-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKTycJMdi2/Y5McDEtdVYbTJa9R7WCciBAWGSLc67apoocOJ0s3cWzfKRXfHDW+2 o4IXHCJtXEdR5cv945Cybw== 0001021435-03-000012.txt : 20030624 0001021435-03-000012.hdr.sgml : 20030624 20030624152657 ACCESSION NUMBER: 0001021435-03-000012 CONFORMED SUBMISSION TYPE: SC TO-I PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20030624 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GRAPHON CORP/DE CENTRAL INDEX KEY: 0001021435 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133899021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I SEC ACT: 1934 Act SEC FILE NUMBER: 005-47429 FILM NUMBER: 03755102 BUSINESS ADDRESS: STREET 1: 400 COCHRANE CIRCLE CITY: MORGAN HILL STATE: CA ZIP: 95037 BUSINESS PHONE: 4087763232 MAIL ADDRESS: STREET 1: 40O COCHRANE CIRCLE CITY: MORGAN HILL STATE: CA ZIP: 95037 FORMER COMPANY: FORMER CONFORMED NAME: UNITY FIRST ACQUISITION CORP DATE OF NAME CHANGE: 19960823 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GRAPHON CORP/DE CENTRAL INDEX KEY: 0001021435 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133899021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I BUSINESS ADDRESS: STREET 1: 400 COCHRANE CIRCLE CITY: MORGAN HILL STATE: CA ZIP: 95037 BUSINESS PHONE: 4087763232 MAIL ADDRESS: STREET 1: 40O COCHRANE CIRCLE CITY: MORGAN HILL STATE: CA ZIP: 95037 FORMER COMPANY: FORMER CONFORMED NAME: UNITY FIRST ACQUISITION CORP DATE OF NAME CHANGE: 19960823 SC TO-I 1 schto.txt SCHEDULE TO (DOC NO. 1) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Schedule TO Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 GraphOn Corporation (Name of Subject Company (issuer) and Filing Person (offeror)) Options to Purchase Common Stock, Par Value $0.0001 per share (Title of Class of Securities) 388 707 101 (CUSIP Number of Class of Underlying Securities) GraphOn Corporation 400 Cochrane Circle Morgan Hill, California 95037 (800) 472-7466 (Name, address and telephone number of person authorized to receive notices and communications on behalf of filing persons) Copies to: Ira I. Roxland, Esq. Joseph H. Schmitt, Esq. Sonnenschein Nath & Rosenthal 1221 Avenue of the Americas New York, New York 10020 (212) 768-6700 Calculation of Filing Fee - ---------------------------------------------------------------------- Transaction valuation(1) Amount of filing fee(2) - ---------------------------------------------------------------------- $94,909 $77 - ---------------------------------------------------------------------- (1) Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase an aggregate of 677,917 shares of common stock of GraphOn Corporation having an aggregate value of $94,908 as of June 16, 2003 will be exchanged pursuant to this offer. The aggregate value of such options was calculated based on the Black-Scholes option pricing model. (2) The amount of the filing fee, calculated in accordance with Section 13(e) of the Securities Exchange Act of 1934, as amended, equals $80.90 for each $1,000,000 of the value of the transaction. [ ] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Form of Registration No.: Not applicable. Filing Party: Not applicable. Date Filed: Not applicable. [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [ ] third-party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [ ] going-private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] 2 Item 1. Summary Term Sheet. The information set forth under "Summary of Terms" in the Offer to Exchange Outstanding Options to Purchase Common Stock dated June 24, 2003 (the "Offer to Exchange"), attached hereto as Exhibit (a)(1), is incorporated herein by reference. Item 2. Subject Company Information. (a) The name of the issuer is GraphOn Corporation, a Delaware corporation (the "Company"), and the address of its principal executive offices is 400 Cochrane Circle, Morgan Hill, California 95037. The telephone number of its principal executive offices is (800) 472-7466. (b) This Tender Offer Statement on Schedule TO relates to an offer by the Company to eligible employees to exchange certain options to purchase shares of the Company's common stock, par value $0.0001 per share, having an exercise price greater than or equal to $0.50 per share that were granted under any one of the following stock option plans of the Company (i) 1996 Stock Option Plan, (ii) 1998 Stock Option/ Stock Issuance Plan or (iii) Supplemental Stock Option Plan for new options to purchase common stock that will be granted under the respective option plans under which the corresponding tendered options were issued, upon the terms and subject to the conditions described in the Offer to Exchange and the related Election Form attached hereto as Exhibit (a)(3). As of June 16, 2003, there were outstanding options to purchase 2,776,161 shares of the Company's common stock, of which options to purchase 677,917 shares are eligible for exchange pursuant to the Offer. The information set forth in the Offer to Exchange under Section 2 ("Eligibility") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 8 ("Price Range of Common Stock") is incorporated herein by reference. No trading market exists for the options eligible for exchange. Item 3. Identity and Background of Filing Person. (a) The Company is also the filing person. The information set forth under Item 2(a) above is incorporated herein by reference. The information set forth in the Offer to Exchange under Section 10 ("Information Concerning GraphOn") and Section 11 ("Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock") is incorporated herein by reference. Item 4. Terms of the Transaction. (a) The information set forth in the Offer to Exchange under Section 1 ("Purpose of the Offer"), Section 2 ("Eligibility"), Section 3 ("Number of Options"), Section 4 ("Procedures for Participating in the Offer"), Section 5 ("Acceptance of Options for Exchange and Issuance of New Options"), Section 9 ("Terms of New 3 Options"), Section 12 ("Accounting Consequences of the Offer") and Section 14 ("Material United States Federal Income Tax Consequences") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock") is incorporated herein by reference. Item 5. Past Contacts, Transactions, Negotiations and Agreements. (e) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock") is incorporated herein by reference. Item 6. Purposes of the Transaction and Plans or Proposals. (a) The information set forth in the Offer to Exchange under Section 1 ("Purpose of the Offer") and Section 12 ("Accounting Consequences of the Offer") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 5 ("Acceptance of Options for Exchange and Issuance of New Options") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 8 ("Price Range of Common Stock") is incorporated herein by reference. Item 7. Source and Amount of Funds or Other Consideration. (a) The information set forth in the Offer to Exchange under Section 9 ("Terms of New Options") and Section 15 ("Fees and Expenses") is incorporated herein by reference. (b) Not applicable. (d) Not applicable. Item 8. Interest in Securities of the Subject Company. (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock") is incorporated herein by reference. Item 9. Persons/Assets, Retained, Employed, Compensated or Used. (a) The information set forth in the Offer to Exchange under Section 15 ("Fees and Expenses") is incorporated herein by reference. 4 Item 10. Financial Statements. (a) The information set forth (i) in the Offer to Exchange under Section 10 ("Information Concerning GraphOn"), (ii) on pages 21 through 49 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and (iii) on pages 2 through 15 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 is incorporated herein by reference, and is available over the internet at the World Wide Web site of the Securities and Exchange Commission at http://www.sec.gov. Such information may also be obtained, free of charge, by contacting the Company at GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037, (800) 472-7466. (b) Not applicable. Item 11. Additional Information. (a) The information set forth in the Offer to Exchange under Section 11 ("Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock") and Section 13 ("Legal Matters; Regulatory Approval") is incorporated herein by reference. (b) Not applicable. Item 12. Exhibits. (a)(1) Offer to Exchange dated June 24, 2003 (a)(2) Letter to Employees announcing the Exchange Offer (a)(3) Form of Election Form, including statement of employee stock option holdings (a)(4) Form of Withdrawal Form (a)(5) Form of Confirmation Statement (a)(6) Form of Notice of Grant of Stock Option (a)(7) Form of Stock Option Agreement (a)(8) Form of Stock Purchase Agreement (a)(9) GraphOn Corporation's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the SEC on March 31, 2003 (incorporated herein by reference) (a)(10) GraphOn Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15, 2003 (incorporated herein by reference) (a)(11) Press Release announcing the Exchange Offer 5 (b) Not applicable (d)(1) GraphOn Corporation's 1996 Stock Option Plan, included as an exhibit in Registrant's Registration Statement on Form S-1 (Registration No. 333-11165) incorporated herein by reference (d)(2) GraphOn Corporation's 1998 Stock Option/Stock Issuance Plan, included as an exhibit in Registrant's Registration Statement on Form S-8 (Registration No. 333-40174) incorporated herein by reference (d)(3) GraphOn Corporation's Supplemental Stock Option Agreement, included as an exhibit in Registrant's Registration Statement on Form S-8 (Registration No. 333-40174) incorporated herein by reference (g) Not applicable (h) Not applicable Item 13. Information Required by Schedule 13E-3. (a) Not applicable. 6 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. GraphOn Corporation By: /s/ William Swain ----------------- William Swain Secretary and Chief Financial Officer Date: June 24, 2003 7 INDEX TO EXHIBITS Exhibit Number Description (a)(1) Offer to Exchange dated June 24, 2003 (a)(2) Letter to Employees announcing the Exchange Offer (a)(3) Form of Election Form, including statement of employee stock option holdings (a)(4) Form of Withdrawal Form (a)(5) Form of Confirmation Statement (a)(6) Form of Notice of Grant of Stock Option (a)(7) Form of Stock Option Agreement (a)(8) Form of Stock Purchase Agreement (a)(9) GraphOn Corporation's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the SEC on March 31, 2003 (incorporated herein by reference) (a)(10) GraphOn Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, filed with the SEC on May 15, 2003 (incorporated herein by reference) (a)(11) Press Release announcing the Exchange Offer (b) Not applicable (d)(1) GraphOn Corporation's 1996 Stock Option Plan, included as an exhibit in Registrant's Registration Statement on Form S-1 (Registration No. 333-11165) incorporated herein by reference (d)(2) GraphOn Corporation's 1998 Stock Option/Stock Issuance Plan, included as an exhibit in Registrant's Registration Statement on Form S-8 (Registration No. 333-40174) incorporated herein by reference (d)(3) GraphOn Corporation's Supplemental Stock Option Agreement, included as an exhibit in Registrant's Registration Statement on Form S-8 (Registration No. 333-40174) incorporated herein by reference (g) Not applicable (h) Not applicable EX-99 3 offer.txt EXHIBIT A-1 OFFER DOCUMENT EXHIBIT (a)(1) June 24, 2003 GRAPHON CORPORATION OFFER TO EXCHANGE OUTSTANDING OPTIONS TO PURCHASE COMMON STOCK The offer expires at 5:00 p.m., Eastern Time, on July 23, 2003 unless we extend the offer ---------- GraphOn Corporation is referred to in this Offer to Exchange as "we" or "us" and eligible employees are referred to in this Offer to Exchange as "you." ---------- We are offering to our eligible employees the opportunity to tender to us all of their currently outstanding, unexercised options to purchase our common stock that have an exercise price equal to or greater than $0.50 per share in exchange for grants of new options. If you tender your options to us for exchange, they will be cancelled and you will receive new options, which will represent the right to receive the same number of shares of our common stock as the corresponding options that you tendered. The exercise price of each new option will equal the closing bid price per share of our common stock on the date of its grant, as reported by the OTC Bulletin Board or its successor market, if any. Each new option will have the same termination date as that of the corresponding tendered option it replaces. Furthermore, each new option will vest in equal monthly installments commencing one month from its date of grant, and will vest in full on a date which depends upon when the corresponding tendered option had, or would have (if it had not been cancelled), completely vested. We expect to grant the new options to you on the first business day which is at least six months and one day after the date upon which we cancel all options validly tendered for exchange. ---------- Although our Board of Directors has approved the offer, neither we nor our Board of Directors makes any recommendation as to whether you should tender your options for exchange or not. You must make your own decision whether or not to tender your options. We are not making the offer to, nor will we accept any tender of options from or on behalf of, option holders in any jurisdiction in which the offer or the acceptance of any tender of options would not be in compliance with the laws of such jurisdiction. However, we may, at our discretion, take any actions necessary for us to make the offer to option holders in any such jurisdiction. We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your options pursuant to the offer. You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to give you any information or to make any representations in connection with the offer other than the information and representations contained in this Offer to Exchange or any other related document. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us. ---------- Table of Contents Page SUMMARY OF TERMS............................................................. 1 CERTAIN RISKS OF PARTICIPATING IN THE OFFER.................................. 9 THE OFFER.................................................................... 11 1. Purpose of the Offer.................................................... 11 2. Eligibility............................................................. 11 3. Number of Options....................................................... 13 4. Procedures for Participating in the Offer............................... 13 5. Acceptance of Options for Exchange and Issuance of New Options................................................................. 15 6. Extension of Offer; Termination; Amendment.............................. 16 7. Conditions of the Offer................................................. 17 8. Price Range of Common Stock............................................. 19 9. Terms of New Options.................................................... 20 10. Information Concerning GraphOn.......................................... 24 11. Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock............... 25 12. Accounting Consequences of the Offer.................................... 26 13. Legal Matters; Regulatory Approval...................................... 26 14. Material United States Federal Income Tax Consequences.................. 27 15. Fees and Expenses....................................................... 28 16. Additional Information.................................................. 28 17. Forward Looking Statements.............................................. 29 18. Miscellaneous........................................................... 29 SUMMARY OF TERMS The following summary of terms contains the most material terms of the offer. We urge you to read it carefully. We also urge you to read carefully the remainder of this Offer to Exchange because it contains additional important information not contained in this summary of terms. We have included references to the relevant sections elsewhere in this Offer to Exchange where you can find a more complete description of the topics in this summary of terms. In addition, we urge you to review the information in our annual report on Form 10-K for the year ended December 31, 2002 and our quarterly report on Form 10-Q for the quarter ended March 31, 2003, as these documents contain important financial information and other relevant information about us. All of these documents may be obtained without charge from us or from the Securities and Exchange Commission. Please see Section 16 in this Offer to Exchange for additional information on where and how these documents can be obtained. General Discussion of the Offer 1. What is the Offer? The offer is a voluntary program permitting eligible employees to tender certain of their stock options and exchange such options for new stock options. 2. Why are we making the offer? We believe that our success depends on the retention and motivation of our employees. Many of our outstanding options, whether or not they are currently vested and exercisable, have exercise prices that are significantly higher than the current market price of our common stock, thus substantially eliminating their value as a means to retain, reward and motivate our employees. While we are optimistic about our future, it is unlikely that the price of our common stock will increase to its previous levels in the short-term, thus restoring value to these options. By giving our employees the opportunity to exchange their options for options with exercise prices more closely aligned with the current fair market price of our common stock, we allow our employees to again have the potential to realize value from their options. This in turn creates an incentive for our employees to remain with us and contribute to the attainment of our business and financial objectives, as well as creates value for our stockholders. Please see Section 1 and Section 12 in this Offer to Exchange for additional information. 3. Is the offer conditioned on the occurrence or non-occurrence of any events? The offer is not conditioned on a minimum number of employees tendering their options for exchange or a minimum number of options being tendered. The offer is subject to a number of conditions with regard to events that could occur prior to the expiration of the offer. Once the offer has expired, the conditions will no longer apply. The events include, among other things: o an actual or reasonably expected change in accounting principles; o a lawsuit challenging the offer; or o a third-party tender offer for our common stock or other acquisition proposal. Please see Section 7 in this Offer to Exchange for additional information. 4. Are you obligated to participate in the offer? If you choose not to participate, do you have to do anything? No. You do not have to participate in the offer and there will be no repercussions if you choose not to participate in the offer. Participating or not participating in the offer will not affect your employment status in any way. Again, it is entirely up to you and we cannot advise you of what action you should take. If you decide not to participate in the offer, you need to do nothing. Please see Section 4 in this Offer to Exchange for additional information. 5. Why don't we simply grant more options without having your options cancelled? We strive to balance the need for a competitive compensation package for our employees with the interests of our stockholders. Because of the number of options that we have currently outstanding, a large grant of new options would be dilutive to our stockholders and could have a dilutive effect on our earnings per share. Please see Section 1 in this Offer to Exchange for additional information. 6. Are you eligible to receive future grants if you participate in the offer? Yes. Participating in the offer will not affect in any way your eligibility to receive future grants of options, however, if you participate in the offer, you will not be eligible to receive the new options, under the terms of this offer, until the grant date of the new options. Please see Section 4 in this Offer to Exchange for additional information. 7. If our stock price drops after you are granted the new options, will we make another similar offer? We are making the offer only at this time due to the financial and stock market conditions that have affected us and our stock price. This is a discrete, one-time offer and you should take this into account in deciding whether to participate and whether to tender your options for exchange. Please see Section 1 in this Offer to Exchange for additional information. 