares of Common Stock issued or issuable to
employees or directors in the form of a hiring bonus, (iv) all shares of Common
Stock issued or issuable to bona fide leasing companies, strategic partners, or
major lenders, (v) all shares of Common Stock issued or issuable as the purchase
price in a bona fide acquisition or merger (including reasonable fees paid in
connection therewith) or (vi) all shares of Common Stock issued upon conversion
or exercise of the Shares, Purchased Warrants, Exchange Warrants or other
Convertible Securities outstanding on the date hereof.
"Xxxxxxx Exchange Shares" shall mean shares of Common Stock from time
to time issuable upon exercise of Xxxxxxx Exchange Warrants.
"Xxxxxxx Exchange Warrants" shall mean 5-year warrants exercisable to
purchase 1,481,400 shares of Common Stock at $.27 per share and 740,700 shares
of Common Stock at $.40 per share.
"Xxxxxxx Warrants" shall mean warrants issued to Xxxxxxx Securities
Inc. ("Xxxxxxx") in substantially the same form as the Series B Warrants to
purchase an aggregate of 14,815 shares of Series A Stock at $27.00 per share and
7,407 shares of Series B Stock at $40.00 per share.
"Holder" shall mean the Investors and Xxxxxxx or any transferee of
the Purchased Warrants, Registrable Shares or Demand Registrable Shares that
were held by Investors or Xxxxxxx.
"Majority Holders" shall mean, at the relevant time of reference
thereto, those Holders holding more than fifty percent (50%) of the Registrable
Shares (or Demand Registrable Shares, to the extent that the Holders have a
right to make a Demand Registration Request pursuant to Section 3A hereof) Owned
by all of the Holders.
"Other Stockholders" refers to stockholders of the Company other than
the Holders.
"Other Securities" refers to any stock (other than Common Stock) and
other securities of the Company or any other person (corporate or otherwise)
2
that the Holders of the Shares or Purchased Warrants at any time shall be
entitled to receive, or shall have received, upon conversion of the Shares, the
exercise of the Purchased Warrants or conversion of the Warrant Shares, in lieu
of or in addition to Common Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to the terms of the Shares, Purchased Warrants,
Warrant Shares or otherwise.
"Own" shall mean to own beneficially, as that term is defined in the
rules and regulations of the SEC.
"Purchased Warrants" shall mean the Series B Warrants and any
securities into which the Series B Warrants may be converted (other than by
exercise of the Purchased Warrants by the holder thereof), including without
limitation, the Exchanged Warrants.
"Registrable Shares" shall mean any shares of Common Stock or Other
Securities issued or issuable from time to time upon conversion of the Shares,
the Warrant Shares, the Exchange Shares, the Xxxxxxx Exchange Shares or the
exercise of a Purchased Warrant, or a distribution with respect to, in exchange
for, or in replacement of Shares, the Warrant Shares, the Exchange Shares, the
Xxxxxxx Warrants or Purchased Warrants, including without limitation Additional
Shares.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act
and any successor or substitute rule, law or provision.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and all of the rules and regulations promulgated thereunder.
"Selling Expenses" shall mean all underwriting discounts, brokerage
and selling commissions applicable to the sale of Registrable Shares or Demand
Registrable Shares, including standard underwriters' cutbacks.
"Series A Stock" means the Series A Participating Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series B Stock" means the Series B Participating Convertible
Preferred Stock, par value $.01 per share, of the Company.
2. Effectiveness. This Agreement shall become effective upon the Closing.
3. Mandatory Registration. (a) No later than sixty (60) days after the
Closing, the Company will prepare and file with the SEC a registration statement
on Form S-1 for the purpose of registering (such registration, the "Mandatory
Registration") under the Securities Act all of the Registrable Shares for resale
by, and for the account of, the Investors and Xxxxxxx as selling stockholders
thereunder (the "Registration Statement"). The Registration Statement shall
permit the Investors to offer and sell, on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, any or all of the Registrable
3
Shares. Such Registration Statement also shall cover, to the extent allowable
under the Securities Act and the rules promulgated thereunder (including Rule
416), such indeterminate number of additional shares of Common Stock resulting
from stock splits, stock dividends or similar transactions with respect to the
Registrable Shares.
(b) The Company agrees to use commercially reasonable efforts to
cause the Registration Statement to become effective as soon as practicable
after filing, but in no event later than one hundred twenty (120) days after
filing.
(c) The Company shall be required to keep the Registration Statement,
as amended, effective until such date that is the earlier of (i) two years after
the Closing, (ii) the date when all of the Registrable Shares registered
thereunder shall have been sold or (iii) such time as all the Registrable Shares
held by the Investors can be sold pursuant to Rule 144(k) and without compliance
with the registration requirements of the Securities Act (such date is referred
to herein as the "Mandatory Registration Termination Date"). Thereafter, the
Company shall be entitled to withdraw the Registration Statement and the
Investors shall have no further right to offer or sell any of the Registrable
Shares pursuant to the Registration Statement (or any prospectus relating
thereto).
(d) The Company shall not grant any registration rights that are
senior to the registration rights of the Investors under this Agreement if such
registration rights would adversely affect the Investors' ability to sell
Registrable Shares pursuant to the Registration Statement. The Company
represents that no stockholders other than the Investors and Xxxxxxx have the
right to sell any Common Stock or other securities of the Company pursuant to
the Registration Statement other than rights granted pursuant to the
transactions contemplated by the Reorganization Agreement.
3A. Demand Registration
(a) Request for Registration. In the event that the Company has not
adopted the Certificate of Amendment on or prior to July 1, 2005, any Holder
shall have the right to make a written request to the Company (such request, a
"Demand Registration Request") that the Company effect a registration with
respect to all or a part of the Demand Registrable Shares held by such Holder
(such Holder, an "Initiating Holder"). In response to such Demand Registration
Request, the Company shall:
(i) promptly give written notice of the proposed
registration ("Demand Registration") to all other Holders (such notice, a
"Demand Registration Notice"); and
(ii) use its best efforts to file a registration statement
on Form S-3, if the Company is eligible for Form S-3, or, if not so
eligible, on Form S-1 (it being understood that the Company shall use
commercially reasonable efforts to qualify for registration on Form S-3
for secondary sales) (such registration statement filed pursuant to this
Section 3A, a "Demand Registration Statement") as soon as practicable, but
not later than thirty (30) days following receipt of the Demand
4
Registration Notice in order to permit or facilitate the sale and
distribution of all or such portion of such Demand Registrable Shares as
are specified in the Demand Registration Request, together with all or
such portion of the Demand Registrable Shares of any Holder or Holders
joining in such request (each such Holder, a "Requesting Holder") as are
specified in a written request received by the Company from such Holder or
Holders within ten (10) days after the Demand Registration Notice is given
by the Company. In the event any Holder requests a Demand Registration
pursuant to this Section 3A in connection with a distribution of Demand
Registrable Shares to its partners or other beneficial owners, the
registration shall provide for the resale by such partners or beneficial
owners, assuming such distribution was effected in accordance with
applicable securities laws.
(b) Limitations on Demand Registration. The Company shall not be
obligated to effect, or take any action to effect, any Demand Registration
pursuant to this Section 3A:
(i) if the Company has effected three (3) Demand
Registrations, provided that each of such Demand Registration Statements
has been declared or ordered effective in accordance with the terms of
this Agreement and provided that the Demand Registrable Shares subject to
the current Demand Registration Request could have been included for
registration, sale and distribution in connection with such previous two
effective registrations, but were not, for reasons other than the
marketing limitations connected to the underwriting of such previous
Demand Registrations, as described in Section 3A(c)(iii) below;
(ii) if the Demand Registrable Shares included in the
written registration requests of all Requesting Holders pursuant to
Section 3A(a) above (including the Demand Registrable Shares of the
Initiating Holder) do not have an anticipated aggregate public offering
price (before any underwriting discounts and commissions) of at least
US$3,000,000;
(iii)for a period of time not to exceed 90 days following
receipt of a Demand Registration Request if, in the discretion of the
Company's Board of Directors, effecting such Demand Registration at the
time of receipt of such Demand Registration Request would be seriously
detrimental to the Company;
(iv) if the Demand Registration Request is received by the
Company after February 2, 2009; or
(v) if the Certificate of Amendment is filed in Delaware
prior to the date which is thirty (30) days after receipt of the Demand
Registration Request.