8. What do we and our Board of Directors think of the offer? Although our Board of Directors has approved the making of the offer, neither we nor our Board of Directors makes any recommendation as to whether you should participate or not participate in the offer. You should not consider that approval a recommendation as to whether you should participate or not participate in the offer. You must make your own decision whether to participate in the offer and tender your options for exchange. Please see Section 1 in this Offer to Exchange for additional information. 9. How should you decide whether or not to participate in the offer? We understand that your decision whether or not to tender your options for exchange is an important decision. Tendering your options for exchange involves risks, as there is no guarantee or assurance as to our future stock price 2 performance. The decision to participate must be your personal decision, and will depend largely on your assessment of your option holdings, your individual tax consequences, whether you expect to remain one of our employees and your assumptions about the future overall economic environment and performance of our business, the stock market and our stock price on the date of grant of the new options and thereafter. Please see the Section titled "Certain Risks of Participating in the Offer" in this Offer to Exchange for additional information. The Basic Terms of the Offer 10. What are the key dates of the offer? Date Event - ---- ----- June 24, 2003...................... Commencement of the offer July 23, 2003 (at 5:00 p.m., Eastern Time) ...... Expiration of the offer Promptly upon the expiration of the Cancellation of the tendered offer.............................. options January 26, 2004 (at 12:01 a.m., Eastern Time)...... Grant of the new options Although we do not currently intend to do so, we may, at our discretion, extend the offer at any time. If we extend the offer, we will continue to accept properly completed election forms and withdrawal forms until the new expiration date, and the cancellation date of the tendered options and the grant date of the new options will be similarly extended. We may also cancel the offer in certain events. Please see Section 5 and Section 6 in this Offer to Exchange for additional information. 11. Who is eligible to participate in the offer? All of our employees are eligible to participate in the offer, except that the following are not eligible to participate in the offer: (i) our executive officers; (ii) members of our Board of Directors; and (iii) consultants and other independent advisors who provide services to us. Participation in the offer does not confer upon you the right to remain employed by us and, therefore, your employment may be terminated by us or by you at any time for any reason, with or without cause, or for no reason. If your employment terminates before the offer expires, you will be ineligible to participate in the offer. Any options you tendered for exchange will be automatically withdrawn, your tender will be voided and you will not receive new options. Your options will remain in effect subject to their terms. If your employment terminates after the expiration of the offer and before or on the grant date of the new options, you will not be granted new options and the options you tendered for exchange that we cancelled will not be reinstated. 3 If your employment with us terminates after the grant date of the new options, you will already have been granted your new options and your rights with respect to those options will be governed by the provisions of the stock option plan under which the corresponding tendered options were granted and your new notice of grant of stock option and new stock option agreement. Please see Section 2 in this Offer to Exchange for additional information. 12. What options may be exchanged in the offer? We are offering to exchange all of your outstanding, unexercised options to purchase our common stock which options have an exercise price greater than or equal to $0.50 per share. Please see Section 2 in this Offer to Exchange for additional information. 13. How many new options will you receive in exchange for your tendered options? If you tender your eligible options for exchange, such eligible options will be cancelled and you will be granted new options. The number of shares of our common stock issuable upon exercise of each new option will equal the number of shares of our common stock issuable upon exercise of the corresponding tendered option it replaces. Please see Section 3 in this Offer to Exchange for additional information. 14. When will we grant the new options? We will grant the new options on the first business day which is at least six months and one day after the date the tendered options are accepted for exchange and cancelled. We will distribute new notices of grant of stock option and new stock option agreements to tendering employees as soon as administratively practicable after the date of grant. Please see Section 5 in this Offer to Exchange for additional information. How the Exchange Works 15. What happens to your options if you decide not to participate in the offer? If you elect not to participate in the offer, your options will remain outstanding until they terminate, expire by their terms or are exercised. They will retain their current exercise price. Please see Section 5 in this Offer to Exchange for additional information. 16. If you choose to tender your options for exchange, do you have to tender all of your options or can you just tender some of them? You are not required to tender all of your eligible options for exchange. However, if you choose to tender a portion of your eligible options for exchange, you must tender for exchange the entire option representing all of the shares of our common stock from that grant, but you will not be required to tender for exchange options from other grants. For example, if on February 3, 1999 you were granted an option to purchase 5,000 shares of our common stock ("Grant A") and on April 2, 2001 you were granted an option to purchase 1,000 shares of our common stock ("Grant B"), you may either: 4 o choose not to tender any option; o tender all of Grant A; o tender all of Grant B; or o tender all of Grant A and Grant B. You may not tender a portion of Grant A and/or a portion of Grant B. Please see Section 3 in this Offer to Exchange for additional information. 17. What if your eligible options are not vested? Can you exchange them? We are not taking into consideration whether or not your options have vested. Consequently, all options otherwise meeting the terms and conditions of the offer may be tendered for exchange, whether vested or not yet vested. Please see Section 2 in this Offer to Exchange for additional information. 18. What will happen to the options you tender for exchange? We intend to cancel all options accepted for exchange promptly upon the expiration of the offer, at which time you will no longer have any rights under those options. Please see Section 5 in this Offer to Exchange for additional information. The Duration of the Offer 19. When does the offer expire? Can the offer be extended and, if so, how will you be notified if it is extended? The offer is scheduled to expire at 5:00 p.m., Eastern Time, on July 23, 2003. Although we do not currently intend to do so, we may, at our discretion, extend the offer at any time. If the offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., Eastern Time, on the business day immediately following the previously scheduled expiration date of the offer. Please see Section 6 in this Offer to Exchange for additional information. 20. If the offer is extended, how does the extension affect the grant date of your new options? If the offer is extended, the grant date of the new options will be similarly extended. We will not grant the new options on a date earlier than six months and one day after the cancellation of the options tendered for exchange. Please see Section 6 in this Offer to Exchange for additional information. 5 Vesting, Exercise Price and Term of New Options 21. When will the new options vest? Each new option will vest in equal monthly installments commencing one month from the grant date of the new option through the end of the vesting period. The length of the vesting period will depend upon the date the corresponding tendered option had, or would have (if it had not been cancelled), completely vested. Specifically, o if the tendered option had, or would have, completely vested (if it had not been cancelled) prior to the grant date of the corresponding new option, such new option will vest twelve months from its grant date; or o if the tendered option would have completely vested (if it had not been cancelled) after the grant date of the corresponding new option, such new option will vest twelve months from its grant date plus an additional period equal to the remaining vesting period of the tendered option it replaces as of the grant date of the new option. If the options you tender for exchange are vested as of the expiration of the offer or are scheduled to vest prior to the grant date of the new options, your new options will not be completely vested until twelve months from such date, thus depriving you of the right to completely exercise your options until January 26, 2005, at the earliest. Please see Section 9 in this Offer to Exchange for additional information. 22. What will the exercise price of the new options be? How will this be determined? The exercise price of the new options will be equal to the closing bid price per share of our common stock on the grant date of the new options, as reported by the OTC Bulletin Board or its successor market, if any. Because we will not grant the new options until at least six months and one day following the date the tendered options are cancelled, we cannot predict on the date of this Offer to Exchange the exercise price of the new options. Accordingly, the new options may have a higher exercise price than some or all of the options you tendered for exchange. Please see Section 9 in this Offer to Exchange for additional information. 23. What will be the term of your new options and when will they expire? Each new option will have the same termination date as that of the corresponding tendered option it replaces. Please see Section 9 in this Offer to Exchange for additional information. 24. Will the other terms and conditions of your new options be the same as the corresponding terms and conditions of your options tendered for exchange? The new options will be granted under the stock option plan under which the corresponding options you tendered for exchange were granted. Consequently, the new options will be subject to the same terms and conditions as the options they replace. Please see Section 5 and Section 9 in this Offer to Exchange for additional information. 6 Tax Consequences; Tax Status of New Options 25. What are the tax consequences of you tendering your options for exchange and receiving new options? If you tender your options for exchange and receive new options, you will not be required under current law to recognize income for U.S. Federal income tax purposes at the time of the tender or upon our acceptance and cancellation of the tendered options. We believe that the exchange will be treated as a non-taxable exchange. Further, on the grant date of the new options, we believe that you will not be required under current law to recognize income for U.S. Federal income tax purposes. You should consult with your own personal advisors (at your own expense) as to the tax consequences of your participation in the offer and in particular, the holding period requirement with respect to stock received upon an exercise of an incentive stock option. Tax consequences may vary depending on your individual circumstances. Please see Section 14 in this Offer to Exchange for additional information. 26. If the options you tender for exchange are incentive stock options for United States Federal income tax purposes, will your new options be incentive stock options? If the options you tender for exchange are incentive stock options, your new options will be granted as incentive stock options to the maximum extent they can qualify as incentive stock options under U.S. Federal income tax laws on the date of grant of such new options. Please see Section 14 in this Offer to Exchange for additional information. How to Elect to Tender Options For Exchange 27. What should you do to tender your options for exchange? To participate in the offer, you must properly complete, sign and date the election form included with this Offer to Exchange and mail, fax or deliver the election form to us so that we receive it no later than 5:00 p.m., Eastern Time, on July 23, 2003, the expiration of the offer (or such later date and time if we extend the offer) at: GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037; fax number, (408) 776-8448. Please see Section 4 in this Offer to Exchange for additional information. 28. What if we receive your election form after the expiration of the offer? We will not accept any election forms received by us after the expiration of the offer. There can be no exceptions to this deadline. Please see Section 4 in this Offer to Exchange for additional information. 29. Can you withdraw your previously tendered options? Yes. To withdraw your tendered options, you must properly complete, sign and date the withdrawal form included with this Offer to Exchange and mail, fax or deliver the withdrawal form to us so that we receive it no later than 5:00 p.m., Eastern Time, on July 23, 2003, the expiration of the offer (or such later 7 date and time if we extend the offer) at: GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037; fax number, (408) 776-8448. If you wish to withdraw any tendered option, you must withdraw all of your tendered options granted under that option grant, but you will not be required to withdraw any tendered option from any other option grant. Once you have withdrawn your tendered options, you may retender your options for exchange only by again following the delivery procedures described in this Offer to Exchange before the expiration of the offer. Please see Section 4 in this Offer to Exchange for additional information. 30. How will you know that we have accepted your tendered options for exchange? As soon as administratively practicable after we accept and cancel your properly tendered options, we will send you a confirmation statement indicating the number of options that we have accepted and canceled, the number of new options you are eligible to receive on the grant date and, subject to your fulfillment of the terms and conditions of the offer, a promise by us to grant you the new options on the grant date. Please see Section 5 in this Offer to Exchange for additional information. More Information 31. How can you find out the details of your eligible options? Along with this Offer to Exchange, you will receive an election form detailing your outstanding options that are eligible for the offer. You can also obtain this information by contacting Bob Dixon at the following telephone number: (408) 776-8858. Please see Section 2 in this Offer to Exchange for additional information. 32. Who can you talk to if you have questions about the offer? Any questions concerning the offer, this Offer to Exchange or any other document accompanying or referred to in this Offer to Exchange, or to request additional copies of any such documents may be directed to Bob Dixon, Bob Peterson or Bill Swain at GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037. You may contact Bob Dixon at (408) 776-8858, Bob Peterson at (310) 541-6329 or Bill Swain at (408) 425-1088. We cannot and will not provide you any advice regarding your decision whether to tender your options for exchange. Please see Section 10 and Section 16 in this Offer to Exchange for additional information. 8 CERTAIN RISKS OF PARTICIPATING IN THE OFFER Participation in the offer involves a number of potential risks, including those described below. You should carefully consider these risks and speak with your investment or tax advisor before deciding whether to participate in the offer. In addition, we strongly urge you to read this Offer to Exchange in its entirety and all other documents relating to the offer before deciding whether to participate in the offer. If our stock price increases after the date your tendered options are cancelled, your cancelled options might have been worth more than the new options you will receive in exchange for them. The per-share exercise price of any new options granted to you will be equal to the closing bid price per share of our common stock on the date of grant of the new options, as reported by the OTC Bulletin Board or its successor market, if any. Before the grant date of the new options, our shares could increase in value, and the exercise price of the new options could be higher than the exercise price of the options you tendered for exchange that we cancelled pursuant to the offer. If this happens, the new options you receive would be worth less than the cancelled options you tendered for exchange which were subsequently cancelled. For example, if you tender for exchange an option with a $1.50 exercise price, and our common stock appreciates to $2.50 per share by the time the new options are granted, your new option will have an exercise price of $2.50. As a result, you will have lost value by reason of participating in the offer. If your employment terminates at any time for any reason after the expiration of the offer and on or before the grant date of the new options, you will not receive new options and the options you tendered for exchange will not be reinstated. Once your options are cancelled, you will no longer have any rights with respect to these options. Accordingly, if your employment terminates for any reason at any time after the cancellation date of your tendered options and on or before the grant date of the new options, you will not have the benefit of either the cancelled options or the new options. This applies regardless of the reason for your termination of employment and whether the result of a voluntary resignation, involuntary termination, death or disability. Participation in the offer will make you ineligible to receive new option grants until January 26, 2004, at the earliest. Our employees are generally eligible to receive options at any time that our Board of Directors chooses to grant them. However, if you participate in the offer, you will not be eligible to receive new option grants until the grant date of the new options. Not participating in the offer, however, is no guarantee that you will be granted any options in that period. You will lose the potential benefit of any vested options you currently own that are cancelled in the offer. If the options you tender for exchange are vested as of the expiration of the offer or are scheduled to vest prior to the grant date of the new options, your new options will not be completely vested until twelve months from such date, thus depriving you of the right to completely exercise your options until January 26, 2005, at the earliest. 9 You may not receive any new options in exchange for options properly tendered and cancelled if we experience a change of control, reorganization or sale of assets. If we experience a change of control or a reorganization occurs before we grant the new options, we expect that the successor or purchaser would agree to assume the obligation to issue the new options. However, we cannot guarantee that any successor or purchaser would agree to assume any obligation to issue the new options. Therefore, it is possible that you may not receive any new options, securities of the surviving company or other consideration in exchange for the options you tendered for exchange if we are subject to a change of control, sell assets or otherwise reorganize before the new options are granted. In addition, the announcement of a change of control transaction before the grant date of the new options could have a substantial effect on our stock price, including substantial stock price appreciation, which could reduce or eliminate potential benefits provided by the offer. The preceding paragraph describes the general consequences of a change of control or other reorganization generally. You may also be affected if we sell a division or business unit for which you work. In those circumstances, if you were transferred to the acquiring company, the acquiring company would likely not have to agree to issue new options under the offer. Consequently, if you are employed by the division or business unit that is sold and you do not continue to be employed by us following the sale, then the sale will constitute the termination of your employment with us for purposes of the offer. In those circumstances, you would not be entitled to receive options to purchase stock or securities of the acquiring company or any other consideration in exchange for your tendered options. We also reserve the right to take any action, including entering into a merger, asset purchase or sale or similar transaction, or shutting down a business unit, whether or not it adversely affects the grant of the new options under the offer or the likelihood that the new options will be granted. 10 THE OFFER 1. Purpose of the Offer We consider stock options to be a critical component of employee compensation. They are intended to attract, retain, reward and motivate employees to align their interests with the interests of our stockholders though stock ownership. Many of our outstanding options, whether or not they are currently vested and exercisable, have exercise prices that are significantly higher than the current market price of our common stock, thus substantially eliminating their value as a means to retain, reward and motivate our employees. While we are optimistic about our future, it is unlikely that the price of our common stock will increase to its previous levels in the short-term, thus restoring value to these options. By giving our employees the opportunity to exchange their options for options with exercise prices more closely aligned with the current fair market price of our common stock, we allow our employees to have the potential to realize value from their stock options. This in turn creates an incentive for our employees to remain with us and contribute to the attainment of our business and financial objectives, as well as create value for our stockholders. Consequently, we are making the offer only at this time due to the financial and stock market conditions that have affected us and our stock price. This is a unique, one-time offer and our employees should take this into account in deciding whether to participate and tender their options for exchange. We have considered and determined not to simply grant additional options to our employees without canceling outstanding options because we strive to balance the need for a competitive compensation package for our employees with the interests of our stockholders. Because of the number of options that we have currently outstanding, a large grant of new options would be dilutive to our stockholders and could have a dilutive effect on our earnings per share. Although our Board of Directors has approved the offer, neither we nor our Board of Directors makes any recommendation as to whether you should tender your options for exchange or not. You should not consider that approval a recommendation as to whether you should participate or not participate in the offer. You must make your own decision whether to participate in the offer and tender your options for exchange. 2. Eligibility We are offering eligible employees the opportunity to exchange eligible options to purchase our common stock for new options to purchase our common stock, as described in detail below. Eligible Employees All of our employees are eligible to participate in the offer, except that the following are not eligible to participate in the offer: (i) our executive officers; (ii) members of our Board of Directors; and (iii) consultants and other independent advisors who provide services to us. Participation in the offer does not confer upon you the right to remain employed by us and, therefore, your employment may be terminated by us or by you at any time for any reason, with or without cause, or for no reason. Your rights in the event that you are no longer employed by us at any time with respect to the offer are as follows: 11 o Termination before the expiration of the offer - If, for any reason, your employment with us terminates after you elect to exchange your options but before the expiration of the offer, you will not be eligible to participate in the offer. Therefore, any options that you tendered for exchange will be automatically withdrawn, your tender will be voided and your rights with respect to all of your options will continue to be governed by the provisions of the option plan under which they were granted. o Termination after the expiration of the offer and before the grant of the new options - If, for any reason, your employment with us terminates after the expiration of the offer and before the grant of the new options, the options that you tendered for exchange will have been cancelled and will not be returned to you, and you will not be granted any new options or any other consideration in exchange for them. This means that if you die, become disabled, retire or resign, with or without good reason, or we terminate your employment, with or without cause or for no reason, after the expiration of the offer and before the grant of the new options, you will not receive anything for the tendered options that you tendered and we cancelled. o Termination after the grant of the new options - If your employment with us terminates after the grant of the new options, you will already have been granted your new options and your rights with respect to those options will be governed by the provisions of the stock option plan under which the corresponding tendered options were granted and your new notice of grant of stock option and new stock option agreement. Eligible Options Eligible options include, and you may tender, all of your outstanding, unexercised options to purchase our common stock which have an exercise price greater than or equal to $0.50 per share. These options may have been granted under any one of the following stock option plans: (i) our 1996 Stock Option Plan; (ii) our 1998 Stock Option/Stock Issuance Plan; or (iii) our Supplemental Stock Option Plan. Options with an exercise price below $0.50 per share are not eligible for exchange in the offer because we believe such options continue to provide an incentive to our employees. We are not taking into consideration whether or not your options have vested. Consequently, all options otherwise meeting the terms and conditions of the offer may be tendered for exchange, whether vested or not yet vested. The offer is only being made for outstanding, unexercised options and does not in any way apply to shares purchased, whether upon the exercise of options or otherwise. If you have exercised an option in its entirety, that option is no longer outstanding and is therefore not subject to the offer. If you have exercised an option in part, the remaining unexercised portion of that option is outstanding and may be tendered for exchange. Options for which you have properly submitted a stock purchase agreement prior to the date you tendered the option for exchange will be considered exercised to that extent, whether or not you have received confirmation of the exercise or the shares purchased. As of June 16, 2003, options to purchase an aggregate of 677,917 shares of our common stock were eligible for exchange under the offer. Accompanying this Offer to Exchange is your personal election form which contains a listing of all of your eligible options. 12 3. Number of Options If you tender your eligible options for exchange, such eligible options will be cancelled and you will be granted new options. The number of shares of our common stock issuable upon exercise of each new option will equal the number of shares of our common stock issuable upon exercise of the corresponding tendered option it replaces. You are not required to tender all of your eligible options for exchange. However, if you choose to tender a portion of your eligible options for exchange, you must tender for exchange the entire option representing all of the shares of our common stock from that grant (or if the option has been partially exercised, the remaining shares of our common stock from that grant), but you will not be required to tender for exchange options from other grants. For example, if on February 3, 1999 you were granted an option to purchase 5,000 shares of our common stock ("Grant A") and on April 2, 2001 you were granted an option to purchase 1,000 shares of our common stock ("Grant B"), you may either: o choose not to tender any option; o tender all of Grant A; o tender all of Grant B; or o tender all of Grant A and Grant B. You may not tender a portion of Grant A and/or a portion of Grant B. 4. Procedures for Participating in the Offer You do not have to participate in the offer and there are no repercussions if you choose not to participate in the offer. Participating or not participating in the offer will not affect in any way your employment status. Furthermore, participating or not participating in the offer will not affect in any way your eligibility to receive future grants of options, however, if you participate in the offer, you will not be eligible to receive the new options, under the terms of this offer, until the grant date of the new options. If you decide not to participate in the offer, you do not need to do anything. Proper Tender of Options To participate in the offer, you must properly complete, sign and date the election form included with this Offer to Exchange and mail, fax or deliver the election form to us so that we receive it no later than 5:00 p.m., Eastern Time, on July 23, 2003, the expiration of the offer (or such later date and time if we extend the offer) at: GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037; fax number, (408) 776-8448. If you decide not to participate in the offer, you need to do nothing. The election form must be executed by the employee who tendered the options to be cancelled. However, if the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in such capacity must be indicated on the election form. If you do not submit an election form prior to the expiration of the offer, or if you submit an incomplete or incorrectly completed election form, you will be considered to have rejected the offer. 13 The method of delivery of all documents, including your election form, is at your risk. If you wish to deliver your election form by regular mail, we urge you to mail the form sufficiently in advance of the expiration to ensure we receive it prior to the expiration of the offer. We also recommend that you use certified mail with return receipt requested. In all cases, you should allow sufficient time to ensure timely delivery. Delivery will be deemed made only when actually received by us. We will strictly enforce the expiration and there can be no exceptions to the expiration time. You do not need to return your existing notice of grant of stock option, existing stock option agreement or existing stock purchase agreement if you elect to accept the offer as they will be automatically cancelled if we accept your tendered options. You will be required to return your existing notice of grant of stock option, existing stock option agreement and/or existing stock purchase agreement upon our request. Withdrawal Rights You may change your election and withdraw your tendered options from the offer only if you properly complete, sign and date the withdrawal form included with this Offer to Exchange and mail, fax or deliver the withdrawal form to us so that we receive it no later than 5:00 p.m., Eastern Time, on July 23, 2003, the expiration of the offer (or such later date and time if we extend the offer) at: GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037; fax number, (408) 776-8448. You may also withdraw your tendered options pursuant to Rule 13e-4(f)(2)(ii) under the Securities Exchange Act of 1934 if such tendered options have not been accepted by us for payment within 40 business days from the commencement of the offer. The withdrawal form must be executed by the employee who tendered the options to be withdrawn. However, if the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in such capacity must be indicated on the withdrawal form. If you wish to withdraw any tendered option, you must withdraw all of your tendered options granted under that option grant, but you will not be required to withdraw any tendered options from any other option grant. For example, if you have tendered for exchange an option to purchase 5,000 shares of our common stock granted on February 3, 1999 ("Grant A") and an option to purchase 1,000 shares of our common stock granted on April 2, 2001 ("Grant B") and you wish to withdraw your tendered options, you may either: o withdraw all of Grant A; o withdraw all of Grant B; or o withdraw all of Grant A and Grant B. You may not withdraw a portion of the tendered Grant A option and/or a portion of the tendered Grant B option. The method of delivery of all documents, including your withdrawal form, is at your risk. If you wish to deliver your withdrawal form by regular mail, we urge you to mail the notice sufficiently in advance of the expiration date to 14 ensure we receive it prior to the expiration. We also recommend that you use certified mail with return receipt requested. In all cases, you should allow sufficient time to ensure timely delivery. Delivery will be deemed made only when actually received by us. We will strictly enforce the expiration and there can be no exceptions to the expiration time. Once you have withdrawn your tendered options, you may retender your options for exchange before the expiration of the offer only by again following the delivery procedures described in this Offer to Exchange. Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects We will determine, in our discretion, all questions as to form, validity, including time of receipt, eligibility and acceptance of any tender of options or withdrawal of tendered options. Our determination of these matters will be final and binding on all parties. We may reject any or all tenders of or withdrawals of tendered options that we determine are not in appropriate form or that we determine are unlawful to accept or not timely made. Otherwise, we expect to accept all properly and timely tendered options which are not validly withdrawn. We may waive, as to all eligible employees, any defect or irregularity in any tender with respect to any particular options. We may also waive any of the conditions of the offer, with respect to all eligible employees. No tender of options or withdrawal of tendered options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering employee or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in tenders or withdrawals, and no one will be liable for failing to give notice of any defects or irregularities. 5. Acceptance of Options for Exchange and Issuance of New Options The offer is scheduled to expire at 5:00 p.m., Eastern Time, on July 23, 2003. Although we do not currently intend to do so, we may, at our discretion, extend the offer at any time. If the offer is extended, we will make a public announcement of the extension no later than 9:00 a.m., Eastern Time, on the business day immediately following the previously scheduled expiration date of the offer. Upon the terms and subject to the conditions of the offer, we expect to cancel all options properly tendered and not validly withdrawn upon the expiration of the offer. If you elect to exchange your eligible options and you do so according to the procedures described in this Offer to Exchange, you will have accepted the offer. Our acceptance of your eligible options for tender will form a binding agreement between you and us on the terms and subject to the conditions of the offer upon the expiration of the offer. When we accept your tendered options for exchange and we cancel those options, you will have no further rights with respect to those options or under their corresponding notices of grant of stock option, corresponding stock option agreements or corresponding stock purchase agreements. By tendering your options, you agree that the applicable notices of grant of stock option, stock option agreements and stock purchase agreements will terminate upon our cancellation of your tendered options. As soon as administratively practicable after we accept and cancel your properly tendered options, we will send you a confirmation statement indicating the number of options that we have accepted and canceled, the number of new options you are eligible to receive on the grant date and, subject to your fulfillment of the terms and conditions of the offer, a promise by us to grant you the new options on the grant date. If your tendered options are accepted and cancelled, you will be granted your new options (unless your employment is terminated after the expiration of the offer and before the grant of the new options) on the first business day that is at least six months and one day after the date your tendered options are accepted for exchange and cancelled. If we extend the offer, we will continue to 15 accept properly completed election forms until the new expiration date, and the cancellation date of the tendered options and the grant date of the new options will be similarly extended. If permissible under the applicable stock option plan, the notice of grant of stock option and the stock option agreement under which your tendered options were granted, it is our intention to grant to you incentive stock options, regardless of whether the options you tender for exchange are incentive stock options, to the maximum extent the new options can qualify as incentive stock options under federal tax laws on the grant date of such new options. It is possible, however, that a portion of the new options will be required by the Internal Revenue Code of 1986, as amended, to be classified as nonqualified stock options. The extent to which any participant will not be granted new options which are classified for federal income tax purposes as incentive stock options will not be known until the grant date of the new options, as this determination is affected by several factors, including the exercise price, which will not be known until that date. For a detailed discussion on the consequences of these designations, see Section 14. If you elect not to participate in the offer, your options will remain outstanding until they terminate or expire by their terms. They will retain their current exercise price and other terms and conditions under the applicable stock option plan, applicable notice of grant of stock option and applicable stock option agreement under which the options were granted. 6. Extension of Offer; Termination; Amendment We may, from time to time, extend the period of time during which the offer is open and delay accepting any options tendered to us by, in addition to the procedure set forth in Section 5, giving oral or written notice of the extension to employees. If we extend the offer, we will continue to accept properly completed election forms until the new expiration, and the cancellation of the tendered options and the grant of the new options will be similarly extended. We do not expect to grant the new options on a date earlier than six months and one day after the cancellation of the options tendered for exchange. We also expressly reserve the right, in our reasonable judgment, prior to the expiration, to terminate or amend the offer and to postpone our acceptance and cancellation of any options tendered for exchange upon the occurrence of any of the conditions specified under Section 7, by, in addition to the procedure set forth in Section 5, giving oral or written notice of the termination, amendment or postponement to employees. Our reservation of the right to delay our acceptance and cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, which requires that we must pay the consideration offered or return the options tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event set forth in Section 7 has occurred or is deemed by us to have occurred, to amend the offer in any respect, including, without limitation, by decreasing or increasing the consideration offered to employees or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by an announcement. In the case of an extension, the announcement must be issued no later than 9:00 a.m., Eastern Time, on the next business day after the last previously scheduled or announced expiration date. Any announcement made pursuant to the offer will be disseminated promptly to employees in a manner reasonably designated to inform employees of such amendment. Without limiting the manner in which we may choose to make an announcement, except as required by applicable law, we have no obligation to publish, advertise or otherwise communicate any such announcement other than by issuing a press release. 