(c) Underwriting.
(i) Request Regarding Underwriting. If the Requesting
Holders intend to distribute the Demand Registrable Shares covered by
their Demand Registration Request by means of an underwriting, they shall
so advise the Company as a part of such Demand Registration Request or
their response to any Demand Registration Notice given pursuant to Section
3A(a)(i).
5
(ii) Participation of Other Stockholders and the Company in
Underwritten Offering. The Demand Registration Statement may, subject to
the provisions described herein, include securities of the Company which
are held by Other Stockholders. If Other Stockholders request such
inclusion, Requesting Holders with more than 50% in interest of the Demand
Registrable Shares to be included in the Demand Registration Statement may
in their discretion offer to include the securities of such Other
Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 3A. If the
underwriter has not limited the number of Demand Registrable Shares to be
underwritten, the Company may include its or their securities for its own
account in such Demand Registration if the Underwriter Representative (as
defined below) so agrees and if the number of Demand Registrable Shares
will not thereby be limited.
(iii)Underwriting Agreement; Exclusion of Shares from
Offering. All Requesting Holders whose shares are to be included in an
underwriting pursuant to this Section 3A and the Company shall (together
with all Other Stockholders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the vote of the Holders of a majority of
the Demand Registrable Shares subject to the Demand Registration Request
(and reasonably acceptable to the Company) (such representative, the
"Underwriter Representative"). Notwithstanding any other provision of this
Section 3A, if the Underwriter Representative advises the Requesting
Holders in writing that marketing factors require a limitation on the
number of shares to be underwritten, the securities of the Company held by
Other Stockholders and then the Company shall be excluded from such Demand
Registration to the extent so required by such limitation. If, after the
exclusion of such shares, further reductions are still required, the
number of Demand Registrable Shares included in the registration by each
Requesting Holder (other than the Initiating Holder) shall be reduced on a
pro rata basis (based on the number of Demand Registrable Shares requested
to be so registered by each such Requesting Holder) by such minimum number
of shares as is necessary to comply with the requisite reduction. If,
after the exclusion of such shares, further reductions are still required,
the number of shares included in the registration by the Initiating Holder
shall be reduced by such minimum number of shares as is necessary to
comply with the requisite reduction; provided, however, that any Demand
Registrable Shares proposed to be included by any Requesting Holder in a
given registration that are excluded due to marketing limitations of the
underwriter shall not be subject to exclusion from future Demand
Registration Requests on the basis of Section 3A(i) above. No Demand
Registrable Shares or any other securities excluded from an underwriting
by reason of the underwriter's marketing limitation shall be included in
the Demand Registration related to such underwriting. If any Requesting
Holder, or Other Stockholder who has requested inclusion in such Demand
Registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Initiating Holder. Any
securities so withdrawn shall also be withdrawn from the Demand
Registration.
6
(d) Expenses of Registration. Expenses related to the registration
and sale of the Demand Registrable Shares pursuant to this Section 3A shall be
borne as provided by Section 6 hereof.
(e) Termination of Demand Registration Statement. At its expense, the
Company will keep any Demand Registration Statement effective for a period of
one hundred twenty (120) days or until the Holders (or in the case of a
distribution to the partners of such Holder, such partners), as applicable, have
completed the distribution described in the Demand Registration Statement
relating thereto, whichever first occurs (such date on which the Demand
Registration Statement need no longer be kept effective, subject to the further
provisions of this Section 3A(e), the "Demand Registration Termination Date");
provided, however, that (i) such 120-day period shall be extended for a number
of days equal to the number of days of all suspensions (as defined in Section
9(b)) occurring during such 120-day period; and (ii) in the case of any Demand
Registrations on Form S-3 (which are intended to be offered on a continuous or
delayed basis), such 120-day period shall be extended to the earlier of one year
from the date of the Demand Registration Statement's effectiveness or until all
Demand Registrable Shares registered pursuant to such Form S-3 are sold,
provided that Rule 415 under the Securities Act, or any successor rule under the
Securities Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (y) includes any prospectus required by Section
10(a) of the Securities Act or (z) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (y) and (z) above to be contained in periodic reports filed pursuant to
Section 12 or 15(d) of the Exchange Act in the Demand Registration Statement.
4. Obligations of the Company. In connection with the Company's
obligations (i) under Sections 3 and 3A hereof to file the Registration
Statement and Demand Registration Statements, respectively, with the SEC and to
use its reasonable efforts to cause the Registration Statement and Demand
Registration Statement to become effective as soon as practicable after filing,
the Company shall, as expeditiously and as reasonably as possible, subject to
Section 9 hereof:
(a) prepare and file with the SEC such amendments and supplements to
the Registration Statement or Demand Registration Statement, as the case may be,
and the prospectus used in connection therewith, as may be necessary, and, in
the case of the Mandatory Registration or a Demand Registration, as necessary to
keep the Registration Statement or Demand Registration Statement effective until
the Mandatory Registration Termination Date or Demand Registration Termination
Date, as the case may be;
(b) furnish to the selling Holders such reasonable number of copies
of the Registration Statement or Demand Registration Statement, as the case may
be, and a prospectus and preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents (including, without
limitation, prospectus amendments and supplements as are prepared by the Company
in accordance with Section 4(a) above) as the selling Holders may reasonably
7
request, in order to facilitate the public or other disposition of such selling
Holders' Registrable Shares and Demand Registrable Shares;
(c) use reasonable efforts to register and qualify the Registrable
Shares and Demand Registrable Shares covered by the Registration Statement or
Demand Registration Statement under such other securities laws or blue sky
("Blue Sky") laws of all states requiring such securities or Blue Sky
registration or qualification, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions;
(d) use reasonable efforts to cause all such Registrable Shares
and Demand Registrable Shares registered hereunder to be listed on each
securities exchange (including without limitation any Nasdaq market) on which
securities of the same class issued by the Company are then listed; and
(e) in the case of an underwritten Demand Registration pursuant to
Section 3A(c), on the date that such Demand Registrable Shares are delivered to
the underwriters for sale, (i) furnish an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering addressed to the underwriters, and (ii) cause the Company's independent
certified public accountants to furnish a letter, dated as of such date, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering addressed to the
underwriters.
5. Furnish Information. (a) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders and Xxxxxxx shall furnish to the Company such information
regarding them and the securities held by them as the Company shall reasonably
request and as shall be required in order to effect any registration by the
Company pursuant to this Agreement.
(b) The Registration Statement and, except in the case of an
underwriting pursuant to Section 3A(c), any Demand Registration Statement will
provide for a plan of distribution with respect to the Registrable Shares or
Demand Registrable Shares (as the case may be) substantially as follows: The
Registrable Shares and Demand Registrable Shares may be sold from time to time
by the Holders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then-current market price, or in negotiated
transactions. The Registrable Shares and Demand Registrable Shares may be sold
by one or more of the following: (i) a block trade in which the broker or dealer
so engaged will attempt to sell the shares as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to the resale registration statement; (iii) an exchange
distribution in accordance with the rules of such exchange; (iv) one or more
underwritten offerings on a firm commitment or best efforts basis; (v) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (vi) transactions between sellers and purchasers without a broker/dealer. In
addition, any securities covered by the Registration Statement and any Demand
Registration Statement that qualify for sale pursuant to Rule 144 may be sold
8
under Rule 144 rather than pursuant to the Registration Statement or Demand
Registration Statement. From time to time the selling Holders may engage in
short sales, short sales versus the box, puts and calls and other transactions
in securities of the issuer or derivatives thereof, and may sell and deliver the
shares in connection therewith. For so long as an Holder owns any Registrable
Shares, such Holder shall not maintain a Net Short Position. For purposes of
this Section, a "Net Short Position" by a person means a position whereby such
person has executed one or more sales of Common Stock that is marked as a short
sale and that is executed at a time when such Holder has no equivalent
offsetting long position in the Common Stock. For purposes of determining
whether an Holder has an equivalent offsetting long position in the Common
Stock, all Common Stock that is beneficially owned by such Holder shall be
deemed to be held long by such Holder. The Holders may also distribute the
shares to their partners, members, stockholders or shareholders to the extent
such distributions are effected in full compliance with applicable securities
laws and provided that the distributing Holders and the distributees provide the
Company with such documents and other information as reasonably requested by the
Company. In effecting sales, brokers or dealers engaged by the selling Holders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling Holders in amounts to be
negotiated immediately prior to the sale.