16 If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the Securities Exchange Act of 1934. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. 7. Conditions of the Offer Notwithstanding any other provision of the offer, we will not be required to accept any options tendered for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any options tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities Exchange Act of 1934, if at any time on or after the commencement of the offer and before the expiration of the offer, any of the following events has occurred, or has been determined by us to have occurred, and, in our reasonable judgment in any case and regardless of the circumstances giving rise to the event, including any action or omission to act by us, the occurrence of such event or events makes it inadvisable for us to proceed with the offer or with the acceptance and cancellation of the options tendered for exchange: (a) there shall have been threatened or instituted or be pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, the issuance of new options, or otherwise relates in any manner to the offer or that, in our reasonable judgment, could materially and adversely affect our business, condition (financial or other), income, operations or prospects, or otherwise materially impair in any way the contemplated future conduct of our business or materially impair the contemplated benefits of the offer to us; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the offer or us, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: o make the acceptance for exchange of, or issuance of new options for, some or all of the tendered options illegal or otherwise restrict or prohibit consummation of the offer or otherwise relates in any manner to the offer; o delay or restrict our ability, or render us unable, to accept for exchange, or grant new options for, some or all of the tendered options; o materially impair the benefits we hope to receive as a result of the offer; or o materially and adversely affect our business, condition (financial or other), income, operations or prospects, or otherwise materially impair in any way the contemplated future conduct of our business or materially impair the contemplated benefits of the offer to us; (c) there shall have occurred: o any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; 17 o the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, whether or not mandatory; o the commencement of a war, terrorist act, armed hostilities or other international or national crisis directly or indirectly involving the United States; o any limitation, whether or not mandatory, by any governmental, regulatory or administrative agency or authority on, or any event that in our reasonable judgment might affect, the extension of credit by banks or other lending institutions in the United States; o any significant decrease in the market price of the shares of our common stock or any change in the general political, market, economic or financial conditions in the United States or abroad that could, in our reasonable judgment, have a material adverse effect on our business, condition (financial or other), operations or prospects or on the trading in our common stock; o any change in the general political, market, economic or financial conditions in the United States or abroad that could have a material adverse effect on our business, condition (financial or other), operations or prospects or that, in our reasonable judgment, makes it inadvisable to proceed with the offer; o in the case of any of the foregoing existing at the time of the commencement of the offer, a material acceleration or worsening thereof; or o any decline in either the Dow Jones Industrial Average, the New York Stock Exchange or the Standard and Poor's Index of 500 Companies by an amount in excess of 10% measured during any time period after the close of business on June 24, 2003; (d) there shall have occurred any change in generally accepted accounting standards or the application or interpretation thereof which could or would require us for financial reporting purposes to record compensation expense against our earnings in connection with the offer or the new option grants; (e) a tender or exchange offer with respect to some or all of our common stock, or a merger or acquisition proposal for us, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed, or we shall have learned that: o any person, entity or "group," within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding shares of our common stock, or any new group shall have been formed that beneficially owns more than 5% of the outstanding shares of our common stock, other than any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC before June 24, 2003; o any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC before June 24, 2003 shall have acquired or proposed to acquire beneficial ownership of an additional 2% or more of the outstanding shares of our common stock; or o any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public announcement reflecting an intent to acquire us or any of the assets or securities of us; or 18 (f) any change or changes shall have occurred in our business, condition (financial or other), assets, income, operations, prospects or stock ownership that, in our judgment, is or may be material to us. The conditions to the offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them prior to the expiration. We may waive them, in whole or in part, at any time and from time to time prior to the expiration, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described above will be final and binding upon all persons. 8. Price Range of Common Stock The options eligible to be exchanged pursuant to the offer are not publicly traded. However, upon exercise of an option, the optionholder becomes an owner of our common stock. From August 9, 2000 through May 27, 2002, our common stock was traded on The Nasdaq National Market and from May 28, 2002 to April 27, 2003, our common stock was traded on The Nasdaq SmallCap Market. As of April 28, 2003, our common stock has been quoted on the OTC Bulletin Board under the symbol "GOJO.OB." The OTC Bulletin Board is scheduled to be phased out during 2003 and replaced by a new market, the BBX (Bulletin Board Exchange). The BBX will have qualitative listing standards, but no minimum share price, income or asset requirement. We intend to apply for a listing of our common stock on the BBX. The following table shows the high and low closing sales price per share of common stock as reported by The Nasdaq National Market, The Nasdaq SmallCap Market and the OTC Bulletin Board, as applicable, for the quarters indicated. High Low 2003: First Quarter......................... $0.28 $0.13 Second Quarter (through June 16, 2003) $0.34 $0.13 2002: First Quarter......................... $0.80 $0.24 Second Quarter........................ 0.37 0.15 Third Quarter......................... 0.52 0.08 Fourth Quarter........................ 0.29 0.12 2001: First Quarter......................... $3.38 $1.00 Second Quarter........................ 4.05 0.81 Third Quarter......................... 3.05 1.00 Fourth Quarter........................ 1.26 0.50 - ------------------------------------------------------------------------------ On June 16, 2003, the closing price of our common stock on the OTC Bulletin Board was $0.24 per share. 19 We recommend that you evaluate current market quotes for our common stock, among other factors, before deciding whether or not to tender your options for exchange. 9. Terms of New Options Consideration The sole consideration that you will receive for the options you tender for exchange will be the right to receive the new options under the terms of the offer. The number of shares of our common stock issuable upon exercise of each new option will equal the number of shares of our common stock issuable upon exercise of the corresponding tendered option it replaces. The issuance of new options under the offer will not create any contractual or other right of the recipients to receive any future grants of options or benefits instead of options or any right of continued employment. Description of New Options Term. Each new option will have the same termination date as that of the corresponding tendered option it replaces. Vesting. Each new option will vest in equal monthly installments commencing one month from the grant date of the new option through the end of the vesting period. The length of the vesting period will depend upon the date the corresponding tendered option had, or would have (if it had not been cancelled), completely vested. Specifically, o if the tendered option had, or would have, completely vested (if it had not been cancelled) prior to the grant date of the corresponding new option, such new option will vest twelve months from its grant date; or o if the tendered option would have completely vested (if it had not been cancelled) after the grant date of the corresponding new option, such new option will vest twelve months from its grant date plus an additional period equal to the remaining vesting period of the tendered option it replaces as of the grant date of the new option. If the options you tender for exchange are vested as of the expiration of the offer or are scheduled to vest prior to the grant date of the new options, your new options will not be completely vested until twelve months from such date, thus depriving you of the right to completely exercise your options until January 26, 2005, at the earliest. Exercise Price. The exercise price of the new options will be equal to the closing bid price per share of our common stock on the date of grant of the new options, as reported by the OTC Bulletin Board or its successor market, if any. Because we will not grant the new options until after the expiration date of the offer, we cannot predict on the date of this Offer to Exchange the exercise price of the new options. Accordingly, the new options may have a higher exercise price than some or all of the options you tendered for exchange. SEC Registration. All shares of our common stock to be delivered upon exercise of new options have been or will be registered under the Securities Act of 1933. Unless you are restricted by our insider trading policy or considered an "affiliate" of ours under the Securities Act of 1933, when you exercise your new options, you will be able to sell your new shares free of any transfer restrictions under applicable securities laws. 20 Terms and Conditions. The new options will be granted under the stock option plan under which the corresponding options you tendered for exchange were granted. Consequently, the new options will be subject to the same terms and conditions as the options they replace. The Compensation Committee of our Board of Directors administers our stock option plans. The following descriptions of our stock option plans are only summaries of general terms and are not complete. These descriptions are subject to, and qualified in their entirety by reference to the actual provisions of the stock option plans and the terms of specific grants, including the new option grants described in this Offer to Exchange. Please contact Bob Dixon at (408) 776-8858 to request copies of the stock option plans. Copies of the applicable stock option plans will accompany the notice of grant of stock option provided to you on the grant date of your new options. Description of the 1996 Stock Option Plan As of June 16, 2003, there were 186,962 shares of common stock available for issuance under the 1996 Plan. The following is a summary of general terms of the 1996 Plan and is subject to, and qualified in its entirety by the actual provisions of the 1996 Plan. Administration. The Compensation Committee of our Board of Directors administers the 1996 Plan. Subject to the terms of the 1996 Plan, the Compensation Committee has the full authority to determine to whom (from among the class of eligible employees) options will be granted; to determine the time or times at which options shall be granted; to determine the purchase price of shares subject to each option; to determine the time or times when each option shall become exercisable and the duration of the exercise period; to extend the period during which outstanding options may be exercised; to determine whether restrictions are to be imposed on shares subject to options and the nature of such restrictions, if any; to adopt, from time to time, such rules and regulations for carrying out the 1996 Plan as it may deem advisable; and to interpret the 1996 Plan and prescribe and rescind rules and regulations relating to it. Exercise. Vested stock options granted under the 1996 Plan may be exercised, in whole or in part, by giving written notice to us at: GraphOn Corporation, 400 Cochrane Circle, Morgan Hills, California 95037, or to such transfer agent as we may designate. For more details, contact us at (408) 776-8858. The permissible methods of payment are established under the terms of the 1996 Plan. Exercise Price. The Compensation Committee has the authority to determine the exercise price of options granted under the 1996 Plan, subject to certain limitations established under the terms of the 1996 Plan. Adjustments Upon Certain Events. Appropriate adjustments may be made by the Compensation Committee with respect to the optionholder's rights under options granted under the 1996 Plan, both as to options granted or to be granted, to give effect to adjustments to certain corporate transactions. Transferability of Options. In general, the options granted under the 1996 Plan may not be transferred and may be exercised during an optionholder's lifetime only by such optionholder. However, the options may, after their issuance, be transferred by will, by the laws of descent and distribution or, in the case of nonqualified options, pursuant to a valid domestic order. Plan Amendment and Termination. The 1996 Plan may be terminated or amended by our Board of Directors in any respect at any time, except that the approval of our stockholders is required in certain situations. 21 Unless earlier terminated by our Board of Directors, the 1996 Plan will terminate at the end of the day on May 30, 2006 (except as to options outstanding on that date). No Stockholder Rights. Employees have no stockholder rights with respect to any of our common stock subject to outstanding options until the options are exercised in accordance with the provisions of the 1996 Plan. Description of the 1998 Stock Option/Stock Issuance Plan As of June 16, 2003, there were 2,936,413 shares of common stock available for issuance under the 1998 Plan. The following is a summary of general terms of the 1998 Plan and is subject to, and qualified in its entirety by the actual provisions of the 1998 Plan. The 1998 Plan is divided into two separate equity programs: (1) an option grant program under which eligible persons may be granted options to purchase our common stock; and (2) a stock issuance program under which eligible persons may be issued shares of our common stock directly. The offer and this Offer to Exchange apply only to options granted under the 1998 Plan and do not relate to shares of our common stock issued directly under the 1998 Plan. Administration. The Compensation Committee of our Board of Directors administers the 1998 Plan. Subject to the terms of the 1998 Plan, the Compensation Committee has full authority to determine which eligible persons are to receive grants; to determine the time or times when grants are to be made; to determine the number of shares to be covered by each grant; to determine the status of the options as either incentive options or a non-statutory options; to determine the time or times when each option is to become exercisable; to determine the vesting schedule, if any, applicable to the option shares; and to determine the maximum term for which the option is to remain outstanding. Exercise. Vested stock options granted under the 1998 Plan may be exercised in whole or in part. For more details, contact us at (408) 776-8858. The exercise price is immediately due upon exercise of the options. The permissible methods of payment are established under the terms of the 1998 Plan. Exercise Price. The Compensation Committee has the authority to determine the exercise price of options granted under the 1998 Plan, subject to certain limitations established under the terms of the 1998 Plan. Adjustments Upon Certain Events. Appropriate adjustments may be made by the Compensation Committee with respect to the optionholder's rights under options granted under the 1998 Plan, both as to options granted or to be granted, to give effect to adjustments to certain corporate transactions. Transferability of Options. In general, the options granted under the 1998 Plan may not be transferred and may be exercisable during an optionholder's lifetime only by such optionholder. However, the options may, after their issuance, be transferred by will and by the laws of descent and distribution. Plan Amendment and Termination. The 1998 Plan may be amended or modified by our Board of Directors in any respect at any time. Certain amendments may require stockholder approval. No amendment or modification shall adversely affect the rights and obligations with respect to options then outstanding, unless the optionholder consents to the amendment or modification. 22 The 1998 Plan will terminate upon the earliest of (i) June 22, 2007, (ii) the date on which all shares of our common stock available for issuance under the 1998 Plan shall have been granted as vested shares and (iii) the termination of all outstanding options in connection with certain corporate transactions. If the 1998 Plan terminates on June 22, 2007, all outstanding options will continue in full force and effect in accordance with the provisions of the applicable notice of grant of stock option and the applicable stock option agreement. No Stockholder Rights and Employment Rights. Employees have no stockholder rights with respect to any of our common stock subject to outstanding options until the options are exercised in accordance with the terms of the 1998 Plan. Nothing in the 1998 Plan confers upon any employee any right to continued employment. Description of the Supplemental Stock Option Plan As of June 16, 2003, there were 400,000 shares of common stock available for issuance under the Supplemental Plan. The following is a summary of general terms of the Supplemental Plan and is subject to, and qualified in its entirety by the actual provisions of the Supplemental Plan. Administration. The Compensation Committee of our Board of Directors administers the Supplemental Plan. Subject to the terms of the Supplemental Plan, the Compensation Committee has full power and authority to establish such rules and regulations as it may deem appropriate for proper administration of the Supplemental Plan; to make determinations under, and issue interpretations of, the provisions of the Supplemental Plan and any outstanding options thereunder; to determine which eligible persons are to receive grants under the Supplemental Plan; to determine the time or times when grants are to be made; to determine the number of shares to be covered by each grant; to determine the time or times when each option is to become exercisable; to determine the vesting schedule, if any, applicable to the option; and to determine the maximum term for which the option is to remain outstanding. Exercise. Vested stock options granted under the Supplemental Plan may be exercised in whole or in part. For more details, contact us at (408) 776-8858. The permissible methods of payment are established under the terms of the Supplemental Plan. Exercise Price. The Compensation Committee has the authority to determine the exercise price of options granted under the Supplemental Plan, subject to certain limitations established under the terms of the Supplemental Plan. Adjustments Upon Certain Events. Appropriate adjustments may be made by the Compensation Committee with respect to the optionholder's rights under options granted under the Supplemental Plan, both as to options granted or to be granted, to give effect to adjustments to certain corporate transactions. Transferability of Options. In general, the options granted under the Supplemental Plan may not be transferred and may be exercisable during an optionholder's lifetime only by such optionholder. However, the options may, after their issuance, be transferred under the laws of descent and distribution. In these cases, the options may be exercised by the person who acquires the right to exercise the option by bequest or inheritance. Additionally, options may be assigned during the optionholder's lifetime to one or more members of his/her immediate family or to a trust established exclusively for one or more such family members or to the optionholder's former spouse, to the extent such assignment is in connection with the optionholder's estate plan or pursuant to a domestic relations order. In these cases, the assigned options may only be exercised by the person (or persons) who acquire a proprietary interest in such options pursuant to the assignment. 