6. Expenses of Registration. All expenses incurred in connection with
the registration of the Registrable Shares and Demand Registrable Shares
pursuant to this Agreement, including without limitation all registration and
qualification and filing fees, printing expenses, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders selected by the selling Holders, shall be borne
by the Company; provided, however, that all Selling Expenses shall be borne by
the Holders of the Registrable Shares and Demand Registrable Shares so
registered and sold, pro rata on the basis of the number of their Registrable
Shares and Demand Registrable Shares (as the case may be) so registered and
sold.
7. Indemnification.
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each selling Holder (including the partners or officers, directors
and stockholders of such Holder), and each person, if any, who controls such
selling Holder within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Securities Act, the Exchange Act, and other federal or state
securities laws, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (i) arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in the
Registration Statement or Demand Registration Statement, in any preliminary
prospectus or final prospectus relating thereto or in any amendments or
supplements to the Registration Statement or Demand Registration Statement or
any such preliminary prospectus or final prospectus, (ii) arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading or (iii) arise out of any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any other federal or state
9
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any other federal or state securities law; and will
reimburse such selling Holder, or such officer, director or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld or delayed), nor shall
the Company be liable in any such case for any such loss, damage, liability or
action, to the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission made in connection with the Registration
Statement, or Demand Registration Statement, any preliminary prospectus or final
prospectus relating thereto or any amendments or supplements to the Registration
Statement or Demand Registration Statement or any such preliminary prospectus or
final prospectus, in reliance upon and in conformity with written information
furnished expressly for use in connection with the Registration Statement or
Demand Registration Statement or any such preliminary prospectus or final
prospectus by the selling Holders, any broker/dealer acting on their behalf or
controlling person with respect to them.
(b) To the extent permitted by law, Xxxxxxx and each selling Holder
will severally and not jointly indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement
or Demand Registration Statement, as the case may be, each person, if any, who
controls the Company within the meaning of the Securities Act, or any selling
Holders, and all other selling Holders against any losses, claims, damages or
liabilities to which the Company or any such director, officer, controlling
person or such other selling Holder may become subject to, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in the Registration Statement or
Demand Registration Statement or any preliminary prospectus or final prospectus,
relating thereto or in any amendments or supplements to the Registration
Statement or Demand Registration Statement or any such preliminary prospectus or
final prospectus, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent and only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration Statement
or Demand Registration Statement, in any preliminary prospectus or final
prospectus relating thereto or in any amendments or supplements to the
Registration Statement or Demand Registration Statement or any such preliminary
prospectus or final prospectus, in reliance upon and in conformity with written
information furnished by the selling Holder expressly for use in connection with
the Registration Statement or Demand Registration Statement, or any preliminary
prospectus or final prospectus; and such selling Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, or other selling Holder in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the liability of each selling Holder hereunder (when
aggregated with amounts contributed, if any, pursuant to Section 7(d)) shall be
limited to the difference (the "Difference") between the amount received by such
Holder from the sale of the Registrable Shares or Demand Registrable Shares
pursuant to the Registration Statement or Demand Registration Statement, as the
case may be, and the amount paid by such Holder to the Company for such
Registrable Shares or Demand Registrable Shares pursuant to the Unit
Subscription Agreement, and provided further, however, that the indemnity
10
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of those selling Holder(s) against
which the request for indemnity is being made (which consent shall not be
unreasonably withheld or delayed).
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in and, to the
extent the indemnifying party desires, jointly with any other indemnifying party
similarly noticed, to assume at its expense the defense thereof with counsel
mutually satisfactory to the indemnifying parties with the consent of the
indemnified party, which consent will not be unreasonably withheld, conditioned
or delayed. In the event that the indemnifying party assumes any such defense,
the indemnified party may participate in such defense with its own counsel and
at its own expense, provided, however, that the counsel for the indemnifying
party shall act as lead counsel in all matters pertaining to such defense or
settlement of such claim and the indemnifying party shall only pay for such
indemnified party's reasonable legal fees and expenses for the period prior to
the date of its participation in such defense, and provided further, however,
that the indemnified party (together with all indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the reasonable fees and expenses of such separate counsel
to be paid by the indemnifying party, if the representation of the indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between the indemnified party and
any other party represented by such counsel in such proceeding. Notwithstanding
the foregoing, the indemnifying party shall not be obligated to pay the fees of
more than one separate counsel. The failure to notify an indemnifying party of
the commencement of any such action will not relieve such indemnifying party of
any liability to the indemnified party under this Section 7 (except to the
extent that such failure materially and adversely affects the indemnifying
party's ability to defend such action), nor shall the omission so to notify an
indemnifying party relieve such indemnifying party of any liability which it may
have to any indemnified party otherwise other than under this Section 7. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation and otherwise in form and substance reasonably satisfactory to the
indemnified party.
(d) If the indemnification provided in this Section 7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that shall have resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations; provided that in no event shall any contribution by an Holder
11
under this Section 7(d), when aggregated with amounts paid, if any, pursuant to
Section 7(b), exceed the Difference. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the Company, Xxxxxxx and Holders under this
Section 7 shall survive the completion of any offering of Registrable Shares or
Demand Registrable Shares in a Registration Statement or Demand Registration
Statement under Sections 3 and 3A, respectively, and otherwise.
8. Reports Under the Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 and any other rule or regulation of the SEC
that may at any time permit the Holders to sell the Registrable Shares and
Demand Registrable Shares to the public without registration, the Company agrees
to use reasonable efforts: (a) to make and keep public information available, as
those terms are understood and defined in Rule 144, (b) to file with the SEC in
a timely manner all reports and other documents required to be filed by an
issuer of securities registered under the Securities Act or the Exchange Act and
(c) undertake any additional actions reasonably necessary to maintain the
availability of the Registration Statement and Demand Registration Statement or
the use of Rule 144.
9. Selling Procedures. Any sale of Registrable Shares or Demand
Registrable Shares pursuant to a registration statement filed in accordance with
Section 3 or 3A hereof shall be subject to the following conditions and
procedures:
(a) Updating the Prospectus.
(i) If the Company informs the selling Holder that the
Registration Statement or Demand Registration Statement or final prospectus then
on file with the SEC is not current or otherwise does not comply with the
Securities Act, the Company shall use its commercially reasonable efforts to
provide to the selling Holder a current prospectus that complies with the
Securities Act as soon as practicable, but in no event later than three (3)
business days after delivery of such notice.
(ii) If the Company requires more than three (3) business days to
update the prospectus under Section 9(a)(i) above, the Company shall have the
right to delay the preparation of a current prospectus that complies with the
Securities Act without explanation to Xxxxxxx or such Holder, subject to the
limitations set forth in Section 9(b) below, for a total of not more than ninety
(90) days in the aggregate during any twelve-month period.
(b) General. Notwithstanding the foregoing, upon receipt of any
notice from the Company of (i) any request by the SEC or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement or Demand Registration Statement for amendments or
supplements to the Registration Statement or Demand Registration Statement or
related prospectus or for additional information relating to the Registration
Statement or Demand Registration Statement (ii) the issuance by the SEC or
12
any other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or Demand
Registration Statement or the initiation of any proceedings for that purpose,
(iii) the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Shares or Demand Registrable Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, (iv) the
happening of any event which makes any statement made in the Registration
Statement or Demand Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
the Registration Statement or Demand Registration Statement or prospectus so
that, in the case of the Registration Statement or Demand Registration
Statement, it will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the
prospectus, it will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (v) that, in the judgment of the Board of Directors, it is