23 Plan Amendment and Termination. The Supplemental Plan may be amended or modified by our Board of Directors in any respect at any time. However, no amendment or modification shall adversely affect the rights and obligations with respect to options then outstanding, unless the optionholder consents to the amendment or modification. The Supplemental Plan will terminate upon the earliest of (i) April 30, 2010, (ii) the date on which all shares of our common stock available for issuance in under the Supplemental Plan shall have been granted as vested shares and (iii) the termination of all outstanding options in connection with certain corporate transactions. If the Supplemental Plan terminates on April 30, 2010, all outstanding options will continue in full force and effect in accordance with the provisions of the applicable notice of grant of stock option and the applicable stock option agreement. No Stockholder Rights and Employment Rights. Employees have no stockholder rights with respect to any of our common stock subject to outstanding options until the options are exercised in accordance with the terms of the Supplemental Plan. Nothing in the Supplemental Plan confers upon any employee any right to continued employment. 10. Information Concerning GraphOn The address of our principal executive offices is 400 Cochrane Circle, Morgan Hill, California 95037. We have additional offices in Concord, New Hampshire and Berkshire England, United Kingdom. Our telephone number is (800) 472-7466. Our Internet address on the world wide web is http://www.graphon.com. Information contained on our website does not constitute a part of this Offer to Exchange. Questions about the offer or requests for assistance or for additional copies of this Offer to Exchange, the election form and related documents should be directed to us at (408) 776-8858. We are developers of business connectivity software, including server-based software, with an immediate focus on web-enabling applications for use by various parties, including independent software vendors, application service providers, corporate enterprises, governmental and educational institutions, and others. Server-based computing, sometimes referred to as thin-client computing, is a computing model where traditional desktop software applications are relocated to run entirely on a server, or host computer. This centralized deployment and management of applications reduces the complexity and total costs associated with enterprise computing. Our software architecture provides application developers with the ability to relocate applications traditionally run on the desktop to a server, or host computer, where they can be run over a variety of connections from remote locations to a variety of display devices. Our server-based technology works on today's most powerful personal computer, or low-end network computer, without application rewrites or changes to the corporate computing infrastructure. With our software, applications can be web enabled, without any modification to the original application software required, allowing the applications to be run from browsers or portals. In addition, the ability to access such applications over the Internet creates new operational models and sales channels. We provide the technology to access applications over the Internet. We entered both the Unix and Linux server-based computing and web enabling markets as early as 1996. We expanded our product offerings by shipping Windows web-enabling software in early 2000. The following table summarizes certain of our consolidated financial data for the periods indicated. The summary financial information set forth below for the years ended December 31, 2002, December 31, 2001 and December 31, 2000 has been derived from the audited financial statements contained in our annual report on Form 10-K for the year ended December 31, 2002. The summary financial information set forth below for the three months ended March 31, 2003 and March 24 31, 2002 has been derived from the unaudited financial statements contained in our quarterly report on Form 10-Q for the quarter ended March 31, 2003. More comprehensive financial information is included in the Form 10-K for year ended December 31, 2002, the Form 10-Q for the quarter ended March 31, 2003 and other documents we have filed with the SEC. The financial information that follows is qualified in its entirety by reference to such reports and other documents, including the financial statements and related notes and the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K for year ended December 31, 2002 and the Form 10-Q for the quarter ended March 31, 2003.
Three Months Year Ended December 31, Ended March 31, 2002 2001 2000 2003 2002 ---------- ---------- ---------- --------- ---------- (unaudited) (dollars in thousands, except per share data) Statement of Operations Data: Revenues................. $ 3,535 $ 5,911 $ 7,567 $ 1,044 $ 586 Cost of revenues......... 1,680 2,613 1,044 325 455 Gross profit............. 1,855 3,298 6,523 719 131 Operating expenses: Selling and marketing... 2,235 5,989 5,750 421 809 General and administrative........ 2,801 4,561 4,653 356 644 Research and development 2,831 4,134 4,060 328 813 Asset impairment loss... 914 4,501 - - - Restructuring charge... 1,943 - - - 1,490 ---------- ---------- ---------- ---------- ---------- Total operating expenses 10,724 19,185 14,463 1,105 3,756 ---------- ---------- ---------- ---------- ---------- Loss from operations.... (8,869) (15,887) (7,940) (386) (3,625) Other income (expense) net.................... 77 410 (1,434) 6 34 ---------- ---------- ---------- ---------- ---------- Loss before provision for income taxes....... (8,792) (15,477) (9,374) (380) (3,591) Provision for income taxes.................. - 1 1 - - ---------- ---------- ---------- ---------- ---------- Net loss................ $ (8,792) $ (15,478) $ (9,375) $ (380) $ (3,591) ========== ========== ========== ========== ========== Basic and diluted loss per common share....... $ (0.50) $ (0.97) $ (0.65) $ (0.02) $ (0.21) ========== ========== ========== ========== ========== Weighted average common shares outstanding..... 17,465,099 16,007,763 14,396,435 16,594,408 17,353,663 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges.......... 118:1 417:1 N/A N/A 123:1 ========== ========== ========== ========== ========== Book value per share.... $ 0.16 $ 0.71 $ 1.32 $ 0.14 $ 0.45 ========== ========== ========== ========== ========== Balance Sheet Data (as of the end of the period): Working capital.......... $ 668 $ 6,173 $ 12,879 $ 494 $ 3,697 Total assets............. 4,550 12,986 21,040 3,998 9,973 Total liabilities........ 1,820 1,660 1,983 1,648 1,965 Stockholders' equity..... 2,730 11,326 19,057 2,350 7,827 =============================================================================================
11. Interests of Directors and Executive Officers; Transactions and Arrangements Concerning the Options and Our Common Stock As of June 16, 2003, our executive officers and directors (five persons) as a group held outstanding option awards to purchase a total of 1,022,500 shares of our common stock. None of these options may be exchanged in this offer. The following table sets forth the ownership of each of our executive officers and directors of options outstanding as of June 16, 2003. 25 Number of Options to Percentage of Total Name of Beneficial Owner Purchase Common Stock Options Outstanding ------------------------ --------------------- ------------------- Robert Dilworth............ 400,000 14.4% August P. Klein............ 72,500 2.6% William Swain.............. 420,000 15.1% Michael Volker............. 50,000 1.8% Gordon Watson.............. 80,000 2.9% All directors and executive officers as a group (five persons)....... 1,022,500 36.8% - ------------------------------------------------------------------------------ Except for the foregoing, we have not and, to the best of our knowledge, none of our directors or executive officers has engaged in transactions involving options to purchase our common stock or in transactions involving our common stock during the past 60 days. In addition, except as otherwise described above, we are not and, to our knowledge, none of our executive officers or directors is, a party to any agreement, arrangement or understanding with respect to any of our securities (including but not limited to, any agreement, arrangement or understanding concerning the transfer or the voting of any of our securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations). During the past 60 days, (i) we have granted 40,000 options to purchase our common stock to each of Robert Dilworth, August P. Klein, William Swain, Michael Volker and Gordon Watson and (ii) we have not, and to the best of our knowledge, our executive officers or directors have not, exercised any options to acquire shares of common stock. 12. Accounting Consequences of the Offer All tendered options will be cancelled and the shares of our common stock that could have been purchased under the cancelled options will be returned to the pool of shares available for grants of new awards of options under the applicable plan, including grants of the new options pursuant to the offer, from which the cancelled shares were granted, except as required by applicable law. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages entities to recognize compensation costs for stock-based employee compensation plans using the fair value-based method of accounting defined in SFAS No. 123, but allows for the continued use of the intrinsic value method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. We continue to use the intrinsic value method of accounting prescribed by APB Opinion No. 25, and interpretations thereof, and, as such, are required to disclose pro forma net income and earnings per share as if the fair value-based method of accounting had been applied throughout the year. 13. Legal Matters; Regulatory Approval We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our cancellation of options and issuance of new options to employees as contemplated by the offer, 26 or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or cancellation of our options as contemplated herein, other than such other approvals as have been or are expected to be obtained by us. We are unable to predict whether we may be required to delay the acceptance of options for exchange pending the outcome of any such matter. We cannot assure you that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to our business. Our obligation under the offer to accept any tendered options for exchange is subject to conditions, including the conditions described in under Section 7. If we are prohibited by applicable laws or regulations from granting new options on or after the date we expect to grant the new options (expected to be January 26, 2004), we will not grant any new options. We are unaware of any such prohibition at this time, and we will use reasonable efforts to effect the grant, but if the grant is prohibited we will not grant any new options and you will not get any other consideration for the options you tendered. 14. Material United States Federal Income Tax Consequences The following is a summary of certain tax consequences of the cancellation of eligible options and grant of new options to employees subject to tax in the United States. This summary is general in nature and does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all employees. In addition, this summary does not address the effects of foreign, state and local tax laws. Please note that tax laws change frequently and, occasionally, on a retroactive basis. Employees considering exchanging their options are urged to consult with their own tax or financial advisors. No private letter ruling nor opinion of counsel will be sought regarding the tax consequences to you as a result of an exchange of options. Option Exchange. We do not believe that you will be required to recognize income or gain for U.S. Federal income tax purposes as a result of the exchange of an eligible option for a new option, whether the options exchanged are nonqualified options for nonqualified options, incentive stock options for incentive stock options, incentive stock options for nonqualified options or nonqualified options for incentive stock options. Grant of New Option. The grant of a new option should not create U.S. Federal income tax consequences for you. Exercise of New Option. When you exercise a nonqualified option, you should recognize ordinary income equal to the difference between the option exercise price and the fair market value of the stock received on the date of exercise. However, if your option is an incentive stock option, you should not be subject to U.S. Federal income tax on exercise (except that the alternative minimum tax may apply on such difference between the exercise price and fair market value of stock received). Sale of Shares. If you acquire shares upon exercise of a nonqualified option, the subsequent sale of the shares generally should give rise to capital gain or loss equal to the difference between the sale price and the sum of the exercise price plus the income you recognized upon exercise of the option. This capital gain or loss will be treated as long-term or short-term depending on whether you held the shares for more than one year following the exercise of the option. If you acquire shares upon exercise of an incentive stock option, the subsequent sale of the shares should generally give rise to a long-term capital gain or loss equal to the difference between the sale price and the exercise price, provided that you sell your shares after the end of the applicable 27 holding period. The applicable holding period will begin on the date that the incentive stock option is granted and will end on the later of two years after grant date or one year after the exercise of the incentive stock option. Generally, if you dispose of the shares before the expiration of this holding period which is referred to as a "disqualifying disposition," you will recognize ordinary income equal to the lesser of (1) the excess of the stock's fair market value on the date of exercise over the exercise price or (2) the excess of the amount realized upon disposition over the exercise price. Your additional gain or any loss upon such the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on whether the stock was held for more than one year. Dividends. If you exercise your option, you may be entitled to receive dividends. You should be subject to tax on any dividends received. You should not be entitled to dividends before you exercise your option. Withholding and Reporting. Withholding and reporting of income and employment tax will generally be required when you exercise your nonqualified option. Withholding should generally not be required upon exercise of an incentive stock option or in the event you are required to recognize ordinary income upon the disposition of shares received upon exercise. Reporting upon the exercise of an incentive stock option or upon any disqualified disposition, however, should generally be required. You will be responsible for paying taxes on any income that you recognize in connection with the exercise of options or sale of stock received upon exercise. 15. Fees and Expenses We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of options pursuant to the offer. 16. Additional Information We have filed with the Securities and Exchange Commission a Tender Offer Statement on Schedule TO, of which this Offer to Exchange is a part. This Offer to Exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials which we have filed with the SEC and incorporate herein by reference, before making a decision on whether to tender your options: o Our annual report on Form 10-K for the year ended December 31, 2002; o Our quarterly report on Form l0-Q for the quarter ended March 31, 2003; o Our current report on Form 8-K dated March 25, 2003 and filed on March 28, 2003; and o the description of our common stock contained in our registration statement on Form 8-A, filed on November 6, 1996, including any amendments or reports filed for the purpose of updating that description. This Offer to Exchange also incorporates by reference any future filings that we make with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (except for information furnished to the SEC that is not deemed to be "filed" for purposes of the Securities Exchange Act of 1934) on or subsequent to the date of this Offer to Exchange until the expiration of the offer. These filings and other information about us can be inspected and copied at prescribed rates at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the Public 28 Reference Room by calling the SEC at 1-800-SEC-0330. In addition, reports, proxy statements and other information that we file with the SEC are publicly available through the SEC's site on the Internet's Word Wide Web, located at http://www.sec.gov. Our common stock is listed for trading on the OTC Bulletin Board under the symbol "GOJO.OB." We will provide without charge to each person to whom a copy of the Offer to Exchange is delivered, upon the written or oral request of any such person, a copy of any or all of the documents to which we have referred, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to us at (408) 776-8858. As you read the documents referred to in this section, you may find some inconsistencies in information from one document to another later dated document. Should you find inconsistencies between the documents, or between a document and the Offer to Exchange, you should rely on the statements made in the most recent document. The information contained in the Offer to Exchange should be read together with the information contained in the documents to which we have referred you. 17. Forward Looking Statements This Offer to Exchange and our SEC reports referred to above include "forward-looking statements." When used in this Offer to Exchange , the words "could," "may," "anticipates," "believes," "estimates," "expects," "intends," "plans" and similar expressions as they relate to us, our business or our management are intended to identify these forward-looking statements. Forward-looking statements, including statements concerning our expectations, business prospects, anticipated economic performance, financial condition and other similar matters are subject to risks and uncertainties, which could cause actual results to differ materially from those discussed in the forward-looking statements. Forward-looking statements speak only as of the date of the documents in which they are made. We disclaim any obligation or undertaking to provide any update or revision to any forward-looking statement made by us to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. You should not place undue reliance on forward-looking statements. 18. Miscellaneous We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your options pursuant to the offer. You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to give you any information or to make any representations in connection with the offer other than the information and representations contained in this Offer to Exchange, the election form or any other related document. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us. EX-99 4 emplyltr.txt EXHIBIT A-2 EMPLOYEE LETTER EXHIBIT (a)(2) [GraphOn Letterhead] June 24, 2003 Dear Employee: We are pleased to announce that we are offering you the opportunity to exchange for new options certain of your outstanding unexercised options to purchase our common stock. In the enclosed document titled "Offer to Exchange Outstanding Options to Purchase Common Stock," you are presented with an offer to exchange your outstanding options to purchase our common stock that have an exercise price greater than or equal to $0.50 per share for new options to purchase our common stock, under certain terms and conditions. Our Board of Directors and management believe that our employees are our most important asset and are essential to our long-term success. We consider our stock option program to be an important incentive designed to recruit, retain and maintain the best of talent. Due to the financial and stock market conditions that have affected us, many of our outstanding options have exercise prices that are significantly higher than the current market price of our shares of common stock. Therefore, our Board of Directors decided to offer this exchange program, which is designed to restore the incentive attributable to our stock option programs and encourage our employees to continue to contribute to our future success. We recognize that there are substantial considerations in determining whether or not to tender your eligible options for exchange. Please read carefully the section titled "Certain Risks of Participating in the Offer" in the enclosed Offer to Exchange. We advise all employees considering exchanging their options to consult with their own tax or financial advisors. This letter is a short introduction to the offer and does not include all the information that is important to you in determining whether you should participate in the offer. We encourage you to read carefully the entire Offer to Exchange before you decide to accept or decline this offer. You should direct questions about the offer, requests for assistance in completing the related documentation and requests for additional copies of the Election Form or the Offer to Exchange or related documents, to Bob Dixon, Bob Peterson or Bill Swain at GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037. You may contact Bob Dixon at (408) 776-8858, Bob Peterson at (310) 541-6329 or Bill Swain at (408) 425-1088. Very truly yours, GRAPHON CORPORATION EX-99 5 elect.txt EXHIBIT A-3 ELECTION FORM EXHIBIT (a)(3) [Data to be pre-printed:] Employee Name Address GRAPHON CORPORATION ELECTION FORM This Election Form (the "Election Form") relates to the offer (the "Offer") by GraphOn Corporation ("GraphOn") described in the "Offer to Exchange Outstanding Options to Purchase Common Stock" dated June 24, 2003 (the "Offer to Exchange") distributed to eligible employees of GraphOn. To participate in the Offer and tender your Eligible Options (as defined below) for exchange, you must properly initial your election in the table below and sign, date and deliver to GraphOn this Election Form pursuant to the instructions included in the Offer to Exchange, by not later than the expiration of the Offer. The Offer will expire at 5:00 p.m., Eastern Time, on July 23, 2003, unless extended. If you elect to participate in the Offer and tender your Eligible Options, your tendered options will be cancelled promptly upon the expiration of the Offer. GraphOn expects to grant new options on the first business day which is at least six months and one day after the date we cancel your options validly tendered for exchange, in accordance with and subject to the terms and conditions described in the Offer to Exchange. If you choose to tender some of your eligible options for exchange, you must tender for exchange the entire option representing all of the shares of our common stock from that grant, but you will not be required to tender for exchange options from other grants. The following lists your outstanding, unexercised options that, as of June 24, 2003 are eligible for exchange pursuant to the Offer (the "Eligible Options"). By initialing the Election column(s) below, you are electing to tender for exchange all options granted pursuant to that corresponding option grant. [Data to be preprinted:] NUMBER OF ELIGIBLE GRANT DATE EXERCISE PRICE GRANT TYPE OPTIONS ELECTION - ------------------------------------------------------------------------------ If you have any questions about this information, please contact Bob Dixon by telephone at (408) 776-8858. If GraphOn receives one or more Election Forms signed by you, GraphOn will give effect to the form bearing the latest date and, if two forms bear the same date, then the form received last. Acknowledgment and Signature: By signing and dating this Election Form below and delivering it to GraphOn pursuant to the instructions included in the Offer to Exchange, I voluntarily elect to tender for exchange the options indicated in the table above and participate in and agree to all of the terms of the Offer, as described in the Offer to Exchange and in this Election Form. - ----------------------------- ----------------------- Name Social Security Number - ----------------------------- ----------------------- Signature Date 2 EX-99 6 withdraw.txt EXHIBIT A-4 WITHDRAWAL FORM EXHIBIT (a)(4) GRAPHON CORPORATION WITHDRAWAL FORM If you previously elected to participate in the offer (the "Offer") by GraphOn Corporation ("GraphOn") described in the "Offer to Exchange Outstanding Options to Purchase Common Stock" dated June 24, 2003 (the "Offer to Exchange"), and you would like to change your prior election and withdraw your tendered options, you must complete the table below, sign and date this Withdrawal Form and deliver it to GraphOn pursuant to the instructions included in the Offer to Exchange, by not later than the expiration of the Offer. The Offer will expire at 5:00 p.m., Eastern Time on July 23, 2003, unless extended. If we extend the Offer, you may change your prior election and withdraw your tendered options at any time before the expiration of the extended deadline. If you wish to withdraw any tendered option, you must withdraw all of your tendered options granted under that option grant, but you will not be required to withdraw any tendered options from any other option grant. Please list below your tendered options you wish to withdraw from the Offer. NUMBER OF GRANT DATE EXERCISE PRICE GRANT TYPE ELIGIBLE OPTIONS - ------------------------------------------------------------------------------ If GraphOn receives one or more Election Forms and one or more Withdrawal Forms signed by you, GraphOn will give effect to the form bearing the latest date and, if two forms bear the same date, then the form received last. Acknowledgment and Signature: I previously signed, dated and delivered to GraphOn the Election Form, in which I elected to participate in the Offer. I now wish to change my prior election and withdraw some or all of my tender. By signing and dating this Withdrawal Form below and delivering it to GraphOn pursuant to the instructions included in the Offer to Exchange, I voluntarily elect to change my prior election to participate in the Offer and withdraw my tendered options listed in the table above. I understand and acknowledge that if GraphOn accepts my withdrawal, my withdrawn eligible options will remain outstanding in accordance with their original terms and conditions and I will not receive any new options. - ---------------------------- ---------------------- Name Social Security Number - ---------------------------- ---------------------- Signature Date EX-99 7 confirm.txt EXHIBIT A-5 CONFIRMATION FORM EXHIBIT (a)(5) GRAPHON CORPORATION CONFIRMATION OF ELECTION AND PROMISE OF GRANT OF NEW OPTIONS July [_], 2003 Name Address 1 Address 2 City, State Zip Dear [Name]: This statement confirms that GraphOn Corporation ("GraphOn") has accepted your election to participate in the stock option exchange program (the "Exchange Program"). It also confirms that your options ("Cancelled Options"), described below in the first four columns, were cancelled on July 23, 2003 and that you have no remaining rights to those Cancelled Options. Cancelled Options New Options - ------------------------------------ ------------------------------- Number of Number of Grant Exercise Grant Option New Vesting Termination Date Price Type Shares Options Date Date - ------ ------- ----- -------- --------- ------- ----------- - ------------------------------------------------------------------------------ In consideration for your election to participate in the Exchange Program as set forth in the Offer (as defined below), GraphOn promises to grant to you stock options ("New Options"), as described in the last three columns above at a per share exercise price equal to the closing bid price per share of GraphOn's common stock on the Grant Date (as defined below) as reported by the OTC Bulletin Board or its successor market (if any), on a date that is at least six months and one day after the cancellation date of the Cancelled Options, which GraphOn currently expects to be January 26, 2004 (the "Grant Date"), subject to the conditions set forth below. GraphOn promises to grant New Options to you on the Grant Date, subject to the following conditions: o The terms and conditions set forth in the documents constituting the Offer. The documents constituting the Offer include the Schedule TO that GraphOn filed with the Securities and Exchange Commission on June 24, 2003, and all exhibits and amendments thereto, including the Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 24, 2003 (collectively, the "Offer"). o The terms of GraphOn's 1996 Stock Option Plan, GraphOn's 1998 Stock Option/Stock Issuance Plan and GraphOn's Supplemental Stock Option Plan, as applicable, and the corresponding notice of grant of stock option, stock option agreement and stock purchase agreement. o Your continued employment by GraphOn through the Grant Date. This promise does not constitute a guarantee of employment with GraphOn for any period. Unless expressly provided otherwise by applicable laws or a written employment contract, your employment with GraphOn will remain "at will" and can be terminated by you or GraphOn at any time, for any reason or no reason, with or without cause, or with or without notice. If your employment with GraphOn terminates for any reason before the Grant Date you will lose all rights under this promise to receive New Options and your Cancelled Options will not be reinstated. If GraphOn experiences a change of control or a reorganization occurs before GraphOn grants the New Options, it is possible that the successor or purchaser would agree to assume the obligation to issue the New Options. However, GraphOn cannot guarantee that any successor or purchaser would agree to assume any obligation to issue New Options. Therefore, it is possible that you may not receive any New Options, securities of the surviving company or other consideration in exchange for the Cancelled Options if GraphOn is subject to a change of control or a reorganization occurs before the New Options are granted. Subject to the above terms and conditions, you will receive a notice of grant of stock option, stock option agreement and stock purchase agreement reflecting your New Options promptly after the Grant Date. Questions regarding the Offer or this Confirmation of Election and Promise of Grant of New Options may be directed to Bob Dixon at GraphOn Corporation, 400 Cochrane Circle, Morgan Hill, California 95037, (408) 776-8858. 2 EX-99 8 grant.txt EXHIBIT A-6 NOTICE OF GRANT OF STOCK OPTION EXHIBIT (a)(6) GRAPHON CORPORATION NOTICE OF GRANT OF STOCK OPTION Notice is hereby given of the following option grant (the "Option") to purchase shares of the Common Stock of GraphOn Corporation (the "Corporation"): Optionee: Grant Date: Vesting Commencement Date: Exercise Price: $ per share Number of Option Shares: shares of Common Stock Expiration Date: Type of Option: Date Exercisable: Vesting Schedule: The Option Shares shall initially be unvested and subject to repurchase by the Corporation at the Exercise Price paid per share. Optionee shall acquire a vested interest in, and the Corporation's repurchase right shall accordingly lapse with respect to, (i) percent 100% of the Option Shares upon the Vesting Commencement Date, and (ii) the balance of Option Shares in a series of 33 successive equal monthly installments upon the completion of each month of Service over the 33-month period measured from the first month anniversary of the Vesting Commencement Date. In no event shall any additional Option Shares vest after Optionee's cessation of Service. Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the GraphOn Corporation (the "Plan"). Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee understands that any Option Shares purchased under the Option will be subject to the terms set forth in the Stock Purchase Agreement attached hereto as Exhibit B. Optionee hereby acknowledges receipt of a copy of the Plan in the form attached hereto as Exhibit C. REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY GRAPHON CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT. No Employment or Service Contract. Nothing in this Notice or in the attached Stock Option Agreement or Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of GraphOn Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee's Service at any time for any reason, with or without cause. Definitions. All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached Stock Option Agreement. DATED: , 200_ GRAPHON CORPORATION By: ------------------------------------------ Title: ------------------------------------------ , OPTIONEE Address: ------------------------------------------ Attachments Exhibit A - Stock Option Agreement Exhibit B - Stock Purchase Agreement Exhibit C - Applicable Stock Option Plan EXHIBIT A STOCK OPTION AGREEMENT See Exhibit (a)(7) EXHIBIT B STOCK PURCHASE AGREEMENT See Exhibit (a)(8) EXHIBIT C See Exhibit (d)(1), (d)(2) or (d)(3) EX-99 9 option.txt EXHIBIT A-7 STOCK OPTION AGREEMENT EXHIBIT (a)(7) GRAPHON CORPORATION STOCK OPTION AGREEMENT RECITALS A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of the Board or the Board of Directors of any Parent or Subsidiary and consultants and other independent advisors in the service of the Corporation (or any Parent or Subsidiary). B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation's grant of an option to Optionee. C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix. NOW, THEREFORE, it is hereby agreed as follows: 1. Grant of Option. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price. 2. Option Term. This option shall have a term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6. 3. Limited Transferability. During Optionee's lifetime, this option shall be exercisable only by Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following Optionee's death. 4. Dates of Exercise. This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate, and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6. 5. Cessation of Service. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable: (a) Should Optionee cease to remain in Service for any reason (other than death, Disability or Misconduct) while this option is outstanding, then Optionee shall have a period of three (3) months (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date. (b) Should Optionee die while this option is outstanding, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of inheritance shall have the right to exercise this option. Such right shall lapse, and this option shall cease to be outstanding, upon the earlier of (i) the expiration of the twelve (12)-month period measured from the date of Optionee's death or (ii) the Expiration Date. (c) Should Optionee cease Service by reason of Disability while this option is outstanding, then Optionee shall have a period of twelve (12) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date. Note: Exercise of this option on a date later than three (3) months following cessation of Service due to Disability will result in loss of favorable Incentive Option treatment, unless such Disability constitutes Permanent Disability. In the event that Incentive Option treatment is not available, this option will be taxed as a Non-Statutory Option upon exercise. (d) During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of Option Shares in which Optionee is, at the time of Optionee's cessation of Service, vested pursuant to the Vesting Schedule specified in the Grant Notice or the special vesting acceleration provisions of Paragraph 6. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any vested Option Shares for which the option has not been exercised. To the extent Optionee is not vested in the Option Shares at the time of Optionee's cessation of Service, this option shall immediately terminate and cease to be outstanding with respect to those shares. (e) Should Optionee's Service be terminated for Misconduct, then this option shall terminate immediately and cease to remain outstanding. 6. Accelerated Vesting. (a) In the event of any Corporate Transaction, the Option Shares at the time subject to this option but not otherwise vested shall automatically vest in full so that this option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all of the Option Shares as fully-vested shares and may be exercised for any or all of those vested shares. However, the Option Shares shall not vest on such an accelerated basis if and to the extent: (i) this option is assumed by the successor corporation (or parent thereof) in the Corporate Transaction and the Corporation's repurchase rights with respect to the unvested Option Shares are assigned to such successor corporation (or parent thereof) or (ii) this option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested Option Shares at the time of the Corporate Transaction (the excess of the Fair Market Value of those Option Shares over the Exercise Price payable for such shares) and provides for subsequent payout in accordance with the same Vesting Schedule applicable to those unvested Option Shares as set forth in the Grant Notice. 2 (b) Immediately following the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in connection with the Corporate Transaction. (c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same. (d) The Option Shares may also vest upon an accelerated basis in accordance with the terms and conditions of any special addendum attached to this Agreement. (e) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder. 8. Shareholder Rights. The holder of this option shall not have any shareholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become the record holder of the purchased shares. 9. Manner of Exercising Option. (a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions: (i) Execute and deliver to the Corporation a Purchase Agreement for the Option Shares for which the option is exercised. (ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms: (A) cash or check made payable to the Corporation; or (B) a promissory note payable to the Corporation, but only to the extent authorized by the Plan Administrator in accordance with Paragraph 14. 3 Should the Common Stock be registered under Section 12 of the 1934 Act at the time the option is exercised, then the Exercise Price may also be paid as follows: (C) in shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or (D) to the extent the option is exercised for vested Option Shares, through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions (a) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b)to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Purchase Agreement delivered to the Corporation in connection with the option exercise. (iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option. (iv) Execute and deliver to the Corporation such written representations as may be requested by the Corporation in order for it to comply with the applicable requirements of Federal and state securities laws. (v) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise. (b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto. (c) In no event may this option be exercised for any fractional shares. 4 10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT. 11. Compliance with Laws and Regulations. (a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance. (b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals. 12. Successors and Assigns. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee's assigns and the legal representatives, heirs and legatees of Optionee's estate. 13. Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 14. Financing. The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a full-recourse, interest-bearing promissory note secured by those Option Shares. The payment schedule in effect for any such promissory note shall be established by the Plan Administrator in its sole discretion. 15. Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 16. Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 5 17. Shareholder Approval. If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may be issued under the Plan as last approved by the shareholders, then this option shall be void with respect to such excess shares, unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan. 18. Additional Terms Applicable to an Incentive Option. In the event this option is designated an Incentive Option in the Grant Notice, the following terms and conditions shall also apply to the grant: (a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is exercised for one or more Option Shares: (i) more than three (3) months after the date Optionee ceases to be an Employee for any reason other than death or Permanent Disability or (ii) more than twelve (12) months after the date Optionee ceases to be an Employee by reason of Permanent Disability. (b) This option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option would otherwise first become exercisable in such calendar year would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock and any other securities for which one or more other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent the exercisability of this option is deferred by reason of the foregoing limitation, the deferred portion shall become exercisable in the first calendar year or years thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b) would not be contravened, but such deferral shall in all events end immediately prior to the effective date of a Corporate Transaction in which this option is not to be assumed, whereupon the option shall become immediately exercisable as a Non-Statutory Option for the deferred portion of the Option Shares. (c) Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become exercisable for the first time in the same calendar year as this option, then the foregoing limitations on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. 6 APPENDIX The following definitions shall be in effect under the Agreement: A. Agreement shall mean this Stock Option Agreement. B. Board shall mean the Corporation's Board of Directors. C. Code shall mean the Internal Revenue Code of 1986, as amended. D. Common Stock shall mean the Corporation's common stock. E. Corporate Transaction shall mean either of the following shareholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. Corporation shall mean GraphOn Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of GraphOn Corporation which shall by appropriate action adopt the Plan. G. Disability shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. Disability shall be deemed to constitute Permanent Disability in the event that such Disability is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more. H. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. I. Exercise Date shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement. J. Exercise Price shall mean the exercise price payable per Option Share as specified in the Grant Notice. A-1 K. Expiration Date shall mean the date on which the option expires as specified in the Grant Notice. L. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. M. Grant Date shall mean the date of grant of the option as specified in the Grant Notice. N. Grant Notice shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby. O. Incentive Option shall mean an option which satisfies the requirements of Code Section 422. P. Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other individual in the Service of the Corporation (or any Parent or Subsidiary). Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. A-2 R. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422. S. Option Shares shall mean the number of shares of Common Stock subject to the option. T. Optionee shall mean the person to whom the option is granted as specified in the Grant Notice. U. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. V. Plan shall mean the Corporation's ______ Plan. W. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan. X. Purchase Agreement shall mean the stock purchase agreement in substantially the form of Exhibit B to the Grant Notice. Y. Service shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant. Z. Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange. AA. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. BB. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service. A-3 EX-99 10 purchase.txt EXHIBIT A-8 STOCK PURCHASE AGREEMENT EXHIBIT (a)(8) GRAPHON CORPORATION STOCK PURCHASE AGREEMENT AGREEMENT made this ______ day of ____________, 200__, by and between GraphOn Corporation, a Delaware corporation, and _____________________, Optionee under the Corporation's ____________ Plan. All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the attached Appendix. A. EXERCISE OF OPTION 1. Exercise. Optionee hereby purchases shares of Common Stock (the "Purchased Shares") pursuant to that certain option (the "Option") granted Optionee on ____________________, 200__ (the "Grant Date") to purchase up to _______________ shares of Common Stock (the "Option Shares") under the Plan at the exercise price of $___________ per share (the "Exercise Price"). 2. Payment. Concurrently with the delivery of this Agreement to the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in accordance with the provisions of the Option Agreement and shall deliver whatever additional documents may be required by the Option Agreement as a condition for exercise, together with a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit I) with respect to the Purchased Shares. 3. Shareholder Rights. Until such time as the Corporation exercises the Repurchase Right or the First Refusal Right, Optionee (or any successor in interest) shall have all the rights of a shareholder (including voting, dividend and liquidation rights) with respect to the Purchased Shares, subject, however, to the transfer restrictions of Articles B and C. B. SECURITIES LAW COMPLIANCE 1. Restricted Securities. The Purchased Shares have not been registered under the 1933 Act and are being issued to Optionee in reliance upon the exemption from such registration provided by SEC Rule 701 for stock issuances under compensatory benefit plans such as the Plan. Optionee hereby confirms that Optionee has been informed that the Purchased Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that SEC Rule 144 issued under the 1933 Act, which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Purchased Shares from the registration requirements of the 1933 Act. 2. Restrictions on Disposition of Purchased Shares. Optionee shall make no disposition of the Purchased Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements: (i) Optionee shall have provided the Corporation with a written summary of the terms and conditions of the proposed disposition. (ii) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Purchased Shares. (iii) Optionee shall have provided the Corporation with written assurances, in form and substance satisfactory to the Corporation, that (a) the proposed disposition does not require registration of the Purchased Shares under the 1933 Act or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act or any exemption from registration available under the 1933 Act (including Rule 144) has been taken. The Corporation shall not be required (i) to transfer on its books any Purchased Shares which have been sold or transferred in violation of the provisions of this Agreement or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Purchased Shares have been transferred in contravention of this Agreement. 3. Restrictive Legends. The stock certificates for the Purchased Shares shall be endorsed with one or more of the following restrictive legends: "The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares may not be sold or offered for sale in the absence of (a) an effective registration statement for the shares under such Act, (b) a "no action" letter of the Securities and Exchange Commission with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act is not required with respect to such sale or offer." "The shares represented by this certificate are subject to certain repurchase rights and rights of first refusal granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement dated , 199 between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation's principal corporate offices." C. TRANSFER RESTRICTIONS 1. Restriction on Transfer. Except for any Permitted Transfer, Optionee shall not transfer, assign, encumber or otherwise dispose of any of the Purchased Shares, which are subject to the Repurchase Right. In addition, Purchased Shares, which are released from the Repurchase Right shall not be transferred, assigned, encumbered or otherwise disposed of in contravention of the First Refusal Right or the Market Stand-Off. 2. Transferee Obligations. Each person (other than the Corporation) to whom the Purchased Shares are transferred by means of a Permitted Transfer must, as a 2 condition precedent to the validity of such transfer, acknowledge in writing to the Corporation that such person is bound by the provisions of this Agreement and that the transferred shares are subject to (i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same extent such shares would be so subject if retained by Optionee. 3. Market Stand-Off. (a) In connection with any underwritten public offering by the Corporation of its equity securities pursuant to an effective registration statement filed under the 1933 Act, including the Corporation's initial public offering, Owner shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Purchased Shares without the prior written consent of the Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall be in effect for such period of time from and after the effective date of the final prospectus for the offering as may be requested by the Corporation or such underwriters. In no event, however, shall such period exceed one hundred eighty (180) days and the Market Stand-Off shall in all events terminate two (2) years after the effective date of the Corporation's initial public offering. (b) Owner shall be subject to the Market Stand-Off provided and only if the officers and directors of the Corporation are also subject to similar restrictions. (c) Any new, substituted or additional securities which are by reason of any Recapitalization or Reorganization distributed with respect to the Purchased Shares shall be immediately subject to the Market Stand-Off, to the same extent the Purchased Shares are at such time covered by such provisions. (d) In order to enforce the Market Stand-Off, the Corporation may impose stop-transfer instructions with respect to the Purchased Shares until the end of the applicable stand-off period. D. REPURCHASE RIGHT 1. Grant. The Corporation is hereby granted the right (the "Repurchase Right"), exercisable at any time during the sixty (60)-day period following the date Optionee ceases for any reason to remain in Service or (if later) during the sixty (60)-day period following the execution date of this Agreement, to repurchase at the Exercise Price any or all of the Purchased Shares in which Optionee is not, at the time of his or her cessation of Service, vested in accordance with the Vesting Schedule applicable to those shares or the special vesting acceleration provisions of Paragraph D.6 of this Agreement (such shares to be hereinafter referred to as the "Unvested Shares"). 2. Exercise of the Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to each Owner of the Unvested Shares prior to the expiration of the sixty (60)-day exercise period. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of such notice. The certificates representing the Unvested Shares to be repurchased shall be delivered to the Corporation on or before the close of business on the date specified for the repurchase. Concurrently with the receipt 3 of such stock certificates, the Corporation shall pay to Owner, in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount equal to the Exercise Price previously paid for the Unvested Shares which are to be repurchased from Owner. 3. Termination of the Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate and cease to be exercisable with respect to any and all Purchased Shares in which Optionee vests in accordance with the Vesting Schedule. All Purchased Shares as to which the Repurchase Right lapses shall, however, remain subject to (i) the First Refusal Right and (ii) the Market Stand-Off. 4. Aggregate Vesting Limitation. If the Option is exercised in more than one increment so that Optionee is a party to one or more other Stock Purchase Agreements (the "Prior Purchase Agreements") which are executed prior to the date of this Agreement, then the total number of Purchased Shares as to which Optionee shall be deemed to have a fully-vested interest under this Agreement and all Prior Purchase Agreements shall not exceed in the aggregate the number of Purchased Shares in which Optionee would otherwise at the time be vested, in accordance with the Vesting Schedule, had all the Purchased Shares (including those acquired under the Prior Purchase Agreements) been acquired exclusively under this Agreement. 5. Recapitalization. Any new, substituted or additional securities or other property (including cash paid other than as a regular cash dividend) which is by reason of any Recapitalization distributed with respect to the Purchased Shares shall be immediately subject to the Repurchase Right and any escrow requirements hereunder, but only to the extent the Purchased Shares are at the time covered by such right or escrow requirements. Appropriate adjustments to reflect such distribution shall be made to the number and/or class of Purchased Shares subject to this Agreement and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such Recapitalization upon the Corporation's capital structure; provided, however, that the aggregate purchase price shall remain the same. 6. Corporate Transaction. (a) The Repurchase Right shall automatically terminate in its entirety, and all the Purchased Shares shall vest in full, immediately prior to the consummation of any Corporate Transaction, except to the extent the Repurchase Right is to be assigned to the successor entity in such Corporate Transaction. (b) To the extent the Repurchase Right remains in effect following a Corporate Transaction, such right shall apply to any new securities or other property (including any cash payments) received in exchange for the Purchased Shares in consummation of the Corporate Transaction, but only to the extent the Purchased Shares are at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Right to reflect the effect of the Corporate Transaction upon the Corporation's capital structure; provided, however, that the aggregate purchase price shall remain the same. The new securities or other property (including any cash payments) issued 4 or distributed with respect to the Purchased Shares in consummation of the Corporate Transaction shall be immediately deposited in escrow with the Corporation (or the successor entity) and shall not be released from escrow until Optionee vests in such securities or other property in accordance with the same Vesting Schedule in effect for the Purchased Shares. (c) The Repurchase Right may also terminate on an accelerated basis, and the Purchased Shares shall immediately vest in full, in accordance with the terms and conditions of any special addendum attached to this Agreement. E. RIGHT OF FIRST REFUSAL 1. Grant. The Corporation is hereby granted the right of first refusal (the "First Refusal Right"), exercisable in connection with any proposed transfer of the Purchased Shares in which Optionee has vested in accordance with the provisions of Article D. For purposes of this Article E, the term "transfer" shall include any sale, assignment, pledge, encumbrance or other disposition of the Purchased Shares intended to be made by Owner, but shall not include any Permitted Transfer. 2. Notice of Intended Disposition. In the event any Owner of Purchased Shares in which Optionee has vested desires to accept a bona fide third-party offer for the transfer of any or all of such shares (the Purchased Shares subject to such offer to be hereinafter referred to as the "Target Shares"), Owner shall promptly (i) deliver to the Corporation written notice (the "Disposition Notice") of the terms of the offer, including the purchase price and the identity of the third-party offeror, and (ii) provide satisfactory proof that the disposition of the Target Shares to such third-party offeror would not be in contravention of the provisions set forth in Articles B and C. 3. Exercise of the First Refusal Right. The Corporation shall, for a period of twenty-five (25) days following receipt of the Disposition Notice, have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms as those specified therein or upon such other terms (not materially different from those specified in the Disposition Notice) to which Owner consents. Such right shall be exercisable by delivery of written notice (the "Exercise Notice") to Owner prior to the expiration of the twenty-five (25)-day exercise period. If such right is exercised with respect to all the Target Shares, then the Corporation shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; and at such time the certificates representing the Target Shares shall be delivered to the Corporation. Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Corporation shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Owner and the Corporation cannot agree on such cash value within ten (10) days after the Corporation's receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Owner and the Corporation or, if they cannot agree on an appraiser within twenty (20) days after the Corporation's receipt of the Disposition Notice, each shall select an appraiser of recognized standing and the two (2) appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Owner and the Corporation. The closing shall then be held on the later of (i) the fifth (5th) business day following delivery of the Exercise Notice or (ii) the fifth (5th) business day after such valuation shall have been made. 5 4. Non-Exercise of the First Refusal Right. In the event the Exercise Notice is not given to Owner prior to the expiration of the twenty-five (25)-day exercise period, Owner shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third-party offeror identified in the Disposition Notice upon terms (including the purchase price) no more favorable to such third-party offeror than those specified in the Disposition Notice; provided, however, that any such sale or disposition must not be effected in contravention of the provisions of Articles B and C. The third-party offeror shall acquire the Target Shares free and clear of the First Refusal Right, but the acquired shares shall remain subject to the provisions of Article B and Paragraph C.3. In the event Owner does not effect such sale or disposition of the Target Shares within the specified thirty (30)-day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Owner until such right lapses. 5. Partial Exercise of the First Refusal Right. In the event the Corporation makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Owner shall have the option, exercisable by written notice to the Corporation delivered within five (5) business days after Owner's receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives: (i) sale or other disposition of all the Target Shares to the third-party offeror identified in the Disposition Notice, but in full compliance with the requirements of Paragraph E.4, as if the Corporation did not exercise the First Refusal Right; or (ii) sale to the Corporation of the portion of the Target Shares which the Corporation has elected to purchase, such sale to be effected in substantial conformity with the provisions of Paragraph E.3. The First Refusal Right shall continue to be applicable to any subsequent disposition of the remaining Target Shares until such right lapses. Owner's failure to deliver timely notification to the Corporation shall be deemed to be an election by Owner to sell the Target Shares pursuant to alternative (i) above. 6. Recapitalization/Reorganization. (a) Any new, substituted or additional securities or other property which is by reason of any Recapitalization distributed with respect to the Purchased Shares shall be immediately subject to the First Refusal Right, but only to the extent the Purchased Shares are at the time covered by such right. (b) In the event of a Reorganization, the First Refusal Right shall remain in full force and effect and shall apply to the new capital stock or other property received in exchange for the Purchased Shares in consummation of the Reorganization, but only to the extent the Purchased Shares are at the time covered by such right. 