advisable to suspend use of the prospectus for a discrete period of time due
to pending corporate developments, public filings with the SEC or that there
exists material nonpublic information about the Company that the Board of
Directors, acting in good faith, determines not to disclose in a registration
statement, then the Company may suspend use of the prospectus (each a
"Suspension"), in which case the Company shall promptly so notify each Holder
and each Holder shall not dispose of Registrable Shares or Demand Registrable
Shares (as the case may be) covered by the Registration Statement or Demand
Registration Statement or prospectus until copies of a supplemented or
amended prospectus are distributed to the Holders or until the Holders are
advised in writing by the Company that the use of the applicable prospectus
may be resumed; provided, however, that, notwithstanding the foregoing, the
Company may suspend use of the prospectus pursuant to Sections 9(a)(ii),
9(b)(iv) and 9(b)(v), and an Holder may be prohibited from selling or
otherwise disposing of the Registrable Shares or Demand Registrable Shares
covered by the Registration Statement or Demand Registration Statement or
prospectus, for no more than ninety (90) days in the aggregate during any
such twelve-month period. The Company shall use its best efforts to ensure
the use of the prospectus may be resumed as soon as practicable. The Company
shall use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of the Registration Statement or Demand Registration
Statement, or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the securities for sale in any
jurisdiction, at the earliest practicable moment. The Company shall, upon the
occurrence of any event contemplated by clause (iv), prepare a supplement or
post-effective amendment to the Registration Statement or Demand Registration
Statement or a supplement to the related prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Shares or
Demand Registrable Shares being sold thereunder, such prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
10. Pre-emptive Rights. In the event that at any time after the date
hereof until the date that is five (5) years after the Closing Date, the Company
13
proposes to issue additional shares of Common Stock or Convertible Securities,
other than Excluded Stock, the Company shall send a notice (an "Additional Share
Notice") to the Holder setting forth the terms of such proposed issuance. The
Holder shall be entitled to purchase the proposed number of shares of Common
Stock or Convertible Securities, proposed to be issued in proportion to the
Holder's Proportionate Percentage (as hereafter defined) on substantially the
same terms set forth in the Additional Share Notice by (a) notice to the Company
(the "Purchase Notice") within 10 days of the date of the Additional Share
Notice and (b) payment of the price for such shares of Common Stock or
Convertible Securities, by wire transfer of immediately available funds or such
other method of payment as the Company may approve, within 10 days after
delivery to the Company of the Purchase Notice. The "Proportionate Percentage"
of the Holder means the percentage obtained by dividing (x) the aggregate number
shares of Common Stock Owned by the Holder by (y) the aggregate number of shares
of Common Stock of the Company then issued and outstanding.
11. Issuance of Certain Securities. The Company shall not issue any (a)
Convertible Securities or similar securities that contain a provision that
provides for any change or determination of the applicable conversion price,
conversion rate, or exercise price (or a similar provision which might have a
similar effect) based on any determination of the market price or other value of
the Company's securities or any other market based or contingent standard, such
as so-called "toxic" or "death spiral" convertible securities; provided,
however, that this prohibition shall not include Convertible Securities or
similar securities the conversion or exercise price or conversion rate of which
is (i) fixed on the date of issuance, (ii) subject to adjustment as a result of
or in connection with a business combination or similar transaction or (iii)
subject to adjustment based upon the issuance by the Company of additional
securities, including without limitation, standard anti-dilution adjustment
provisions which are not based on calculations of market price or other variable
valuations; and provided, further, that in no event shall this provision be
deemed to prohibit the transactions contemplated in the Unit Subscription
Agreement; (b) any preferred stock, debt instruments or similar securities or
investment instruments providing for (i) preferences or other payments
substantially in excess of the original investment by purchasers thereof or (ii)
dividends, interest or similar payments other than dividends, interest or
similar payments computed on an annual basis and not in excess, directly or
indirectly, of the lesser of a rate equal to (A) twice the interest rate on 10
year US Treasury Notes and (B) 20%.
12. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the Holders shall also be for the benefit of and enforceable by any
subsequent holder of any Registrable Shares who has executed a copy of this
Agreement or otherwise indicated its agreement to be bound hereby. Without
limitation on the Holders' rights to transfer Registrable Shares, the Company
acknowledges that any Holder may, at any time, transfer any of the Registrable
Shares which they may own, beneficially or of record, to (a) their affiliates or
(b) their partner(s), investor(s), security holder(s) or beneficial holder(s)
pursuant to their organization documents or other agreements, and that, upon the
consummation of any such transfer, the provisions of this Agreement shall be
binding upon and inure to the benefit of each transferee of such Registrable
Shares.
14
13. Entire Agreement. This Agreement (including the exhibits hereto), the
Unit Subscription Agreement and the Purchased Warrants constitute and contain
the entire agreement and understanding of the parties with respect to the
subject matter hereof, and such agreements also supersede any and all prior
negotiations, correspondence, agreements or understandings with respect to the
subject matter hereof.
14. Miscellaneous.
(a) Amendments. This Agreement may not be amended, modified or
terminated, and no rights or provisions may be waived, except with the written
consent of the Majority Holders and the Company.
(b) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York. 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 herein (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.
(c) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors or assigns. This Agreement shall also be binding
upon and inure to the benefit of any transferee of any of the Registrable Shares
or Demand Registrable Shares. Notwithstanding anything in this Agreement to the
contrary, if at any time any Holder shall cease to own any Registrable Shares or
Demand Registrable Shares, all of such Holder's rights under this Agreement
shall immediately terminate.
(d) Notices
(i) Any notices, reports or other correspondence (hereinafter
collectively referred to as "correspondence") required or permitted to be given
hereunder shall be sent by mail, courier (overnight or same day) or fax or
delivered by hand to the party to whom such correspondence is required or
permitted to be given hereunder (except that notices of Suspensions or stop
orders must be made by fax). The date of giving any notice shall be the date of
its actual receipt.
(ii) All correspondence to the Company shall be addressed as
follows:
GraphOn Corporation
0000 Xxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxx
Fax number: (000) 000-0000
with a copy to:
15
Xxxxxx Godward LLP
Xxx Xxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxxxx
Fax number: (000) 000-0000.
(iii) All correspondence to any Holder shall be sent to the most
recent address furnished by the Holder to the Company. (iv) Any Holder may
change the address to which correspondence to it is to be addressed by
notification as provided for herein.
(e) Injunctive Relief. The parties acknowledge and agree that in the
event of any breach of this Agreement, remedies at law may be inadequate, and
each of the parties hereto shall be entitled to seek specific performance of the
obligations of the other parties hereto and such appropriate injunctive relief
as may be granted by a court of competent jurisdiction.
(f) Attorney's Fees. If any action at law or in equity is necessary
to enforce or interpret any of the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
(g) Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable under applicable law, such
provision shall be replaced with a provision that accomplishes, to the extent
possible, the original business purpose of such provision in a valid and
enforceable manner, and the balance of the Agreement shall be interpreted as if
such provision were so modified and shall be enforceable in accordance with its
terms.
(h) Aggregation of Shares. Registrable Shares and Demand Registrable
Shares held or acquired by affiliated entities or persons shall be aggregated
for the purpose of determining the availability of any rights under this
Agreement.
(i) Counterparts. This Agreement may be executed in a number of
counterparts, any of which together shall for all purposes constitute one
Agreement, binding on all the parties hereto notwithstanding that all such
parties have not signed the same counterpart.
[Remainder of Page Intentionally Left Blank]
16
SIGNATURE PAGE TO GRAPHON INVESTOR RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date and year first above written.
GRAPHON CORPORATION
By: /S/ XXXXXXX XXXXX
-----------------------------
Name: Xxxxxxx Xxxxx
Title: Chief Financial Officer
INVESTORS:
[Signatures on file]
---------------------------------
Name:
[ ]
By:
-----------------------------
Name:
Title:
XXXXXXX SECURITIES, INC.
By: /S/ XXXXXX XXXXXX
-----------------------------
Name: Xxxxxx Xxxxxx
Title: President and CEO
17
Exhibit A
---------
SCHEDULE OF INVESTORS
Xxxxxxx Xxxxxxxxx
Xxxx Xxxxxx
Globis Capital Partners
Globis Overseas Fund Ltd.
Xxxxxxx Xxxxxxxx
Xxxxxx Xxxxxx
Xxxxx Xxxxxx
AIGH Investment Partners, LLC
IDT Capital, Inc.
The Hewlett Fund
Xx. Xxxx Xxxxxx
Spira Family Investment Partnership
Fame Associates
Cam Co
Anfel Trading Limited
Ganot Corporation
Mazel D&K, Inc.
X. Xxxx Xxxx III
Xxxx Xxxxxxxxxx
SLAM Partners
Xxxxxxx Securities, Inc.