7. Lapse. The First Refusal Right shall lapse upon the earliest to occur of (i) the first date on which shares of the Common Stock are held of record by more than five hundred (500) persons, (ii) a determination is made by the Board that 6 a public market exists for the outstanding shares of Common Stock or (iii) a firm commitment underwritten public offering, pursuant to an effective registration statement under the 1933 Act, covering the offer and sale of the Common Stock in the aggregate amount of at least ten million dollars ($10,000,000). However, the Market Stand-Off shall continue to remain in full force and effect following the lapse of the First Refusal Right. F. SPECIAL TAX ELECTION The acquisition of the Purchased Shares may result in adverse tax consequences, which may be avoided or mitigated by filing an election under Code Section 83(b). Such election must be filed within thirty (30) days after the date of this Agreement. A description of the tax consequences applicable to the acquisition of the Purchased Shares and the form for making the Code Section 83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF. G. GENERAL PROVISIONS 1. Assignment. The Corporation may assign the Repurchase Right and/or the First Refusal Right to any person or entity selected by the Board, including (without limitation) one or more shareholders of the Corporation. If the assignee of the Repurchase Right is other than (i) a wholly owned subsidiary of the Corporation or (ii) the parent corporation owning one hundred percent (100%) of the Corporation's outstanding capital stock, then such assignee must make a cash payment to the Corporation, upon the assignment of the Repurchase Right, in an amount equal to the excess (if any) of (i) the Fair Market Value of the Purchased Shares at the time subject to the assigned Repurchase Right over (ii) the aggregate repurchase price payable for the Purchased Shares. 2. No Employment or Service Contract. Nothing in this Agreement or in the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee's Service at any time for any reason, with or without cause. 3. Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the address indicated below such party's signature line on this Agreement or at such other address as such party may 7 designate by ten (10) days advance written notice under this paragraph to all other parties to this Agreement. 4. No Waiver. The failure of the Corporation in any instance to exercise the Repurchase Right or the First Refusal Right shall not constitute a waiver of any other repurchase rights and/or rights of first refusal that may subsequently arise under the provisions of this Agreement or any other agreement between the Corporation and Optionee. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. 5. Cancellation of Shares. If the Corporation shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Purchased Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Corporation shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement. H. MISCELLANEOUS PROVISIONS 1. Optionee Undertaking. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Optionee or the Purchased Shares pursuant to the provisions of this Agreement. 2. Agreement is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan. 3. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without resort to that State's conflict-of-laws rules. 4. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 5. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and upon Optionee, Optionee's permitted assigns and the legal representatives, heirs and legatees of Optionee's estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof. 8 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above. GRAPHON CORPORATION By: -------------------------------------- Title: ----------------------------------------- Address: --------------------------------- OPTIONEE By: -------------------------------------- Title ------------------------------------- Address: ---------------------------------- 9 SPOUSAL ACKNOWLEDGMENT The undersigned spouse of Optionee has read and hereby approves the foregoing Stock Purchase Agreement. In consideration of the Corporation's granting Optionee the right to acquire the Purchased Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms of such Agreement, including (without limitation) the right of the Corporation (or its assigns) to purchase any Purchased Shares in which Optionee is not vested at time of his or her cessation of Service. OPTIONEE'S SPOUSE Name: ------------------------------------ Address: ---------------------------------- 10 EXHIBIT I ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED _______________ hereby sell(s), assign(s) and transfer(s) unto Graphon Corporation (the "Corporation"), _______________ (______) shares of the Common Stock of the Corporation standing in his or her name on the books of the Corporation represented by Certificate No.: _______________ herewith and do(es) hereby irrevocably constitute and appoint ___________________ Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises. Dated: ___________ Signature -------------------------------- Instruction: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate. The purpose of this assignment is to enable the Corporation to exercise the Repurchase Right without requiring additional signatures on the part of Optionee. I-1 EXHIBIT II FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) TAX ELECTION I. Federal Income Tax Consequences and Section 83(b) Election For Exercise of Non-Statutory Option. If the Purchased Shares are acquired pursuant to the exercise of a Non-Statutory Option, as specified in the Grant Notice, then under Code Section 83, the excess of the Fair Market Value of the Purchased Shares on the date any forfeiture restrictions applicable to such shares lapse over the Exercise Price paid for such shares will be reportable as ordinary income on the lapse date. For this purpose, the term "forfeiture restrictions" includes the right of the Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right. However, Optionee may elect under Code Section 83(b) to be taxed at the time the Purchased Shares are acquired, rather than when and as such Purchased Shares cease to be subject to such forfeiture restrictions. Such election must be filed with the Internal Revenue Service within thirty (30) days after the date of the Agreement. Even if the Fair Market Value of the Purchased Shares on the date of the Agreement equals the Exercise Price paid (and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE. II. Federal Income Tax Consequences and Conditional Section 83(b) Election For Exercise of Incentive Option. If the Purchased Shares are acquired pursuant to the exercise of an Incentive Option, as specified in the Grant Notice, then the following tax principles shall be applicable to the Purchased Shares: (i) For regular tax purposes, no taxable income will be recognized at the time the Option is exercised. (ii) The excess of (a) the Fair Market Value of the Purchased Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Purchased Shares lapse over (b) the Exercise Price paid for the Purchased Shares will be includible in Optionee's taxable income for alternative minimum tax purposes. (iii) If Optionee makes a disqualifying disposition of the Purchased Shares, then Optionee will recognize ordinary income in the year of such disposition equal in amount to the excess of (a) the Fair Market Value of the Purchased Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Purchased Shares lapse over (b) the Exercise Price paid for the Purchased Shares. Any additional gain recognized upon the disqualifying disposition will be either short-term or long-term capital gain depending upon the period for which the Purchased Shares are held prior to the disposition. II-1 (iv) For purposes of the foregoing, the term "forfeiture restrictions" will include the right of the Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right. The term "disqualifying disposition" means any sale or other disposition1 of the Purchased Shares within two (2) years after the Grant Date or within one (1) year after the exercise date of the Option. (v) In the absence of final Treasury Regulations relating to Incentive Options, it is not certain whether Optionee may, in connection with the exercise of the Option for any Purchased Shares at the time subject to forfeiture restrictions, file a protective election under Code Section 83(b) which would limit (a) Optionee's alternative minimum taxable income upon exercise and (b) Optionee's ordinary income upon a disqualifying disposition to the excess of the Fair Market Value of the Purchased Shares on the date the Option is exercised over the Exercise Price paid for the Purchased Shares. Accordingly, such election if properly filed will only be allowed to the extent the final Treasury Regulations permit such a protective election. Page 2 of the attached form for making the election should be filed with any election made in connection with the exercise of an Incentive Option. - -------- 1/ Generally, a disposition of shares purchased under an Incentive Option includes any transfer of legal title, including a transfer by sale, exchange or gift, but does not include a transfer to the Optionee's spouse, a transfer into joint ownership with right of survivorship if Optionee remains one of the joint owners, a pledge, a transfer by bequest or inheritance or certain tax free exchanges permitted under the Code. II-2 SECTION 83(b) ELECTION This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2. (1) The taxpayer who performed the services is: Name: Address: Taxpayer Ident. No.: (2) The property with respect to which the election is being made is _____ shares of the common stock of GraphOn Corporation. (3) The property was issued on _________, 200__ . (4) The taxable year in which the election is being made is the calendar year 200__. (5) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the original purchase price if for any reason taxpayer's service with the issuer terminates. The issuer's repurchase right lapses in a series of installments over a _________-year period ending on ___________ , 200__. (6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $__________ per share. (7) The amount paid for such property is $_________ per share. (8) A copy of this statement was furnished to GraphOn Corporation for whom taxpayer rendered the services underlying the transfer of property. (9) This statement is executed on _____________, 200__. - --------------------- ------------------------------- Spouse (if any) Taxpayer This election must be filed with the Internal Revenue Service Center with which taxpayer files his or her Federal income tax returns and must be made within thirty (30) days after the execution date of the Stock Purchase Agreement. This filing should be made by registered or certified mail, return receipt requested. Optionee must retain two (2) copies of the completed form for filing with his or her Federal and state tax returns for the current tax year and an additional copy for his or her records. The property described in the above Section 83(b) election is comprised of shares of common stock acquired pursuant to the exercise of an incentive stock option under Section 422 of the Internal Revenue Code (the "Code"). Accordingly, it is the intent of the Taxpayer to utilize this election to achieve the following tax results: 1. The purpose of this election is to have the alternative minimum taxable income attributable to the purchased shares measured by the amount by which the fair market value of such shares at the time of their transfer to the Taxpayer exceeds the purchase price paid for the shares. In the absence of this election, such alternative minimum taxable income would be measured by the spread between the fair market value of the purchased shares and the purchase price which exists on the various lapse dates in effect for the forfeiture restrictions applicable to such shares. The election is to be effective to the full extent permitted under the Code. 2. Section 421(a)(1) of the Code expressly excludes from income any excess of the fair market value of the purchased shares over the amount paid for such shares. Accordingly, this election is also intended to be effective in the event there is a "disqualifying disposition" of the shares, within the meaning of Section 421(b) of the Code, which would otherwise render the provisions of Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer hereby elects to have the amount of disqualifying disposition income measured by the excess of the fair market value of the purchased shares on the date of transfer to the Taxpayer over the amount paid for such shares. Since Section 421(a) presently applies to the shares which are the subject of this Section 83(b) election, no taxable income is actually recognized for regular tax purposes at this time, and no income taxes are payable, by the Taxpayer as a result of this election. The election shall be effective to the full extent permitted under the Code. THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS. 2 APPENDIX The following definitions shall be in effect under the Agreement: A. Agreement shall mean this Stock Purchase Agreement. B. Board shall mean the Corporation's Board of Directors. C. Code shall mean the Internal Revenue Code of 1986, as amended. D. Common Stock shall mean the Corporation's common stock. E. Corporate Transaction shall mean either of the following shareholder-approved transactions: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. Corporation shall mean GraphOn Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of GraphOn Corporation which shall by appropriate action adopt the Plan. G. Disposition Notice shall have the meaning assigned to such term in Paragraph E.2. H. Exercise Notice shall have the meaning assigned to such term in Paragraph E.3. I. Exercise Price shall have the meaning assigned to such term in Paragraph A.1. J. Fair Market Value of a share of Common Stock on any relevant date, prior to the initial public offering of the Common Stock, shall be determined by the Plan Administrator after taking into account such factors as it shall deem appropriate. K. First Refusal Right shall mean the right granted to the Corporation in accordance with Article E. L. Grant Date shall have the meaning assigned to such term in Paragraph A.1. M. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to which Optionee has been informed of the basic terms of the Option. N. Incentive Option shall mean an option which satisfies the requirements of Code Section 422. A-1 O. Market Stand-Off shall mean the market stand-off restriction specified in Paragraph C.3. P. 1933 Act shall mean the Securities Act of 1933, as amended. Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. R. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422. S. Option shall have the meaning assigned to such term in Paragraph A.1. T. Option Agreement shall mean all agreements and other documents evidencing the Option. U. Optionee shall mean the person to whom the Option is granted under the Plan. V. Owner shall mean Optionee and all subsequent holders of the Purchased Shares who derive their chain of ownership through a Permitted Transfer from Optionee. W. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. X. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased Shares, provided and only if Optionee obtains the Corporation's prior written consent to such transfer, (ii) a transfer of title to the Purchased Shares effected pursuant to Optionee's will or the laws of intestate succession following Optionee's death or (iii) a transfer to the Corporation in pledge as security for any purchase-money indebtedness incurred by Optionee in connection with the acquisition of the Purchased Shares. Y. Plan shall mean the Corporation's _________________________ Plan. Z. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan. AA. Prior Purchase Agreement shall have the meaning assigned to such term in Paragraph D.4. BB. Purchased Shares shall have the meaning assigned to such term in Paragraph A.1. CC. Recapitalization shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Corporation's outstanding Common Stock as a class without the Corporation's receipt of consideration. DD. Reorganization shall mean any of the following transactions: A-2 (i) a merger or consolidation in which the Corporation is not the surviving entity, (ii) a sale, transfer or other disposition of all or substantially all of the Corporation's assets, (iii) a reverse merger in which the Corporation is the surviving entity but in which the Corporation's outstanding voting securities are transferred in whole or in part to a person or persons different from the persons holding those securities immediately prior to the merger, or (iv) any transaction effected primarily to change the state in which the Corporation is incorporated or to create a holding company structure. EE. Repurchase Right shall mean the right granted to the Corporation in accordance with Article D. FF. SEC shall mean the Securities and Exchange Commission. GG. Service shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or an independent consultant. HH. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. II. Target Shares shall have the meaning assigned to such term in Paragraph E.2. JJ. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service. KK. Unvested Shares shall have the meaning assigned to such term in Paragraph D.1. A-3 EX-99 11 press.txt EXHIBIT A-11 PRESS RELEASE Exhibit (a)(11) Press Release For Immediate Release Company Contact: Company Contact: William Swain, GraphOn Corporation 1.800.GRAPHON Bill.Swain@GraphOn.com GraphOn Corp. Announces Employee Stock Option Exchange Program MORGAN HILL, CA, USA - June 24, 2003 - GraphOn(R) Corporation, (OTCBB: GOJO) (www.graphon.com) a leading developer of business software for remote computing, today announced that its Board of Directors has implemented a stock option exchange program solely designed for GraphOn's employees. The program allows GraphOn's eligible employees to tender their currently outstanding, unexercised options, which have an exercise price of at least $.50 per share, in exchange for grants of new options. The offer will expire on July 23, 2003, unless GraphOn extends the offer. GraphOn expects to grant the new options on the first business day, which is at least six months and one day after the date upon which all options validly tendered for exchange are cancelled. The exercise price of each new option will equal the closing bid price of GraphOn's common stock on the date of grant of the new options. GraphOn's directors, executive officers and consultants are not eligible to participate in this exchange program. "GraphOn's management and Board of Directors recognize that existing employee stock options are priced far above the current price", said GraphOn CEO, Robert Dilworth. "This is a critical time of existence for GraphOn, and it will be important to our survival for all employees to give 110%. We believe that the replacement options, which will be priced at the current market price in six months, will be an added incentive to our employees. In addition, by giving non-cash incentive to our employees at this time, the stock option exchange program will also be in the best interest of our shareholders as we continue to seek ways to reduce our cash expenditures." About GraphOn Corporation For over a decade, GraphOn Corporation has been an innovator and developer of business connectivity software. GraphOn's high performance software instantly provides fast remote access, cross platform capability, and a centralized architecture that delivers a dramatically lower cost of ownership to the user. Using GO-Global(R), any application can be simply and easily Web-enabled without any software modification required, allowing applications to be run from browsers or portals. GraphOn, which markets its solutions through OEM licenses, independent software vendors (ISVs), application service providers (ASPs), value-added resellers (VARs) and system integrators is quoted on the Over The Counter Bulletin Board under the ticker GOJO (OTCBB: GOJO). For more information, please visit the company's Web site at http://www.graphon.com. This press release contains statements that are forward looking as that term is defined by the United States Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties. Actual results will differ due to factors such as shifts in customer demand, product shipment schedules, product mix, competitive products and pricing, technological shifts and other variables. Readers are referred to GraphOn's most recent periodic and other reports filed with the Securities and Exchange Commission. GraphOn and GO-Global are a registered trademarks of GraphOn Corp. All other trademarks belong to their respective owners. # # # -----END PRIVACY-ENHANCED MESSAGE-----